Consumer Republic

There was a time when trips to my hometown of St. Louis were trips to the consumer boonies, where the natives wrinkled their noses at sushi and fly-over land tastes prevailed.

Well, times have changed. As I’ve discovered in recent visits, everything is up-to-date in St. Louis. In this sleepy burg by the Mississippi, one can find all the cosmopolitan lifestyle pleasures of affluent Gotham, albeit on a smaller scale. Its residents are well-traveled, their palates are demanding, and their quality standards are high. St. Louis 2002 is home to neo-Asian restaurants, wine-tasting classes, a world-class modern art collection housed in a world-class building and the St. Louis Bread Co., the mother brand of the rapidly expanding Panera Bread chain, purveyor of the $6 sandwich.

With its premium ingredients and premium price, that sandwich, says a soon-to-be-released study from the Boston Consulting Group, is the perfect emblem of the “democratization of luxury,” a phenomenon that has transformed middle-class taste in St. Louis and beyond. “The New Luxury: Why the Middle Market American Consumer Wants Premium Goods and How Companies Create Them” documents the ways in which consumers are trading up in what they eat and drink, what they drive and where they live. And woe to the marketer who tries to sell mass-produced white-bread products to consumers who hunger to feed their souls.

A lot of big socioeconomic trends are reflected in Panera’s $6 Frontega chicken sandwich. It owes its Euro-speak name and rosemary-and-onion focaccia bread to 40 years of steady growth in foreign travel among Americans, which has created a more cosmopolitan consumer. The appeal of its “smoked, pulled white-meat chicken” can be traced to the rising educational level of Americans and, consequently, their rising expectations of quality. And for its price point, Panera can largely thank working women, who have driven the rise in family income during the past three decades.

The divorce rate, the postponement of marriage and children, job insecurity and the time squeeze also fuel the need of working stiffs to treat themselves to a better-than-average meal come lunchtime. Thanks to these social forces, the middle class is trading up from special sauce to chipotle mayonnaise and paying a 50-100 percent premium for it.

“This is not rich people deciding to do this,” says Michael Silverstein, one of the study’s co-authors. “This is what white collar, blue collar, truck drivers and secretaries want. They’re getting exposure to quality, and they’re looking at the price and they’re saying, ‘I can afford that.’ ”

The new-luxury trend is not new. “The perfect time to get into the new-luxury business was the mid-’80s,” says Silverstein. That’s what Starbucks and Absolut did, as well as BMW, whose Beemer-for-the-masses models priced at less than $40,000 now account for 55 percent of sales. The tame inflation rates and real growth in income during the ’90s reinforced the trend toward voluntary inflation of new-luxury spending. And because it is driven by basic shifts in educational levels, income levels and living patterns, it should continue to spread to new categories, recessions and terrorist attacks be damned. “The new-luxury movement is un stoppable,” says Silverstein.

How unstoppable? One of the curiosities of the economic slowdown has been the tenacity of the consumer, who has kept on shopping in the face of every kind of uncertainty. The report cites brands such as Ferrero Rocher and Perugina chocolates, which grew at double the rate of mass brands between 1999 and 2001, thanks in part to stressed-out consumers who buy the stuff to be nice to themselves. During the same period, volume sales of super-premium vodkas such as Grey Goose and Belvedere grew at 52 percent a year. Meanwhile, Absolut, which once defined premium vodka, finds itself a little too “mass” to satisfy the consumer’s need to brand himself before his drinking buddies. Thanks to its success, Absolut finds itself in the most dangerous place to be in the new-luxury economy: the middle.

New-luxury consumers account for a lot of this recession resistance. They are paying premium prices not just for material things (which the old mass market supplied very efficiently) but for emotional ones: comfort, adventure, identity, esthetic pleasure. And because they are spiritual in nature, such purchases can be justified whatever the material circumstances. Who would have guessed 50 years ago that the real economic bonanza would come not from consumer materialism but from a quest for the things money can’t buy?