The US’ NLIHC says that workers need three times the minimum wage to afford basic rent; the gap between incomes and housing costs having grown in every state. With the economy not expected to recover to previous peaks, middle-income households might soon feel the pinch and have to curb spending. CPG manufacturers must respond appropriately, through greater offerings of more affordable goods through cheaper channels.
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Each year, the National Low Income Housing Coalition (NLIHC) publishes a report on the affordability of housing to low income Americans. This year’s report finds that the number of states where people need an income equivalent to at least two full-time minimum wage jobs to afford modest rental housing has increased from 27 to 33 in the last year.
Worse, this peak in housing prices has collided with the contraction in the economy: 2001 real term growth was down tenfold at just 0.3%. Unemployment was 4.8%, up by a third following eight years of decline.
Consumer expenditure has fallen alongside the slowdown – growth almost halved from 4.4% in 2000 to 2.5% in 2001. Despite improved conditions in Q1 2002, concerns over economic and political uncertainties still dampen spending. According to a survey this month from Information Resources, 26% of consumers are spending less after the 11 September tragedy.
Several manufacturers have adjusted to falling wealth by focusing less on luxury offerings. So advertisements for luxury Lexus cars continue – but the pitch is for “pre-owned” models, not the latest 2003 cars. Other examples follow – newspaper’s travel section that is full with phrases such “great deals”, “one night free” and “wonderful savings.”
And while department store and food store sales have languished, dollar stores have recorded a 16.5% increase between 2000 and 2001. ACNielsen found that the average customers visited dollar stores 11 times in 2001 versus nine visits in 2000. IRI, meanwhile, found that trips per household to food and drug stores in H1 2002 fell 4.4% and 3.8% respectively.
With consumers clearly looking for cheaper items to adjust to the sagging economy, it is time for CPG manufacturers to supplement their luxury offerings with increased focus on discount products and channels, such as private label or distribution to dollar stores.
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