Last time we examined the retail impact of America’s widening income disparity in Value Shopping Still Soars in Strong Economy. But we also need to explore the other end of the socioeconomic spectrum, namely how higher-income consumers are driving demand for premium products.

According to Deloitte, between 2007 and 2017, income growth for U.S. households with mean annual earnings exceeding $100,000 rose a staggering 1,305% more than households earning less than $50,000.1 Howland, Daphne. The wealth gap is a retail problem. Retail Dive. July 1, 2019. As a result, consumers with greater levels of disposable income are more discerning, and Nielsen reports sales of premium products are earning above-average growth in many fast-moving consumer goods (FMCG) categories.2 What Makes A Premium Product? Marketing Charts. January 5, 2017.

Why shoppers are going upscale
In general, premium products offer benefits like superior quality ingredients, innovative features, and the peace of mind that comes from buying trusted brands, so these goods tend to command higher price tags.3 Ibid.  Premium offerings also include purpose-led brands that adapt to consumer demand for more sustainable and ethical products.4 Kynze, Katharine. Meet the ‘Conscious Consumer.’ Euromonitor International. January 21, 2019.

The allure of premium products is their emotional resonance, including consumer benefits of self-esteem and the pride of prestige. In a recent survey, consumers said buying premium products makes them feel good (52%) and confident (50%), and this upscale merchandise conveys to other people that they have good taste (45%) and are successful (41%).5 What Makes A Premium Product? Marketing Charts. January 5, 2017.

Premium products are particularly in demand in the following categories:

  • Grocery: U.S. consumers’ appetite for more expensive food – including organic products – has grown.6 Comen, Evan and Thomas C. Frolich. The price of food: What groceries are driving up food bills? A look at the Top 20. USA Today. July 16, 2018.
    Since 2015, organic sales have grown by more than 15%, according to the Organic Trade Association.7 Wells, Jeff. Private label sales soar, but grocers are off pace. Grocery Dive. November 14, 2018. Within grocery private label, Nielsen found premium product sales accounted for nearly one-third of dollar volume and drive most growth, clocking a rise of 8% in 2017. For instance, private labels account for a significant portion of both Trader Joe’s and Aldi’s assortments, including premium offerings like Aldi’s new private label line of vegan foods.8  Stych, Anne. Premium private-label brand sales are on the rise. Biz Women. August 17, 2018.  In addition, a Progressive Grocer survey found Trader Joe’s was consumers’ top choice for private label brands.9 Tierney, Tammy. Trader Joe’s the top choice for private label brands. Biz Women. October 5, 2018. However, these grocery retailers are the exception, as research firm IRI found that grocers’ store brands may not be connecting with consumers’ desire for premium offerings. These findings suggest there’s room for further innovation in this space.10 Thakker, Krishna. Mass retailer private label sales dominate national brands. Grocery Dive. April 23, 2019.
  • Pet: Americans adore their pets. More households have a pet (70%) than have children (41%) and in one survey 90% of pet owners agreed that “Pets are family.” These pet lovers are more willing to splurge on luxuries like beds, toys, clothing, travel accessories, gifts and grooming services. That’s why pet retailers and suppliers need to consider offering high-quality products in their assortment, as premiumization drives growth, including demand for premium and less processed pet food.11 Danziger, Pamela N. The Pet Retail Market Is Hot And Getting Hotter By The Day. Forbes. October 18, 2018. Natural and grain-free pet foods are growing faster than legacy household brand names, and more consumers search online for raw pet food and breed-specific food. In response, PetSmart has expanded its premium assortments, and premium brands like Wellness, Blue Buffalo, and Nutrish earn first-page Amazon search results in the dog food category.12 citation stuff  
  • Beauty: Upscale beauty is also booming. The U.S. prestige beauty industry reached nearly $19 billion in 2018, a 6% year-over-year sales increase. The skincare category grew by 13% and accounted for 60% of the industry’s total gains. Skincare products reached $5.6 billion in sales with natural skincare accounting for $1.6 billion of annual sales, up 23% since last year.13  U.S. Prestige Beauty Industry Sales Grow 6 Percent in 2018, Reports The NPD Group. NPD. January 29, 2019.
    The emergence of a global trend toward premium green beauty products shows strong demand for safe items that are free from harmful ingredients and luxurious items, including natural and organic products.14 Raising the bar of Clean Beauty. Premium Beauty News. February 26, 2019.  Since the premium beauty segment is hot right now, Amazon just announced plans to make its Whole Foods Market chain a clean beauty destination.15 Singh-Kurtz, Sangeeta. Amazon wants to make Whole Foods a beauty destination. Quartz. July 2, 2019.

Winning retail strategies
As U.S. income distribution shifts, Walmart has masterfully adapted its business strategy to accommodate increased demand for both value and premium offerings. Walmart understands the financial constraints of lower-income shoppers who struggle to make ends meet, so it focuses on delivering affordable products to help these consumers. In recent years, Walmart has also invested in attracting consumers with higher incomes by acquiring brands like Bonobos, collaborating with higher-end brands like Lord & Taylor, and offering the convenience of Jetblack personal shopping service.16 Danziger, Pamela N. Four Demographic Trends That Many Retailers Missed, But Not Walmart. Forbes. May 5, 2019.

In addition, grocery store brands from Aldi, Lidl and Trader Joe’s have demonstrated leadership by offering both affordable products and improved quality to attract both value and premium shoppers.17 Martino, Victor. The six mega-trends that will shape the US food industry in 2018. January 2, 20

Given U.S. consumers’ growing demand for premium (and value) products amid widening income disparity, it’s time for retailers and brands to consider whether to adapt their assortments to accommodate consumers’ evolving needs. Companies in the grocery, pet and beauty categories may find the strongest case for expanding into premium products to capture more disposable income from high-income households. To stand out in this growing retail space, retailers and suppliers selling premium products should emphasize benefits like superior quality, greater variety and products that align with consumers’ values.

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