Ekaterina Edelstein, Client Service Director, Nielsen Russia
The Russian fast-moving consumer goods (FMCG) industry made strong gains in 2011, with an 11 percent rise in total sales along with a four percent boost in volume, as Russian consumers increased spending in the second full year of economic recovery. While promotions and a new assortment of package sizes from FMCG marketers, particularly upsized value pack offerings in household goods and personal care products drove most of volume gains, significant double-digit spending increases in large food categories were the primary factors behind the rise in total sales.
Growth rates, however, slowed in the fourth quarter with most of the gains realized in the first part of the year. Stabilizing sales growth is not entirely unexpected, especially in core categories, in the wake of two years of hyper growth during the recovery. Thus, as FMCG brands and marketers look ahead through 2012 and beyond, there are three core strategies to extend recent gains.
In core categories, sales have already recovered from recession-level lows, so current growth rates in essential product areas (e.g., dairy, core personal care products) have stabilized. Yet, even here, there is still ample room for growth for FMCG brands by reaching further into the outer regions and leveraging popular retail formats. While most brands have largely saturated the central and northwest regions of the country, respectively dominated by Moscow and St. Petersburg, current sales per capita are lower in less populous regions south, east, and along the Volga River. And, in these areas, income levels are on the rise. With lower product availability and increased spending power, these regions are ripe for growth across all categories, and there is sufficient incentive for FMCG companies to invest in distribution.
Moreover, trends in Russia’s retail landscape are shifting growth to both smaller format minimarkets and larger format supermarkets. As these convenient retail formats proliferate, consumers are increasingly purchasing goods across more categories—giving FMCG companies another opportunity to win with Russian consumers.
There is even more FMCG opportunity across a group of categories that are growing at much higher rates. These growth categories, which are expanding at double-digit rates, consist of products that Russian consumers didn’t return to as quickly after the recession. While core categories largely recovered throughout 2010, spending didn’t return to more discretionary product areas like confectionary/snack foods and more luxurious personal care goods until later. Having become more optimistic about the economy and future prospects, Russian consumers boosted their spending levels in these secondary categories in 2011, and growth rates have remained high to this day.
In these winning categories, there is room for growth throughout Russia’s regions. While the outer regions offer the biggest opportunity from current sales levels, even in the regions dominated by Moscow and St. Petersburg, these product categories are poised for significant gains throughout 2012 and into the future.
In the long run, the surest path to sustained growth for FMCG companies is through product innovation that either expands consumer benefits in existing categories or creates entirely new product areas. New product launches and innovations are a particularly effective strategy in Russia, where 88 percent of consumers report high levels of willingness to try new products.
In fact, new products or extensions are driving growth in most categories in the Russian market. While new product launches are historically difficult, they offer big rewards when successful. In Russia, the number of new launches in 2011 across growth categories rose 19 percent. However, only 20 percent of new products launched in the past three years have achieved a half percent in market share. Thus, FMCG companies investing in innovation must be diligent in their product planning and be prepared to provide sustained support behind launches.
Augmenting product lines with additional benefits, such as portability/convenience or healthy supplements in foods, can boost volumes, and even increasing a product’s specialization can incentivize consumers to purchase additional units within an existing brand.
While growth rates have stabilized in some categories, Russia’s economy is still expanding and presenting growth opportunities for FMCG companies. In order to extend their recent gains, brands must recognize the differences in category prospects when planning distribution and invest in innovative product enhancements and launches.