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As America’s Middle Class Shrinks, P&G Adopts “Hourglass” Strategy

·Editor in Chief

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The shrinking of America's middle class and rise of a two-class society has been well documented. (See: America's Middle Class Crisis: The Sobering Facts)

The statistics are grim but bear repeating:

  • The top 1% of Americans control nearly a quarter of all the country's income, the highest share controlled by the top 1% since 1928, according to The Stanford Center for the Study of Poverty and Inequality.

  • The U.S. ranks #3 among all the advanced economies in the amount of income inequality.

  • In 2007, the top 10% of American earners pulled in 49.7% of total wages, the highest since 1917.

  • The top 5% of Americans by income account for 37% of all consumer outlays, according to Citigroup.

  • On Tuesday, the Census Bureau reported the U.S. poverty rate rose to 15.1% in 2010, up from 14.3% in 2009 and its highest level since 1993. In addition, real median household income fell 2.3% last year to $49,445.

I could go on, but you get the picture and sometimes statistics can't tell the whole story. This week brought a different kind of evidence that brings home (literally and figuratively) the trend of America becoming a two-class society. Among other companies, Procter & Gamble is adopting an "hourglass" marketing strategy, with products aimed at high- and low-end consumers, but not much in the middle.

In a marked shift from P&G's historic focus on middle-class households, "the world's largest maker of consumer products is now betting that the squeeze on middle America will be long lasting," The WSJ reports.

This is no small matter or a minor change by a second-tier firm: P&G has at least one product in 98% of U.S. households, The WSJ reports. U.S. sales totaled about $30.5 billion in its latest fiscal year, about 37% of its total, while accounting for 60% of the firm's $11.8 billion profits.

The company is engaging in what The WSJ calls a "fundamental change" in how it markets products in the U.S. "We're going to do this both by tiering up in terms of value as well as tiering down our portfolio down," CEO Robert McDonald says.

As noted above, P&G isn't the only company coming to the same conclusion: Heinz is following a similar strategy to P&G while Saks is focusing its attention more on high-end consumer vs. 'aspirational' shoppers.

Meanwhile, Citigroup has created an index of 25 stocks designed to profit on this hourglass theme, including Estee Lauder and Saks as the top and Family Dollar Stores and its ilk at the bottom. The strategy has returned 56.5% since its inception in December 2009 vs. 11% for the Dow, another statistic reflecting the hollowing out of America's middle class.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com