Consumer demand in Russia is moving towards greater maturity as people had covered their core needs emerging from the "hungry" years of the 1990s before the new financial crisis swept in. The result is falling demand and a transition to a more sensible shopping behaviour. Given the fiscal deficit and the risk of inflation shooting up, the standard tools to support consumers are unavailable to the Government. The ageing population is also a contributing factor, with the share of price-sensitive consumers going up. Against this backdrop, businesses opt for a targeted outreach.
The era of booming demand in Russia is over, ousted by what is increasingly referred to as “saturation” and “cherry-picking”.
In the 2000s, most of the people outgrew the rampant consumption that had stemmed from the supply shortages and poverty of the 1990s. Over the past 25 years, the penetration of the key consumer goods (household electronics, clothing, footwear, and even housing) has been steadily picking up. According to the Federal State Statistics Service (Rosstat), total residential floor space per person increased to as much as 24 sq m by early 2016, compared to just 16 sq m in 1990. The share of families who need help with housing declined four-fold over the same period, from 20% to 5%. In 2016, a typical Russian family had more than one refrigerator and one washing machine, and also almost two TVs. The saturation in demand for clothing and footwear is evident from their considerably lower share in household expenses, which Rosstat reports shrank almost three-fold, from 26% in 1991 to only 9% in 2016.
The financial crisis deepened the trend, as the drop in disposable income caused households to turn to frugality and revise their consumer habits, which experts believe are here to stay. Today, people only shop for staple goods and make every effort to find the best deals on offer.
This is concerning for authorities and businesses alike, who understand that Russia’s GDP is currently more than 50% reliant on end-consumer demand. However, the traditional support tools are increasingly more challenging to apply.
Amid the budget deficit, the Government is keeping a lid on higher income for public sector employees and pensioners. A potential spike in inflation is also a factor at play for the authorities.
With incomes either falling or stagnating, lending only works in the short term, as debts eventually cause individuals to cut down on their spending. According to the National Bureau of Credit Histories, in April 2017, Russians spent an average of one in four roubles of their income on repaying bank loans.
Add the challenge of an ageing population, and the picture will be complete.
Today, senior citizens already make up as much as a quarter of Russia’s population, and experts project that share to reach 30% by 2035.
Older population tends to have a lower disposable income than younger people. According to Russia’s Population in 2016: Incomes, Expenses, and Social Feeling, a study carried out by the Institute for System Programming of the Higher School of Economics, 54% of Russian pensioners struggled to afford food and clothing in 2016.
Senior citizens are somewhat different in their needs, focusing more on product quality and user experience per se while also showing greater price sensitivity and lower levels of brand loyalty compared to younger audiences (Audience Aged 45+: Prospects and Misconceptions, a study by MEC PULSE, 2016).
The current environment forces businesses to review their strategies:
Retailers are pinning hopes on promos (which made up an average of 20% of total retail sales in 2016), private labels, and the discounter store format.
The online retail is on the rise, as consumers increasingly turn to the internet to get the best value out of shopping. In 2016, online sales added 35% (FMCG and Retail Trends in Russia, GfK, 2017).
Responding to the saturation of demand, businesses are adopting ever more customised approaches to consumers.
Companies offer diversified product mixes and personified advertising, driven, among other things, by collecting and analysing Big Data. Advertisers use targeted messages to build their communications with consumers (26th International Advertising Festival, February 2017). Sberbank is personalising Wi-Fi networks in its offices by analysing user profiles and offering the most relevant products. MaximaTelecom, a Wi-Fi provider for the Moscow metro, uses geotargeting to learn what users like and show them personalised ads from partners. Since the end of 2016, MegaFon has been offering customised tariffs based on user data.