Prepare For The "Downgrade Economy"
“You’re going to see people not buying Kellogg’s Raisin Bran. You’re going to see them buy another raisin bran that’s a dollar cheaper.”
That’s what President Biden said earlier this week.
Although he was trying to blame big food companies for inflation.
There’s some truth there.
He’s right in one of the fastest growing consumer trends – downgrades.
Consumers are rapidly downgrading the purchases they buy.
Raisin bran is a great example of what’s happening.
A 24 oz. box of Kellogg’s Raisin Bran is available at Walmart (WMT) for 19.5 cents per oz.
An 18.7 oz. box of Walmart’s store brand Great Value is available for 13 cents per oz.
A 39-ounce bag of Malt-O–Meal brand raisin bran is available for 12.8 cents per oz.
And Kroger’s offers a store brand raisin bran for 9.4 cents per oz.
Although we don’t have any specific sales data, it all makes sense.
You may have even done it as well.
Tens of millions of U.S. consumers are downgrading their purchases too.
And one sector has launched a historic expansion to capitalize on this rapid and growing consumer trend.
Downgrade Boom
We’re calling this trend the “Downgrade Economy.”
The sector standing at the heart of it all is the dollar store.
All of the dollar store chains have announced major expansions.
For example,
Dollar Tree (DLTR), the operator of Dollar Trees and Family Dollar store chains, has announced an aggressive expansion in multiple ways.
First, store count.
Earlier this year the company announced it would be building 590 more stores – 190 Dollar Tree stores and 400 Family Dollar stores.
This is in addition to the 15,000 stores.
Second, on the revenue per user.
Dollar Tree saw that it was ramping up the revenue generated by customers in the store.
Aside from initiating a $1.25 price point instead of $1.00, it also announced it would expand its line-up of products in the $3.00 to $5.00 price range.
It’s not alone though.
Five Below (FIVE) is the new “dollar store” player in the market.
Although technically not a dollar store and not as drudgy as a typical aging dollar store (it has fun music!), it is focused on products below $5.
And it has years of growth ahead of it.
And it has picked 2022 as a launching point.
Five Below had a store count of 1190 at the end of 2021.
But in the first earnings conference call of the year, the company detailed aggressive growth plans.
Earlier this year the company announced it plans to triple its size by 2030 by adding at least 2000 stores.
Joel Anderson, CEO of Five Below, said, “We are increasing our store potential in the U.S. from 2,500+ to 3,500+...”
The company also revealed it has plans to open 375 to 400 new stores.
Altogether, that’s a minimum increase of 35% of more stores to its total count.
It’s a sign of strong growth in these segments will only be added to by the “Downgrade Economy.”
Follow The Money
Keep all this in mind when making investment decisions going forward.
Consumers are getting pinched by inflation, high gas prices, and wages that aren’t keeping up.
Over time this will lead to greater shifts to essentials and significant declines in disposable income.
When disposable incomes decline, consumers cut back on luxuries and focus on finding savings where they can.
Today’s example of extreme value stores are happy to help millions of consumers feeling the squeeze find the items they need and want at a better price.
The proof is in their growth plans.
They wouldn’t be making these aggressive plans if things were not going well for them.
The Downgrade Economy will be one of the biggest trends in 2023.
You will not regret getting ahead of it because being behind it could prove costly.
