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Predict And Profit From Demographic Shifts

Ken Gronbach, Profit From Demographic Shifts

With Ken Gronbach, nationally recognized expert in the field of Demography and Generational Marketing and Author of Upside: Profiting from the Profound Demographic Shifts Ahead

Ken Gronbach – Futurist, Demographic Expert, And Author

Kenneth W. Gronbach has studied the impact of demographic shifts over the past three decades and written a book about it, Upside: Profiting from the Profound Demographic Shifts Ahead.  Through his 30 years in advertising and marketing, Ken saw how shifting demographics impacted his clients’ profits and condensed those findings into his new book on how demographics impact our culture, business climate, and economy.

While many have attempted to predict the future, Steve notes that it’s normally a futile exercise.  However, Ken Gronbach believes it’s relatively simple to see the future and predict trends using information that is already at our fingertips.

Effect: The Inexplicable Drop In Japanese Motorcycle Sales In The U.S.

Ken ran an advertising agency with his wife and, inadvertently, got into studying demographics when he saw sales inexplicably plummet at one of his client accounts, American Honda Motorcycle.  Honda was a successful brand in the U.S. and had sold thousands of bikes…until 1986, when sales plummeted at Honda and its competitors—Kawasaki, Suzuki, and Yamaha—and Americans suddenly switched to buying Harley Davidsons.  At the time, Ken and his Japanese peers did all they could to pinpoint the problem, introduced new products and lowered prices, but to no avail!  Then, by 1992, Japanese motorcycle brands saw an 80% drop in sales and closed all their dealerships, without any clarity on why sales tanked.

Cause: The Rise Of Generation X

Later, in 1996, Ken came across a newspaper editorial that indicted Gen-Xers (those born between 1965 and 1984) for not being involved in the political process, not voting at the level of Baby Boomers, and not running for office the way Boomers did when they came on the scene.  That’s when Ken realized that 30 of the 40 people working for him were Gen-Xers, but that none of them appeared to fit that profile of lazy couch potatoes.  So he decided to dig deeper and found that Gen-Xers would never have the same market or political impact as Boomers not because they were lazy, but simply because there were fewer of them in numbers.  And that’s because the fertility rate between 1965 and 1984 was about 30% lower than what it was between 1945 and 1964, which is equivalent to a 30% drop in their overall impact on society.

While that made sense, Steve wondered what all this had to do with Honda’s drop in motorcycle sales.  Ken said Honda was basically selling to Baby Boomer men between the ages of 16 and 24.  Then, when these Boomers turned 25 or so, they sold their bikes and used that money to buy engagement rings and get married.  So Japanese motorcycle companies saw a drop in sales and profits because of a simple demographic shift that was virtually impossible to counter through new product introductions or lower prices.

Today, Boomers’ kids—aka Generation Y, born between 1985 and 2004—are 86 million strong and make up the largest percentage of the U.S. population.  So, Steve deduces, if you want to decide what to sell 20 years from now, all you have to do is study Gen-Y and profit from this demographic shift.  It’s really that simple, says Ken, because people do things at certain ages that are very predictable.

Demographics Could Predict The Next Big Industry For Long-Term Investors

Pivoting the conversation to investing, Steve believes demographics can help investors figure out the industries of the future and tell them where to place their long-term stock bets.  For example, when you apply technology and demographic trends to the auto industry, you see a relentless technological shift towards battery-powered and self-driving cars and a demography of kids who do not have the kind of love affair with cars that preceding generations did.  In fact, half of America’s young adults that can get driver’s licenses simply don’t feel the need to get a license or buy a car and prefer to rely on services such as Uber.  So, investors could focus their bets on industries that are positioned to profit from demographic shifts.

Similarly, Ken foresees Florida’s population growing from 20 million to 30 million as Boomers enter the 70-90 age group and move to warmer climates.  Based on this fairly predictable demographic shift, Ken believes Florida will see strong growth in health care, elder care, and death care (funeral homes, cremations, etc.)

Top Seven Trends That Will Shape The Coming Decade

Next, Ken discusses a few of the top seven trends that, he believes, will shape the coming decade.  The first is “Women on The Move” as they shed traditional mother and housewife roles for professional advancement while young men skip college to take on technical jobs that Baby Boomers are retiring from.  Another big trend is immigration, with Latinos leaving the country in greater numbers than those entering the U.S., more professional women coming into the U.S. from abroad, and more women and non-whites taking on traditionally white jobs such as doctors and lawyers.  Steve relates how one of his clients, a well-respected retired surgeon, did a stunning comparison of the all-white, all-male photograph of his first graduating class from the University of Miami Medical School to 2017’s graduating class which was predominantly non-white, predominantly women, and represented America’s multi-ethnic fabric of immigrants.  So, immigration is definitely reshaping the U.S. in many ways.

Shifting Demography And Its Impact On The Housing Market

Finally, Steve asks Ken to talk about trends in housing.  Ken dives into the numbers and says there are 155 million housing units in the United States for a population of 330 million.  Of this population, the two largest segments live under the same roof—the 80 million Baby Boomers and their 86 million kids who still live with their Boomer parents.  But soon, these kids will move out and want their own homes; but there isn’t enough housing inventory to fulfill this demand, so America will need 25 million new homes in the coming years.  Steve agrees and cites the Real Estate Roundup segment where he often discusses the lack of housing inventory.

In wrapping, Ken believes investors, businesses, and politicians should factor-in the impact of demographic changes to make better long-term decisions and profit from demographic shifts.

Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

Read The Entire Transcript Here

Steve Pomeranz: Many have attempted to predict the future.  And I think you would agree with me that it’s normally a futile exercise—and, at best, highly improbable.  However, my next guest thinks there is a relatively simple way to see the future and to see future trends using information that is already at our fingertips.

His name is Kenneth Gronbach and he’s the author of the book Upside: Profiting from the Profound Demographic Shifts Ahead, and he joins me today.  Hey, Ken, welcome to the show.

Ken Gronbach: Thank you very much for having me.  Delighted.

Steve Pomeranz: So, you’ve been studying this area for many many years; give us some background on your work.

Ken Gronbach: Well, it’s funny how it started. My wife and I had an advertising agency in Middletown, Connecticut, just a regional agency; we did about $40 million.  And we had American Honda Motorcycle as a client and that was a signature client for us.  We had 140 dealers from the tip of Maine to Pittsburgh to Washington DC.

And we sold thousands and thousands and thousands of bikes until 1986.  The bikes came in from Japan; we ran millions of dollars’ worth of advertising, and I get a call from American Honda, and they said, “Ken, did you run the ads?”

Ken Gronbach: And I said, that’s not a good question.

Steve Pomeranz: No.  [LAUGH]

Ken Gronbach: And I said, “Yeah Randy.”  And I said, “What’s up?”  And they said it’s like somebody turned a faucet off.  He said Kawasaki, Suzuki, and Yamaha all have the same problem.  And he said the irony is, is this archaic, historic bike that leaks oil called Harley Davidson is selling like crazy.  What is going on?  We had no idea, so we did a ton of research, they sent in an elite contingent of people from Japan to study our market.  We came out with new products; we lowered the price on signature products and, by 1992, business for the Japanese brands fell 80% and the dealers all closed—all the dealers closed.

And so, 1996, I was reading the blue newspaper here in Connecticut called The Hartford Current.  It was October of the year.  It was Clinton versus Dole.  It was really politically heating up.  And I was reading a full page editorial indictment of Generation X.  Generation X was born 1965 to 1984 and they were saying that Generation X was not involved in the political process; they were not voting at the level of Boomers; they were not running for office the way the Boomers did when the Boomers came on the scene.

Steve Pomeranz: A bunch of lazy couch potatoes.

Ken Gronbach: Lazy slacker couch potatoes—can you imagine?  And I’m thinking to myself I have 40 people working for me and I have 30 Generation Xers and I don’t have any lazy people.  So, I called in a research department. I had a really crack young kid and I said go find out everything about Generation X.  Go find out census data, CIA fact book, Bureau of Labor Statistics, whatever you can find.  And he came back three days later and he said, “Ken, the Generation X will never perform at the level of the Boomers.”  And I said, “They’re lazy.” And he said, “No, there’s fewer of them.”

Ken Gronbach: I said, “What do you mean?”  He said, “They weren’t born.”  And I said, “What do you mean, weren’t born?”  And he said, “The fertility in the United States, when you compare the fertility between 1945 and 64, Baby Boomers to Generation X, 65 to 84,” he said, “our fertility dropped way below replacement level, at one point.”

And he said, “When you compare the peak of the Baby Boomers in 1957— 4,300,000 babies—to the trough of Generation X in 1974 with 3 million babies, that’s like a 30% drop in the size of the market.”

Steve Pomeranz: So what did that mean for the motorcycle company?
That wasn’t their market?  Who were they selling to?

Ken Gronbach: They were selling to men 16 to 24, period.

Steve Pomeranz: Okay.

Ken Gronbach: And they didn’t sell to women.  And once the Baby Boomers exited the very narrow market-

Steve Pomeranz: Yeah, that’s what happens.

Ken Gronbach: …that bought the Japanese bikes, 16 to 24.  Because at 25, they sold the bike, got a ring, got married.

Steve Pomeranz: Yeah.

Ken Gronbach: It was over.

Steve Pomeranz: So, these are the kinds of tectonic shifts that there’s nothing you can really do about.  Like a big tsunami just washes over, and it’s a tide you can’t swim against.

Ken Gronbach: Exactly.

Steve Pomeranz: Is that your point?  So that you started to look at other demographic age groups, and I see in your book that you’ve listed them out, sorting from the GI, the group from, I guess, the early 1900s and through the first World War and so on, and you watch them age, and it goes on and on. I don’t want to get into all of them here—there really isn’t enough time—but there’s this idea that the Baby Boomers were the biggest population generation.

And there was always this idea of the pig going through the python.  So you could watch them on the timeline.  You could watch us (I’m a Baby Boomer) going through the timeline.  Now let’s go up to the current day.  Are the Baby Boomers still the largest population?

Ken Gronbach: No.  Their kids are the largest population.  Generation Y.  That was born in 1985 to 2004, is 86 million.  The Baby Boomers on a good day were just a little over 78 million.  So their kids are the biggest generation.  Essentially what we have right now is what they call a barbell demography.

We have a huge crop of people at one end and a huge crop of people at the other end who just happen to be their kids.  But that’s causing all kinds of issues.

Steve Pomeranz: Well, the thing is, if you’re just looking at population, I mean in a sense if you want to decide what to sell in 20 years from now, you can just look at a particular age group, and say, well, how big is this age group?

Ken Gronbach: Exactly.

Steve Pomeranz: Is it that simple?

Ken Gronbach: It’s ridiculously simple; it’s so simple.  In fact, I almost apologize for it when I speak before big groups.

Steve Pomeranz: [LAUGH] Yeah.

Ken Gronbach: And one of the examples that I use is, you have a hot dog stand.  I was speaking in Florida a couple of days ago, to legislators in Florida, and I said, “You have a hot dog stand at the State Fair, costs you a fortune to be there.”  You don’t know whether to send people home or buy more hot dogs.  And so you call me, and I ask you, I say,” From where your hot dog stand is can you see the parking lot?”  And you say, “yes,” and I say, “Well, describe it to me,” and you tell me it’s filling up with school buses, and I say, “buy more hot dogs.”

That’s all it is, that’s all this is because people do things at certain ages that is very very predictable.

Steve Pomeranz: Yeah, but the guy who’s selling the lawn chairs next to him, he should probably wrap it up and go home.

Ken Gronbach: Well, you can’t believe how little consideration the size of the market is given to marketing and when I speak to people in marketing I say, “what’s the most important question in marketing?”

And they tell me all kinds of weird stuff about products and psychographics and social media, and I say, “No, it’s none of those. It’s the size of your market. How big is it? And is it getting bigger or smaller?”

Steve Pomeranz: I think they probably don’t want to believe it because it just sounds too simple.

Ken Gronbach: It’s math; it’s not even algebra.

Steve Pomeranz: So, this show is oriented in so many different ways, but one way, in particular, is to try to figure out where to be positioned for investing.  And we don’t make any stock recommendations or anything like that, but we want to get a sense of an invested dollar today, so it will be worth more dollars in the future. And demographics seems like a logical place to look.  So, let’s take a look at some of the industries that are going to be affected.  So, I’m looking at some of that material you gave me.

Let’s talk about the auto industry, what’s the effect on that?

Ken Gronbach: With cars that are going to drive themselves, and the bloom is off the rose in the love affair of young people and the automobile.
It’s just not there.  Half the kids that can get driver’s licenses, simply don’t.

Steve Pomeranz: And they don’t want to.  I’ve noticed that.

Ken Gronbach: Why would they care?  Yeah.

Steve Pomeranz: Yeah.  Unbelievable.

Ken Gronbach: My daughter called me up, she and her sister were someplace, and I said, “I’ll come out and get you.”  And they said, “Dad, don’t be silly.  We’ll just call an Uber.”

Steve Pomeranz: You don’t need a car.  You can rent as needed.  So, how’s that going to affect the auto industry then?

Ken Gronbach: Well, they’re selling 18 million cars a year now.  If I was the United States, Ford, Chrysler, Plymouth and Japan and Germany, I’d be concerned. I’d be really concerned.

Steve Pomeranz: An obvious one is the aging Baby Boomer.  You know, there was another demographer years ago that actually, kind of, was the first in my consciousness to talk about demographics.  And he talked about the big, you know, buying spree that Baby Boomers did as they were forming households.

And, then, he was basically saying the graying of the Baby Boomers, they were going to be distributing money from their investments, so it was going to be a bad stock market, and that never really happened.

Ken Gronbach: Exactly.

Steve Pomeranz: I guess it’s more complicated.  You know you’ve got immigrants coming into the country and a younger population.

It’s hard to say, it’s not for me to say, but, with regards to healthcare, that seems like an obvious place to take advantage.

Ken Gronbach: Well, there’s actually three of them. It’s just health care, elder care, and death care.

Steve Pomeranz: Mm-hm.

Ken Gronbach: And I was just speaking in Florida a couple days ago to people who are very, very astute, and I said you have no idea what’s headed your way. I said, “Florida’s population right now is 20 million people, and it’s just going to go to 30, are you ready?”  And they’re not.

Steve Pomeranz: They’re not, yeah.

Ken Gronbach: And they’re not ready for health care. They’re not ready for elder care.  And they’re not ready for death care period; they’re just not ready.

Steve Pomeranz: At some point in time, people who live in northern climes who don’t mind, have lived their lives in the cold, and in their 60s or 70s, they may still stay up there. But, I guess, when they get into their 80s, it’s like enough.

Ken Gronbach: The magic number is 70 to 90.

Steve Pomeranz: 70 to 90, okay.

Ken Gronbach: And the Boomer generation right now is 53 to 72 so they haven’t hit the real retirement age.  That’s the big concern.  The big concern is 70 to 90.  And once the Boomers hit 70 to 90, they are going to change everything elderly.  They are not their parents.  And right now, 70 is the new 50, trust me.

Steve Pomeranz: Well, I guess that’s the problem.  You can get the trend right, but you can get the timing wrong.

Ken Gronbach: That happens all the time.  [LAUGH]

Steve Pomeranz: [LAUGH]

Ken Gronbach: Thank you for reminding me.

Steve Pomeranz: But the thing is that people, in aggregate, continue to age.  So, at some point, the timing is, it’s moving in your direction if you’re looking at the markets in this way.  They’re not getting younger, right?

Ken Gronbach: Yeah.

Steve Pomeranz: So, if your thesis is correct, they can’t stop it.

Ken Gronbach: They can’t stop the end.

Steve Pomeranz: Yeah, yeah.  Now, years ago I had an investment in one of the companies in the death care industry—I’d never heard it phrased that way—we’re talking about funeral home, cremation, and that type of thing.

Ken Gronbach: That’s death care.

Steve Pomeranz: And I was telling you off air that one of the reasons I stopped investing in them was that on the quarterly report, they would discuss the earnings were weak because there was this mild flu season.

And it just struck me as being not something that I wanted to have to monitor on a quarterly basis—how many people were dying. I was like, I’m hoping for a virulent flu season so I can make money, just something wrong with that, you know.

Ken Gronbach: It does seem strange, doesn’t it?  You know, the chief operating officer from one of the major corporations, major association dealing with death care, called me and said, “We have a problem here in our industry.”  And I was thinking what could be worse than death, you know?  And it was simply that 10 years ago, they were conducting and then for the previous 20 years, 3.5 million cremations and funerals.

And now they’re only conducting 2.5 million.  And, I had to point out to them that the criteria for dying was you had to be born.  And most people die between 70 and 80, so if we simply go back 70 to 80 years and take a look at the number of people who are born, I can tell you how many people will die.

Steve Pomeranz: Yeah, yeah.  It is kind of deceptively simple.  My guest is Kenneth Gronbach.  The book is Upside: Profiting from the Profound Demographics Just Ahead, and I think you’re getting an idea of what we’re talking about.  You wrote there are seven top trends that will shape the coming decade.  The first one is “Women on The Move.”  Tell us.

Ken Gronbach: Yeah, well, it’s interesting, I was joking about this. I had a lot of lawyers in the audience yesterday, I said law school right now, 70/30 women. I said you want to give women a hard time, they’ll sue you. And women are 60/40 in college.  And that’s because men, young men, are taking the jobs the Baby Boomers are leaving behind.  And most of those are technical jobs and don’t require a college education.  That just happens to be a trend right now.

Immigration is a big one.  Big, big trend.  We have more Latinos leaving the country now, more Mexicans leaving the country than coming in because we have our own entry level labor force in Generation Y.  So, if Trump builds the wall, he’s actually going to trap them in.

Steve Pomeranz: That’s not the intended effect for him. Here’s a quick story.  So, long term client of mine was a well-respected surgeon; he is retired now in Miami.  And he was in the first graduating class in University of Miami Medical School.  And so, there’s in the alumni book, there was a center spread picture of his class, and it was all male, all white—then on the other side of the page, they had the current graduating class, and it’s pretty much predominately women and of quite a mixed color and mixed cultures too from India and all over the world. I mean to see those side by side is astounding.

Ken Gronbach: It’s a fact of life, and I’ve got to tell you this, it’s a fact of life that people are not coming to terms with, not the people I speak to. I speak 60 times a year to literally thousands of people and most of my audiences, which represent all sectors, are old white men.

And I tell them, you’re not going to be able to live in this white bubble for very much longer, and if you don’t have diversity in this audience that I’m speaking to right now, you’re missing whole markets.

Steve Pomeranz: Yeah, well what about housing?  Because we’ve got about a minute and a half left.

Ken Gronbach: Okay, quick story on that.  There’s 155 million housing units in the United States.  There’s 330 million people when you count the illegals, and I do.  The two largest parts of our population—80 million Baby Boomers and 86 million of their kids still live together.  The kids are moving out.

Steve Pomeranz: Where are they going?

Ken Gronbach: Yeah, well, here’s the deal.  Most of them, and they’re dispersing around the United States.  And, unless these kids are going to sleep on the ground or in tents, we’re 25 million houses short of our need.

Steve Pomeranz: Yeah.

Ken Gronbach: So, housing is going to spike, and it’s going to take the economy with it, and it’s not going to look back for 20 years.

Steve Pomeranz: Yeah, so, I mean we’re experiencing that right now.  We do a weekly segment on real estate on this show.  And the chief discussion is that there’s-

Ken Gronbach: Inventory.

Steve Pomeranz: There’s no inventory.

Ken Gronbach: There is no inventory.

Steve Pomeranz: So, and I know in my area, they’re building nothing but rentals.  I don’t see that problem getting fixed very shortly.  But you’re saying, basically, I guess the builders, the builders know this.  They must be out there going, scratching their heads, why aren’t they building more?

Ken Gronbach: Well, we’re back to not understanding whether I should send people home or buy more hot dogs.  They just simply don’t understand the numbers.  People don’t count people, Steve.  They just don’t.  They count money, they count things, they make business decisions, they make political governmental decisions, but they don’t count people.  Makes me crazy.

Steve Pomeranz: Wow!  Let’s leave it at that, and you can see why I’ve invited Ken to join me today.

Great book, great concept.  His name is Kenneth Gronbach, and the book is Upside: Profiting from the Profound Demographic Shifts Ahead.  Great interview, that was a lot of fun, Ken.  Thanks so much for joining us.

Ken Gronbach: Thank you, my friend.