• NielsenIQ Sri Lanka Country Director Therica Miyanadeniya on changing consumer patterns due to constricting household budgets

 Sri Lanka has been through several fate-altering situations in the past three years and the most impacted in society are the lower- and middle-income earners. Sri Lanka’s highest food inflation rate was 94.9% in September 2022 as per the Colombo Consumer Price Index (CCPI), and the World Food Bank noted that Sri Lanka is among the top five countries with the highest food price inflation. While there is a marginal reduction in food inflation, even essentials remain way beyond the everyday spending pattern of Sri Lanka citizens.

So where is this consumer pattern heading?

NielsenIQ Sri Lanka Country Director Therica Miyanadeniya joined Kaleidoscope this week to provide some insights based on research conducted by NielsenIQ.

 From the research you have done, what are consumer patterns like?

The consumer landscape and consumer patterns are changing; it’s in a constant state of flux. From the research we conducted, the increased cost of living has become a concern for a majority of consumers who are trying to adapt and survive but continue with their lifestyles.

They have begun looking at ways of cutting down expenditure, concentrating on essentials, reducing indulgences, preferring more affordable options, stretching consumption, and purchasing at multiple outlets for competitive pricing. It’s all about making their budgets stretch. Salaries have not increased but prices have.

One of the questions we ask in our research is what consumers would do with their spare cash and, by the end of 2022, half of the respondents said they did not have spare cash. Overall, the increase in utilities and food are massive concerns.

  Overall, how does food inflation impact consumer spending patterns?

 Along with the escalating food inflation, consumers have been reducing consumption. By the end of last year, a third of the respondents had reduced purchasing even essentials like rice. Food inflation began escalating in March last year and by September (2022) had risen to unimaginable levels.

The increase was not gradual but rather one that galloped upwards in six months. There were price hikes in everything from rice, sugar, proteins, dhal, and vegetables – everyday items people need to survive. Milk powder had one of the highest increases during that time. So with these price hikes, we saw a reduction in spending patterns in all food categories.

 Where do you see a drop in spending and are there increases anywhere?

 By the end of last year, there were declines in consumption in all categories. In Q3 2021, about a third of consumers said they had reduced overall consumption, but one year later, that number of respondents had risen to two-thirds of consumers.

It began with a reduction in purchases of soft drinks and chocolates, but by 2022 had permeated all categories of food items, including rice. The biggest reduction – accounting for more than 70% – has been in fish, meat, fruit, milk powder, milk food drinks, soft drinks, chocolates, and biscuits.

However, reduced consumption may not necessarily mean consumers have stopped purchasing. They are not buying as much as before or have reduced frequency of purchases. This reduction has cascaded to the personal care and home care categories where consumers have reduced usage.

However, the increase we have seen is in mobile data. About a third of consumers have increased data usage. Consumption of mobile data was very high during the pandemic and that trend has remained.

 There was a surge in e-commerce and online purchases during the pandemic. How do you see that panning out?

 Online shopping escalated during the pandemic, but that trend is slowing down. This slowdown was captured in the research for essentials like food, electronics, and personal care items. Consumers prefer physical purchases so they can compare the prices of goods before purchasing. Even the choice of outlets for purchases has expanded as they visit multiple places to gain more competitive pricing.

E-commerce experienced an increase from the same period last year. The total volume of e-commerce transactions in Q2 2021 was 17.6 million transactions, whereas it increased to 21.1 million transactions by Q2 2022. However, this too has reduced slightly from the previous quarters as the year went on.

 What are consumers looking for in this current environment – and how should businesses gear themselves to meet these demands?

 A majority’s budgets, especially those in the middle- to low-income levels, are stretched and they are seeking ways to decrease spending. People are surviving on basic essentials, moving to locally-produced items, downsizing their quantities, and shifting to affordable options. They have stalled material aspirations. They are looking for relief because they need to survive by making their money stretch.

Businesses need to understand this mindset, rethink the way they do business, and cater to a consumer who is trying to survive in a harsh and constricting economic environment. Businesses can introduce more affordable products and pack sizes, alternate to cheaper packaging options, and pass it down to the consumer, keep the brand alive via promotions, and introduce strategic pricing and affordable replacement categories. There is also an opportunity for local brands which can be effectively communicated to instil pride in “buying local”.

 Where do you see consumer trends moving in the medium and short term?

The trends will depend on how the macroeconomic environment changes for better or for worse. We do see inflation decreasing and that includes food inflation. By the end of November 2022, food inflation was down to about 70%, a reduction of 16% from September. While this shows that the increase in prices of goods is slowing down, prices still remain too high for consumers to bear.

However, the looming price hikes for utilities like electricity and water may worsen the situation for consumers, despite the decrease in food inflation.

 Your predictions for 2023 – what are the pitfalls? What are the positives?

 Looking back at the last three years, starting with the Easter bombings, followed by the pandemic, and then the economic crisis, Sri Lanka has been hit by repeated misfortunes. It will be very difficult to predict the course for 2023 because we still live in a state of flux.

However, if inflation continues to decline and the gross domestic product (GDP) begins to pick up from the main contributors of agriculture, industry, and services, there is hope for recovery. The increase in tourist arrivals, remittances, and GDP contribution from the apparel sector look positive for Sri Lanka. It is hoped that these encouraging indicators will have a positive impact on the end consumer.

Also, the Sri Lankan people have weathered much in the past with the 30-year war, insurgencies, and environmental disasters and have grown to be resilient. As a people, we have been able to adapt and continue despite the challenges faced. It is that resilience that will enable the people to survive even in 2023, regardless of what may come their way.

 (Savithri Rodrigo is the host, director, and co-producer of the weekly digital programme ‘Kaleidoscope with Savithri Rodrigo,’ which can be viewed on YouTube, Facebook, Instagram, and LinkedIn. She has over three decades of experience in print, electronic, and social media.)