Innovation is no longer the domain of a chosen few companies and sectors. In an era of rapid technological and market change, companies of all sizes...
With the fastest growing GDP of all BRIC countries in the past year, an increasing middle class and yet still relatively untapped market, Russia has become a promising opportunity for many international companies. The recent accession to the WTO only strengthened this position. It is therefore not surprisingly that the number of foreign brands being introduced to the biggest country of the world is still growing.
Growing middle class – but still a lot of disparity
After a rather tumultuous period shortly after the collapse of the Soviet Union – dominated by massive inflation – Russia successfully managed to adapt to a free market economy. In the past 20 years Russia’s GDP per capita has almost quadrupled. Average wages have increased even stronger and a middle class is gradually growing. Although critics will say that the economic prosperity is strongly connected to the risen oil price, fact is that Russia recovered much quicker from the world wide economical crisis of 2009 than many other countries.
Some Russians profited significantly more from the changes in political and economical situation than others, resulting in the development of an ultra-wealthy class.Income disparity increased and although the absolute level of poverty has been reduced, it is still high in global perspective. The highest incomes in Russia are to be found in Moscow: the average salary in the capital is about twice as high as in the remainder of the country.
“Spend as long as you can”
Despite the huge economic growth, consumer sentiments are not entirely positive. Looking at the Cantrill scores (a measurement of current and expected personal wellbeing), Russia’s position is amongst the lowest worldwide. It is especially the elder Russian, who saw his savings and pension vanishing during the nineties inflation, who is unhappy with the current situation. Although the young generation has a more positive perspective about its economical future, there is also here not much trust in the current democracy. In total half of the Russian population would prefer to go back to the former Soviet Republic (PEW Research Center 2012).
Inspired by a low political trust and an urge to compensate, consumer sentiments in Russia are focused on enjoying the moment. Almost have of the population does not save any money (IFORS 2011) and just a bit more than a quarter of all Russians has insurances (TGI 2012). Although luxury sales boom and the extreme bling-bling culture of several years ago has disappeared, showing (off) your material status is still very common.
High spendings on beauty & telecom
The urge to compensate is certainly present amongst the Russian ‘Super Women’. Living in a country with one of the highest surplus of women in the world (a lot of Russian men die relatively young, mostly due to alcohol problems), appearance is very important for Russian females. They therefore eagerly embraced all the Western beauty & fashion brands that became available to them after the end of the Soviet period. Russian women have one of the highest spends on beauty products in the world as a proportion of their income: 97% of women in the age of 15-55 use make-up products regularly (Starya Krepost 2008).
The Russian woman is not spending her time just shopping: the Russian female labor participation is even slightly higher than average in Europe (56% versus 51%, World Bank 2010). And whether working or not, more than three quarter of Russian women feel that it is a women’s task to take care of the household (TNS Russia 2012). No wonder that Russian women appear on the third place of the most stressed women worldwide (Nielsen 2011).
Expenditure on housing is relative low: it is still very common in Russia to share a house with the extended family. The average living space in Russia is 21 square meters per person, compared to 45 in Europe and 78 in the US (Rosstat 2012). A large part of the population lives in an urban area: 15% of the population lives in the main two cities (Moscow and St. Petersburg).
Spending on health is low as well, but with a slowly improving life expectancy, the interest in health and wellness products is increasing, just as the sales of organic and biological food.
A large part of the income is spent on food. Besides food also apparel and communication have a relative high proportion: Russia is one of the countries with the highest number of mobile telephone subscriptions.
Revival of soviet brands
The initial preference for Western brands is slowly fading; especially in the food market the Russian consumer has started to develop a strong preference for local brands. In parallel there is a recent revival of the so-called ‘Soviet brands’: brands who are strongly associated with the past.
The premium and luxury segment are mainly dominated by Western brands, or Russian brands that deliberately not advertise their Russian origin, such as Bork, Carlo Pazzolini, Wimm-Bill-Dawn (founded by a Russian Wimbledon lover), Erich Krauss and World Class Fitness. Most Russian brands focus on the domestic market only: the number of Russian brands that are doing internationally well is still relatively low.
Also interesting to know is that there is still a large market with unbranded products in Russia, even in comparision with other BRIC countries.
The Russian bear is back, hungry, and looking for all kinds of new products that suit his preferences and particularities:
- GDP has quadrupled in the last 20 years, although disparity has remained high
- Consumers are not yet satisfied with their current and expected wellbeing.
- The elderly in particular are nostalgic
- Women are a key target group, particularly for Personal Care
- There is a survival of Soviet brands, especially for food
Obtaining information about the Russian market, consumer attitudes and trends is not difficult, in contrary. What matters is translating the relevant information into concrete business opportunities.