Counterparties: The hourglass economy

April 15, 2013

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What’s a retailer to do with a widening gap between rich and poor customers? Starbucks is the latest chain to target America’s “hourglass economy.” By cutting 10% off its grocery-store coffee bags while keeping in place the price hikes it put in place in its cafés last year, Starbucks is simultaneously pushing both its discount and premium products.

It’s a sensible strategy: low-wage occupations have dominated new jobs in the last few years, even as high-earners captured 121% of the income gains of the economic recovery. In 2011, the WSJ noted Procter & Gamble’s “high and low” approach to consumers by promoting its expensive Olay and Gillette products, while introducing a bargain dish soap for the first time in 38 years. The shrinking of the middle class “required us to think differently about our product portfolio and how to please the high-end and lower-end markets,” a P&G executive told the WSJ. “That’s frankly where a lot of the growth is happening.” Frito-Lay, Anheuser-Busch InBev, and ConAgra have also developed or expanded their offerings at both ends of their product lineups, according to LEK Consulting.

This is a strategy recently-ousted JC Penney CEO Ron Johnson would have been wise to pay attention to, writes Rita McGrath. Johnson’s goal of turning the retailer into “Bloomingdale’s for the mass market” was a non-starter “because the mass market is gone.”

Which isn’t to say this approach works for everyone. After trying to go high end with smoothies and salads, McDonald’s has now reverted to emphasizing its Dollar Menu more aggressively this year after promotions of its more expensive menu items failed to  “resonat[e] with consumers,” in the words of CEO Don Thompson. – Peter Rudegeair

On to today’s links:

EU Mess
Can we all admit the Euro is an economic failure? – Tim Duy

Why you should be thrilled by the collapse of the price of gold – Joe Weisenthal

Warren Buffet on gold: bandwagon investors  “create their own truth – for a while” – Ivan Hoff
Five reasons that might explain the yellow metal’s price collapse – Matt Phillips

Corporate governance runs on a “system unworthy of Soviet-era sham democracies” – James Stewart

Elizabeth Warren’s statistically savvy dismantling of regulators’ $9.3 billion foreclosure settlement – Lisa Pollock
More people doesn’t necessarily equal higher land prices – Noah Smith

New Normal
The terrifying, self-perpetuating reality of long-term unemployment – Matthew O’Brien
“If you’ve been out of work for more than six months, you’re essentially unemployable” – Brad Plumer

How to cash in on your time in the Obama administration: tastefully – Noam Scheiber

Goldman Sachs may have just inadvertently strengthened the case for breaking up the big banks – Simon Johnson
The full GS research report on the Brown-Vitter bill – Hamilton Place Strategies
Already overpaid board members get a $75,000 pay raise – DealBook

Dish Network offers to buy Sprint for $25.5 billion in cash – Reuters
A $13 billion merger would create the biggest company in the field of genetic testing – Reuters

A lesson in Finnish bus lines and creativity – Guardian

Activist investors promote destructive, short-term thinking – Jill Priluck

The top 25 hedge fund managers earned a total of $14 billion in 2012 – Institutional Investor

Citi reports 31% increase in quarterly profit – Reuters

“Income is the new Facebook” – Stephen Gandel

And, of course, there are many more links at Counterparties.

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