Feedback
Business

For Some U.S. Companies, Millennials Are Giving Way to Generation Z

A small but growing number of companies are starting to target Generation Z - the 69 million high school-age kids and younger who will soon outnumber the millennials before them - and they are not just pitching typical teen products such as acne creams and video games.

Companies ranging from Macy's to Campbell Soup to Charles Schwab are talking to investors about their long-term plans to appeal to the post-millennial generation, a group that Pew Research expects to make up 40 percent of the U.S. workforce by 2020 and ultimately surpass the 75.4 million millennials and 74.9 million baby boomers.

Cans of Campbell's soup line the shelves at a local grocery store in Golden
Cans of Campbell's soup line the shelves at a local grocery store in Golden, Colorado September 11, 2009. REUTERS/Rick Wilking

"It's a matter of survival to get new customers. Today's 18 year old is only 10 years away from being someone with a job and savings and trying to figure out a 401(k) for the first time," said Peter Tuz, portfolio manager of the $84 million Chase Growth Fund. He is shying away from mall-based retailers as teens increasingly shop online.

Gregg Fisher, portfolio manager of the Gerstein Fisher Multi-Factor Growth Equity fund, said that he is buying shares of Google-parent Alphabet and Apple in part because he expects that they will be able to adapt and continue to appeal to Generation Z, a group that he is familiar with by watching the habits of his 13 year old son.

"It's like someone in the U.S. who was investing in China in the early 90s. There's a huge opportunity here for companies that are willing to take some risk and bet on the future," he said.

Generation Z differs from previous generations in that its members have grown up with smartphones and the internet, making them more focused on speed of service. Many also saw their parents struggle during the Great Recession, making them more risk-averse, said Sean Mahoney, editorial director at advertising agency Sparks and Honey.

Ten major companies have specifically addressed Generation Z in earnings calls and investor presentations since the start of the year, according to a Reuters analysis of transcripts, more than the previous number of mentions by all companies over the last six years combined.

Campbell cited Generation Z's focus on transparency as part of its decision to stop opposing labeling for foods containing genetically modified ingredients.

Charles Schwab said that its financial advisers would transition more to becoming "life coaches" rather than making specific investment decisions as technology-trusting Generation Z comes of age and places more faith in computer models than humans when investing.

All of the companies mentioning Generation Z are consumer-focused, suggesting that they are the most pressed to demonstrate to investors that they have a pipeline of future customers, investors say.

Signs of a New Generation

Companies have targeted teens for generations, but what makes this effort different is that the majority of the 10 companies talking about Generation Z now are not traditional teen marketers. They are instead focused on making their products appealing to customers years away from their typical customers.

Food is increasingly viewed as an entertainment choice, with teens spending 20 percent more of their dollars at restaurants than millennials were in 2003, according to a report from Piper Jaffray.

Restaurant-equipment maker Middleby, for instance, told investors that with smartphones and apps such as that of food-delivery service Seamless, Generation Z now expects all restaurants to offer delivery. That should lead to increased demand for its high-speed ovens to handle greater volumes, the company said.

"When I look at the next five to 10 years, Middleby is so well-positioned with this generation," the company's chief executive, Selim Bassoul, told analysts.