I was in your shoes a few years back. The two years he played at the less competitive level were the best years ever in terms of his confidence. We had him play town and club during that time and his skills grew tremendously. Yes, during that time his peers appeared to "move ahead" of him, but it put a chip on his shoulder and soon enough word spread about how he was dominating at his level. When Johnny A-Team would talk and brag "I've got 13 goals so far this year", he could reply back with "I've got 30 with six hat-tricks" and the other kids who'd seen him play would back up what he said, it was almost better for his rep than playing on the A team. Four years later, he is on higher level teams now than most of his peers and the gap is widening in terms of skill level. Some of those kids who weren't cut in the past can't even get on a club team now that the kids are older.

I know you were looking for advice on what to do, so here it is: just get your kid on the ice as much as possible (two teams if you can) and let him practice and play. The "system" he's in is far less important than the drive to be better and to prove everyone wrong that he's going to get from going through this experience.

Forget the stickwork. If you're paying for ice, I would suggest you have him working on skating. He can improve his stickwork for free in the driveway.

Yeah focus on skating so he can be another kid flying down the ice that can't score 🙄