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December 12, 2015Hershey’s CEO recently told investors that its chocolate sales were soft. Caused by “consumer bifurcation,” his problem was that Hershey had been focusing on a shrinking middle when higher income buyers were driving a premium market and those on the lower end wanted value. Facing a similar plight, the CEO of Campbell Soup Company blamed a smaller middle class in developed markets.
Where are we going? To figuring out what has happened to the middle class.
Looking Up and Down the Income Ladder
First we should clarify. We do not really mean the middle class. Rather like “Goldilocks and the Three Bears,” most of us like to say that we are not too rich and not too poor but in the middle class. Defined by more than dollars, the middle class refers to our values, our aspirations and our education. Ask most people if they are in the middle class and they will say yes.
The Pew Study
The source of Hershey’s and Campbell’s problems are middle income households. More precisely, looking at a three person household in 2014, the middle income range of the U.S. population falls between $42,000 and $126,000 (in 2014 dollars). In a report from Pew, we can find out where they have gone.
No longer an economic majority, middle income households earned 43 percent of all U.S. income in 2014. Losing also their population dominance, those with a middle income total 120.8 million while the upper and lower income population is 121.3 million.
However, a closer look at the income ladder reveals some demographic winners and losers. The three groups displaying the most upward mobility were 1) aged 65 and older, 2) married and 3) black. But the 65 and older group also experienced downward mobility.
Perhaps though, the race and ethnicity graphic below is most revealing. Moving beyond its title, it lets us compare the income trends for each group.
Our Bottom Line: Middle Income Americans
So, when retailers ask where the middle income American has gone, like Hershey’s CEO, they can look up or down the rungs of the income ladder.
