Please click here to read the full analysis.
Scenario planning needs to focus on very different potential outcomes
Demographic changes are completely transforming demand patterns. This creates major new opportunities for those companies prepared to rise to the challenge.
Two major shifts are taking place which raise questions about how companies will make money in the future:
- Demand is now declining in many key end-user markets such as construction, autos and electronics
- And there are important questions about the outlook for China’s economy
The key issue is that the end of the central banks’ “free money policies” is causing consumers to look for more sustainable and affordable solutions.
This highlights the need for companies and investors to revisit previously successful ‘business as usual’ product-based strategies.
Becoming more service-led will provide critical competitive advantage for those businesses which want to become a future winner in today’s New Normal.
POPULATION GROWTH IS NOW MAINLY DUE TO LONGER LIFE EXPECTANCY
We have all been used to the idea that population growth comes from babies being born – and this used to be true during the post-war Baby Boom (born 1946-70):
- The Wealth Creator 25-54 cohort were the largest and wealthiest generation in history
- They created a golden age for consumer demand in terms of growth and profit
The reason is that consumption is 60-70% of Western GDP. And it is turbocharged as people enter the Wealth Creator cohort. They have more money to spend as their careers develop. And their needs increase as they often settle down and have children.
The Boomers essentially created a Baby Boomer Super Cycle in terms of demand. But by next year, the entire Baby Boomer generation will have joined the Perennials 55+ cohort.
Perennials already own most of what they need, and their incomes normally decline as they enter retirement. Inevitably, therefore, average consumer spend per annum falls dramatically between ages 55-75+. In the US, it falls from around $91k to $51k.
THE END OF ‘BUSINESS AS USUAL’ STRATEGIES
Markets are polarising as the boomer supercycle ends – the highly profitable middle market is disappearing
One key issue, as the chart suggests, is that the rise of the Perennials is already upending consumer markets:
- The Boomer Super Cycle created a new middle market segment focused on the concept of “affordable luxury”
- But today, the major market opportunity is likely to be in the value sector, with low delivered cost being the key competitive advantage
The rich will always be interested in luxury, but their numbers are tiny versus the opportunity with value-focused buyers.
As the scenario planning chart suggests, this means we have to be much more creative when we discuss future growth strategies.
Importantly also, this suggests sustainability and durability will be key to success with the Perennials in consumer goods, electronics and even autos.
MANY INDUSTRIES NOW FACE A NEED FOR REINVENTION
US househlod consumer spending by age group and category, 2022
This analysis suggests we need to look at a new option of Reinvention if we want to return to a world of healthy operating rates and margins.
Today’s demographic changes have created a completely new market opportunity with the rise of the Perennials:
- They are the main source of population growth in the world and the major economies
- And their needs are currently hopelessly under-served
A service orientation that focuses on being demand-led and understanding buying needs is therefore likely to be most successful, as the examples of LyondellBasell and Arkema confirm:
- LyondellBasell is reinventing its portfolio via a focus on plastics recycling
- Arkema is successfully developing a solution-orientated portfolio.
They are good examples of how far-sighted companies around the world are already adapting their strategies for success in today’s New Normal.
To read the full version of this analysis, please click here.