America’s middle-market consumers are trading up to higher levels of quality and taste. The members of the 47 million households that constitute the middle market (those earning $50,000 and above in annual income) are broadly educated and well traveled as never before, and they have around $3.5 trillion of disposable income.1 As a result, they are willing to pay premiums of 20% to 200% for the kinds of well-designed, well-engineered, and well-crafted goods—often possessing the artisanal touches of traditional luxury goods—not before found in the mass middle market. Most important, even when they address basic necessities, such goods evoke and engage consumers’ emotions while feeding their aspirations for a better life. We call these new-luxury goods. Unlike old-luxury goods, they can generate high volumes despite their relatively high prices.
Businesses offer a wide variety of new-luxury products and services—including automobiles; home furnishings; appliances; consumer electronics; shoes and other apparel; food; health, personal, and pet care; sports equipment; toys; and beer, wine, and spirits. Companies at the new-luxury forefront are achieving levels of profitability and growth beyond the reach of their conventional competitors.
Consider, for example, Panera Bread, a bakery-café chain that offers freshly made sandwiches with seasonal ingredients. Panera customers line up to spend around $6 for a chicken panini and share a meal with friends and colleagues in pleasant, comfortable surroundings. For the first three quarters of 2002, Panera’s sales were 41% higher than they were for the same period of 2001. By contrast, sales at Burger King—where consumers pay about $3 for a chicken sandwich and sit on hard plastic chairs—were flat. At $750 million, Panera’s projected U.S. sales for 2002 are only a fraction of Burger King’s $8.5 billion in U.S. sales that year, yet its market capitalization is now about two-thirds of the $1.5 billion that Burger King was sold for that year.