A brand new world: why millennials matter

Rathbones’ head of equity research Sanjiv Tumkur discusses how the next generation is steering consumer trends, and why millennials matter for investors of all ages.

 

By 6 September 2018

Open any newspaper or magazine and everyone is talking about millennials. It’s the latest buzzword; but why? Why do millennials matter? Millennials and Generation Z each number about 2 billion out of a total population of 7.4 billion and as birth rates fall, they are likely to remain the biggest segment of the global population. They are the future wealthy, and their behaviour is already steering consumer trends. They not only matter for the future of big global brands, but also for advisers running smaller businesses.

Challenge and opportunity

Millennials and Generation Z (roughly spanning those currently in their teens to late-30s) have grown up with the internet and social media as part of their daily lives. Their behaviour and spending patterns are completely different to previous generations and this change creates both challenge and opportunity for brands seeking to engage with them. Companies must be agile and innovative to remain profitable.

The threat is perhaps most acute for long-established brands, whose reputation has been painstakingly nurtured over decades. These brands have historically commanded consistent loyalty and predictable consumer demand, playing a key role in investment portfolios. These enduring brands must adapt in order to appeal to millennials and cannot assume continued loyalty. If established brands fail to hook these important age groups, their financial performance will suffer and any investors holding onto these brands will suffer too.

What matters to millennials?

Every generation tends to react against the attitudes of its parent’s generation and seek to find its own identity, before becoming conventional and settling down to raise children of its own. This will be true for millennials to some extent, but the way they live their lives and spend their money may be more enduring as we have started to see millennials influence their parents and grandparents.

A greater emphasis on social engagement, purpose and values is one of the defining characteristics of millennials and Generation Z. The internet, and globalisation more generally, has heightened awareness of the world and helped to shape the role that this generation wants to play within it. Millennials are conscious of global challenges and feel a collective responsibility to deal with them. Social media plays an important role in the promotion of causes and instigation of change, as we have seen most recently in the  #MeToo and Time’s Up movements. These campaigns are powerful and instigate real change.

Millennials also use their digital savviness to conduct price comparisons and extensive product research before going ahead with a purchase. Value for money is important to this generation and they know exactly how to find the information they want.

There is a greater focus on health and wellness, evident in the higher proportion of young people who are teetotal, vegetarian and vegan. There is also greater desire for instant gratification and convenience in all areas due to the availability and prevalence of mobile internet and apps. These trends are thriving and will continue to.

Experiences, personal development and self-actualisation tend to be more important to millennials than ownership and financial wealth. Experiences which are then catalogued and shared on social media, with users carefully curating their online persona to present the most enviable version of their life. 

The global financial crisis did millennials little favours. Wage growth has been muted and younger consumers on average have lower disposable income than previous generations did at their age. In the UK, that is exacerbated by higher housing costs and rising student debts. In addition, they are more likely to be in less secure forms of employment as the ‘gig’ economy continues to gain importance.

Brand loyalty

Compared with previous generations, brand loyalty can’t be taken for granted when it comes to millennials and Generation Z. They have had increased exposure to alternative options through time spent online, and have a greater willingness to try new brands in the hope of getting better value or a superior customer experience. There is also a growing distrust of big businesses, government and the media as younger consumers prefer to support smaller businesses and brands.

These consumer trends will have a huge impact on brands, and on all businesses hoping to reach the children and grandchildren of their current client base. Those businesses that fail to hook the younger consumers will struggle, while those that capture their imaginations could thrive.

As active investors, we’ll be keeping an eye on the challenges to established brands, looking for the ones that can adapt to this ‘brand new world’ and avoiding those that can’t or won’t. You can read more about that in our next two blogs in this series.