The K-Shaped Economy Explained

I’ve often discussed the concept of a K-Shaped Economy. So, let’s dive into that.

K Street Dominating DC and Its Impact

You might wonder, what exactly is a K-Shaped Economy?

It refers to a situation where different sectors of the economy move in opposite directions simultaneously. One part—what could be called the upper arm of the K—sees wealth increase due to climbing asset values or incomes. Meanwhile, the lower arm feels heightened financial pressure from declining purchasing power and stagnant or reduced wages.

Wealth Gap in Focus

I’ve also written a fair bit about the Wealth Gap. Essentially, it represents the divide between the two arms of this K-Shaped Economy.

This gap seems to widen even more as economic conditions deteriorate. As it does, an increasing number of individuals from the upper arm find themselves slipping down to the lower arm.

It’s a troubling trend; as this Wealth Gap erodes the middle class, more former middle-class individuals are being drawn into the significantly larger lower arm.

Fewer people are able to stay on the upper arm, and it appears that those who do are having a tougher time remaining there.

Kroger’s Response to Economic Trends

Kroger, the largest traditional supermarket chain in the U.S., recently illustrated this K-Shaped Wealth Gap during its Wall Street earnings call on September 11.

The company noted its intensified focus on attracting price-conscious shoppers, emphasizing value and lower prices in its stores. For instance, they began offering additional gas savings in March and revamped their loyalty program to feature more straightforward deals. Kroger’s CEO, Greg Foran, confirmed in May their intention to lower prices on thousands of items.

“The reality is, the basket has to come down,” Foran stated. He emphasized that this needed to extend across a wide range of products in a way that makes sense to customers.

Foran is clearly savvy; he recognizes the widening K-Shaped Wealth Gap. He’s analyzing the customer demographics and adapting to serve the growing population from the lower arm.

He sees this disparity firsthand in his stores:

“The retailer also added over 1 million high-income households in the past year while losing about 700,000 lower-income households.”

That’s a significant shift—1 million high-income customers who not long ago frequented stores like Whole Foods and Trader Joe’s have now moved down to Kroger.

But don’t just take my word for it. Veteran economic writer Jeff D. Opdyke shared insights in a video showcasing this tangible instance of the K-Shaped Wealth Gap.

The Alarming Trends

As dire as all of this seems, what’s even more concerning is the drop of those 700,000 lower-income customers from Kroger. Where are these individuals sourcing their food now? Everyone has to eat, after all.

This situation highlights the grim reality of being on the lower arm of the K-Shaped economy—a constant, troubling slide further down.

Seton Motley is a consultant and the founder of an organization focused on advocating for smaller government. This commentary was initially shared on the author’s Substack page.