The US consumer confidence index has fallen by 4.6 points. Consumer confidence has plummeted for the sixth time in seven months amidst unemployment highs and the looming threat of war. And with consumer spending expected to remain lukewarm, an early recovery looks unlikely.  For the food and drinks industry, an almost complete reversal of strategy is required, abandoning the luxury goods launches of yesteryear for a leaner focus on price and quality. 

The Conference Board has announced that the consumer confidence index plunged to 80.3 in December from a revised 84.9 in November. The data comes on the tail of a higher than expected jump in the US weekly jobless claims during the holiday season. The four-week-moving average of unemployment claims rose to its highest level in 13 weeks.

To further dampen the New Year spirit, US year-over-year retail sales grew a mere 1% in the month ending 28 December, making it the weakest month since September 2001, according to ShopperTrak RCT.  Such developments are hugely influential because consumer spending is a key driver of prosperity, comprising around two-thirds of the entire economy.  Retail analysts have long predicted that only those stores that focus on low prices, such as Wal-Mart and Target, will continue to prosper during the slump.

Recent news has shown that the slow economy has started to affect even these giants – Wal-Mart recently revised its December sales figures down from a 5% rise to one of between 2% to 3%.  While sales at discount chains are slowing down, however, low prices will remain the central concern for several months to come, benefiting both manufacturers and retailers that successfully focus on cost efficiency.  Sales of private label brands in supermarkets, for example, grew by 5.3% between 2000 and 2001, to reach US$40.8bn. While department store and food store sales have languished, dollar stores recorded a 16.5% increase between 2000 and 2001.

A prolonged economic slowdown is a sign for manufacturers and retailers to reposition themselves as providers of low-priced, but high-quality goods.  Instead of a mere labour restructuring, the necessary cost improvements should be achieved through more efficient and timely production and distribution processes to ensure long term successes.

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