3 Companies Facing Demographic Challenges
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Different generations have different preferences. And, as people age, new companies come along to take advantage of shifting consumer behavior.
Investors often think about how to play demographic trends. Stocks for the retirement of the Baby Boomers. Companies that are poised to benefit from the rise of the millennial generation. But what about the other side? As generations age, their spending patterns change, and their willingness to purchase particular goods declines.
Three companies stand out as being exposed to a demographic shift. While all three seem to be taking corrective actions, investors should be aware of the challenges they face.
Harley Davidson sells bikes to middle-aged, white men
It’s pretty simple: Harley Davidson (NYSE: HOG) primarily sells its bikes to white men between the ages of 35 and 74. Although the Harley brand remains a legendary icon of American culture, its bikes appeal to a specific subset of the population -- one that is in decline.
Consumers under 35 generally can’t afford to purchase Harley’s bikes, instead favoring Japanese equivalents that are often only a fraction of the price. The cheapest 2013 Harley starts around $8,000 -- Kawasaki sells Ninjas for half that.
Harley Davidson has a page on its investor website dedicated to explaining the company’s demographics. Harley Davidson argues that it’s taking aggressive steps to push into new markets (18-34, non-whites), and that it has become the number one seller of new bikes to these groups.
However, the company still sells primarily to its core customer. Moreover, the company’s Japanese competitors should get a boost from the recent weakening of the yen.
Millennials don't care for McDonald’s food
Millennials don't care for McDonald’s (NYSE: MCD) food. American consumers aged 18 to 32 still like fast food, but prefer other establishments, such as Subway, Chipotle and Taco Bell.
McDonald’s management is aware of this. In an internal memo, McDonald’s revealed that it doesn't rank in millennials’ top 10, unlike other demographic groups that continue to favor the Big Mac-maker.
The youngest consumers, today’s children, still like McDonald’s. But one can imagine that in time, as millennials age and become parents, McDonald’s could face a negative, cascading effect.
To rectify this situation, McDonald’s has been altering its menu, adding new items and shifting its serving times. In particular, McDonald’s has pushed the McWrap -- a premium, customizable snack wrap management has called a “Subway Buster.”
The company has also started serving some breakfast items on its late night menu, and has hinted that it could start serving breakfast 24 hours a day -- a subtle outreach to millennial consumers, who are often viewed as wanting more options.
New beer drinkers are increasingly turning towards craft beer
The old jokes about bad American beer no longer apply. In last decade, the US has seen an explosion in the popularity of craft beer, as the number of breweries has grown to levels not seen since the 1880s.
Who’s drinking all that craft beer? New beer drinkers.
About a third of all craft beer sales come from people between the ages of 25 and 34, and the heaviest craft beer drinkers in this group don’t touch mainstream beers at all.
This is trend is obviously a threat to the big beer giants like Anheuser-Busch InBev (NYSE: BUD), a company that primarily relies on just a handful of mass-produced beers.
Anheuser-Busch has fired back. The company launched Bud Light Platinum early last year, a higher quality version of its Bud Light intended to appeal to craft beer drinkers. This year, it rolled out Budweiser Black Crown -- a more upscale version of Budweiser.
However, reception has been fairly poor. After an initially positive reception, sales began to slow, and Businessweek wrote “not even Justin Timberlake can save Bud Light Platinum.”
Investing in demographic trends
Companies that sell to consumers need to keep up with their preferences. Harley Davidson, McDonald’s, and Anheuser-Busch are all facing demographic problems, to some extent.
Although these trends may not cripple their businesses overnight, investors interested in these companies should be aware of the challenges they face.
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Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!