he Sri Lankan economy has been through waves of challenges over the past few years, resulting in a constantly evolving consumer landscape. As a result of rising prices and tightening wallets, people have adopted a different set of shopping behaviours, lifestyles, choices, spending patterns, etc. to cope with the current situation.
Even though there is a glimmer of hope, the downturn continues to hit in 2024 as well due to the increasing expenditure resulting from ongoing price and tax hikes, etc. Therefore, Sparkwinn Research conducted a consumer sentiment study to understand the ongoing changes in the consumer landscape, especially in terms of whether consumers react defensively or respond well to the situation at hand. The Sparkwinn study highlights consumers’ focus on ‘putting food on the table’ while preserving financial resources; saving money is top of mind for consumers. They shop with clear plans to stay focused as they navigate the diverse shopping environments.
Study Methodology
300 respondents from three income categories in Sri Lanka—lower middle-class (monthly income between Rs. 50,000 and Rs. 100,000), upper-middle-class (monthly income between Rs. 101,000 and Rs. 200,000), and high-class (earning above Rs. 201,000 monthly)—were surveyed to gather data for the study. Interviews were carried out in randomly selected regions of the districts of Colombo, Kandy, and Galle during the second and third week of March using a door-to-door method.
- Brand Loyalty Erodes among Middle-Income Earners
Middle-income earners are less loyal to brands and looking for opportunities to save. There has been a notable trend of brand shifting, where 28% of lower-income earners and 24% of upper-middle-income earners have shifted their brand preferences during this period. This shift is largely driven by the inability to afford leading brands due to their high prices. As a result, consumers actively seek cheaper alternatives to maintain their purchasing power.
Weakened brand power often involves transitioning from established brands to cheaper, lesser-known alternatives or even opting for unbranded, loose products. One of the participants in the survey mentioned, “Previously, we used to buy branded spices such as chilli powder, pepper powder, and curry powder. However, I’ve discovered that purchasing loose spices from a wholesale shop is more economical compared to branded ones.”
- Stretching the Rupee as Far as Possible
Consumers in Sri Lanka are demonstrating unique purchasing behaviours in response to the economic crisis. Those who previously purchased groceries on a monthly basis are now shopping weekly or twice a month. This includes staples like rice, which used to be purchased every month but are now being bought more frequently.
A respondent mentioned, “Previously when we received our monthly salary, we used to buy all the groceries at once. However, if we continue to do so now, we can’t guarantee that any money will remain for other expenses. In the past, we could ensure that Rs50,000 was sufficient for monthly groceries. Now, if we allocate Rs50,000, monthly items will cost at least Rs75,000 due to the daily increase in prices.”
One notable trend is their preference for smaller pack sizes and lower quantities when buying groceries. There is a reduction in portion sizes or the frequency of meals with certain ingredients to ensure that smaller quantities suffice for everyone. Another respondent to the survey illustrated how their family modified their milk consumption patterns to accommodate smaller pack sizes: “In our household, in the past, we would all have tea with milk every morning and evening. However, we now no longer have tea with milk except for my father, so shifting to a 400g pack instead of a 1kg pack is sufficient for our needs.”
Consumers decide where to shop based on the availability of discounts and offers. Their purchasing decisions often hinge on the availability of discount prices and offers, prompting them to switch where they make their purchases accordingly. Consumers focus on purchasing essential goods and are willing to switch brands, products, and locations of purchase based on the availability of great deals.
- Emergence of Small and Medium Modern Trade
Small and Medium Modern Trade (SMMT) as a channel of purchase could increase significantly in the future. One reason is that there is increasing supply as traditional retailers gradually upgrade themselves to provide an enhanced shopping experience. The second reason is SMMTs becoming one of the most important channels of purchase for consumers, particularly middle-class consumers, for better deals and discounts, budgeted purchases, and satisfactory customer service.
As per the survey data, a significant 20–30% of middle-class consumers predominantly buy their groceries from SMMT outlets. These outlets are increasingly appealing to customers who are at the top end of traditional groceries and the bottom end of supermarkets.
SMMTs provide discounts that consumers are looking for. According to a consumer, “It’s profitable to buy from these stores. When we compare the prices with supermarkets we can understand the price difference. We can save at least Rs1,000 – Rs2,000 from here when shopping for Rs10,000”.
- High-income Consumer Focus: Balancing Quality & Affordability
However, the behaviour of high-income consumers differs from other income categories. They were reluctant to purchase discounted or promotional products as they weren’t willing to compromise on quality. As a result, they tend to seek out the regular brands they purchase. While they also experience the impact of rising prices, their brand shifting rate is considerably lower, at just 9%. This disparity can be attributed to their heightened concerns regarding product quality. Unlike lower- and upper-middle-income earners who prioritize price, high-income consumers place a greater emphasis on quality when making purchasing decisions. As a result, they are reluctant to switch to unbranded or lesser-known products, fearing a potential decline in quality. Instead, they may opt to reduce their monthly shopping basket and increase their purchasing times.
Wrap Up
All this time, brands have invested significantly in terms of both money and time to build their customer base and increase penetration, but a lot of those efforts have been reversed in the last two years. How are they reacting to the ongoing changes? Is that what matters most? Businesses need to win volume sales rather than price hikes for effectiveness in the long run. It is essential to understand and cater to the dynamism in the consumer markets.”
(About the author: Suthaharan is the Managing Director of Sparkwinn, a research agency specializing in business, policy and human development. He can be contacted through [email protected].)