This is a subject that will inevitably scrape a political nerve or two, but it is vital for all consumer packaged goods (CPG) practitioners and suppliers to understand this basic premise: The disproportionate gains in income by the highest-income groups is the primary reason why CPG sales growth is lagging GDP growth for the past five years.

Kurt Jetta, TABS Analytics

To avoid getting too enmeshed in political controversy, I am mindful of the famous Jack Webb admonition on “Dragnet” of sticking “just to the facts.” So let’s start with what we know:

• According to Pew Research Center and the Bureau of Labor Statistics (BLS), income growth in the U.S. — and likely Western economies in general — has been isolated to the top 10% of income earners.

• Similarly, income growth for the remaining 90% has lagged overall GDP.

• According to BLS and TABS Analytics’ own research, the marginal spending against CPG products is lowest for people at the high end of the income ­spectrum.

• Retail sales growth for the $800 billion CPG industry has lagged behind consumption growth for the last five years.

To better understand marginal spending by income, for every extra dollar of income for a household making $55,000 per year (the national median) roughly eight cents will go toward CPG products. That number declines to only five cents (a 38% decline) for a household making $180,000 per year.

According to Nielsen, CPG sales have grown less than 2% annually in the mass market over the past five years, while overall consumption for all goods has grown closer to 4% annually. Lest you think that the difference is accounted for by the shift to e-commerce and specialty outlets, think again. BLS data shows that food-at-home growth still hovers at only around 2%, about one-half of the growth in national retail spending.

In the course of studying economics, we learn that there is a certain economic inevitability to income growth being created disproportionately to the high earners in a deregulated marketplace. The upper 10% is where the entrepreneurs that create technological innovation and economic value reside.

Economic laws are all well and good in theory, but we see the costs of these trends manifest themselves in any number of negative ways in our political and economic lives. For CPG, as long as household incomes below the top 10% continue to lose ground, our industry will have an enormous burden in delivering growth more in line with the historical growth rates of the ’80s, ’90s and early 2000s.

This is more than an academic issue, it has management implications for all of us. First, we need to understand — again based on the laws of economics — that with the current set of consumer preferences and stagnant wages, lower average prices are necessary to stimulate demand. The most effective and profitable way to achieve this is with more and deeper promotions, not fewer and more modest discounts. There is a path to profitability with deep discounting, but it is imperative that retailers and suppliers understand that both parties need to make money and compromise on the allocation of the consumer subsidy.

Second, the industry needs to focus on the concept of “retail populism.” That is, more attention needs to be paid to the needs and desires of the masses, not that narrow niche of Millennial, upscale consumers that the media and industry are so obsessed with talking about. Applying marketing dollars against the 90% of consumers that are more predisposed to spend in our industry is a much better spend than pandering to the top 10% of earners.

Finally, in the spirit of retail populism, we need to get out of our cultural bubble and stop projecting our spending habits and product preferences onto the mass of consumers. What we are currently calling “emerging trends” — organics, e-commerce, gluten-free, etc. — are not actually emerging trends; they are niche activities pursued by a small segment of predominantly upscale ­consumers.

TABS has studied the issue of organics for packaged foods and personal care products. The percentage of U.S. adults saying they buy organics regularly has never exceeded 11%. That is roughly the same percentage as adults who shop online regularly. In fact, e-commerce’s share of CPG is less than 2%, according to multiple sources, including our own research at TABS Analytics. While gluten-free receives quite a bit of press as a major health concern, our research shows that a gluten-free “benefit” consistently ranks dead last in 15 “better for you” concepts that we have tested across multiple categories.

Uneven income distribution is shaping industry demand; it is shaping our own perceptions of what we think we know about consumers. Most of us in this industry don’t regularly associate with a non-relative making less than $55,000 per year, and we don’t converse with the one-half of the population that is budget squeezed and has no interest in organics, gluten-free and online shopping.

Bob Hoffman, the ad contrarian, once wrote that the Department of Motor Vehicles is the best place to get the essence of the spectrum of American consumers. Maybe we can start there, and see what 15 minutes of learning about the true mass market consumer will do for our view of our industry, and the world in general.

Kurt Jetta is the founder and chief executive officer of TABS Analytics. He can be contacted at [email protected].