Milos and I had an interesting conversation last night about "counter-cyclical" industries in an economic recession. We discussed business-to-business (B2B) companies in healthcare and manufacturing industries, business-to-government (B2G) companies in defense and infrastructure industries, and TARP recipients. How did we forget about "Something Posing As Meat"? That's right, I am talking about Spam.
Yesterday, the New York Times featured a story about Hormel's recent increase in Spam production. As Greg Mankiw notes, Spam is a classic example of an inferior good: a product for which demand rises when income falls. Milos is no stranger to the trend of Spamonomics, spotting it early in June 2008. So, should you start investing in the likes of Hormel, Kraft, Costco, and Wal-Mart? Maybe, but you should keep in mind that even inferior goods can face formidable market competition, especially from generic brands. For example, should the economic recession deepen, Hormel-brand Spam would likely lose market share to even lower-priced store-brand alternatives. During a prolonged period of negative income elasticity, the willingness to pay for Hormel-brand Spam vs. store-brand alternatives would likely decrease via a substitution effect. Suffice to say that having now exhausted my limited knowledge of economics (with significant tutoring from Mr. Sugovic), it will be interesting to see what market winners and losers emerge in the coming months.
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I find the decline in sock sales worrisome. Combining that with the Zappos job cuts, I am forced to conclude we will all be penniless and completely barefoot, in addition to subsisting on Spam and frozen pot pies (presumably microwaveable, as I doubt anyone will want to splash out to run their oven for an hour).
ReplyDeleteHaha. You paint an amusing picture. I would add the prediction that Pabst Blue Ribbon will post record sales, challenging Miller High Life for the "champagne of beers" title. By the way, I enjoy your blog very much.
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