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Stimulating demand in the Russian consumer market

June 02, 6:14 UTC+3
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KEY CONCLUSIONS:

  • Market players expect recovery of demand after a long decline

“Consumer spending in Russia is still not back to the level it was in 2014, however, there is some expectation that it might be some increase now in 2017, maybe a 1–2% increase in consumer spending mostly from a little higher oil price, increase in agriculture and also more trade with China,” said Pal Erik Sjatil, Managing Partner for EEMA, McKinsey & Company.

 “The retail market has passed a certain period <...> of purification, and it appears that banks updated their product portfolios and resumed consumer lending,” said Ruben Aganbegyan, Chairman of the Supervisory Board, Bank Otkritie Financial Corporation; Member of the Board of Directors, Otkritie Holding.

“I am a little bit more optimistic. <...> The economy is improving. <...> The stable exchange rate is helping in achieving [this]. <...> [People] are adjusting to the new reality,” said Silviu Popovich, President, PepsiCo Russia, Ukraine and CIS.

  • Russias consumers are becoming more demanding

“A class of professional consumers, or “prosumers”, is emerging in Russia. <...> Consumers really want to be informed and educated, want to know what they wear, what they eat, what they buy for their children <...> Only 11% of consumers are ready to sacrifice <...> quality, according to the Russian Public Opinion Research Centre (VCIOM),” said Maxim Protasov, Head, Russian Quality System.

“The consumer behaviour has changed. Even today, on my products, 75% of consumers are looking at their mobile phone when they’re purchasing a detergent or a diaper,” said Sotirios Marinidis, Vice President Eastern Europe and Central Asia, P&G.

“Buyers have become more price-sensitive,” Vladimir Chirakhov, General Director, Detsky Mir Group.

CHALLENGES:

  • Business is facing stronger competition with ever-shrinking profits

"Margins of the players have been more squeezed mostly due to devaluation, which has led to the increase in the cost of goods sold," said Pal Erik Sjatil.

"Competition within the industry has grown significantly stronger. This is certainly due to the lower purchasing power, and we all see what a dramatic impact it has on the market,' said Igor Shekhterman.

"Unfortunately, we do not see many positive trends in the segment of goods for children. As a matter of fact, the market growth is close to zero," said Vladimir Chirakhov.

"Many players have demonstrated either feeble or negative year-on-year growth", said Igor Shekhterman, CEO, Х5 Retail Group N.V.

SOLUTIONS:

  • Focus on innovation, new technologies and diversification

"The increase in e-payments is an important trade driver in its own right. <...> Convenience of payments and transactions greatly boosts the demand. <...> Convenience, innovation and changes in the consumer behaviour are currently the key drivers in the payments industry, which also contribute to the overall demand growth," said Ekaterina Petelina, General Director, Visa Payment System LLC.

"If people find it easier to shop in the proximity stores, they will do it more often and readily <...> We need to develop different retail formats <...> and encourage the consumers to spend their money by creating accessible infrastructure," said Viktor Evtukhov, State Secretary, Deputy Minister of Industry and Trade of the Russian Federation.

  • Improvements in management quality, lower costs and investments in infrastructure

"Import substitution gave us a fresh start and led to lower prices, including for meat and dairy products. Further growth is still an option, <...> if we start investing in logistics infrastructure," said Igor Shekhterman.

"We tend to focus more on promotions and use aggressive pricing. <...> At the end of the day, that will result in lower margins <...>, hence, the management primarily focuses on the internal corporate processes trying to find a way to rebuild the company," said Vladimir Chirakhov.

 

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