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Retailer Strategies to Win in Russia
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Retailer Strategies to Win in Russia

Increasing utility bills and rising costs are driving Russian shoppers to watch their grocery budgets more than ever. Fast moving consumer goods (FMCG) retailers and manufacturers need to recalibrate strategies to adjust to a more price-conscious consumer.

Grocery spending is slowing down

More than 70 percent of Russians say the state of their personal finances is bad or not so good, according to Nielsen’s second quarter global online consumer confidence survey. As a result, consumers’ average monthly spend on groceries has slowed. In Moscow, consumers’ average grocery basket spend has slightly decreased, bringing the cash outlay for grocery goods equal to the amount spent St-Petersburg for the first time (~16 thousand Rubles). Consumers dealing with rising costs typically turn to retail channels that can offer better prices, like discounters. But in markets with a high level of competition, such as Moscow and St-Petersburg, discounters have actually started to lose consumer loyalty.

Hypermarkets are gaining back their positions

In 2010, discounters in Russia gained favor with shoppers because of their low price positioning. But today the situation is reversed. According to the Nielsen ShopperTrends 2011 study, hypermarkets are gaining back their positions – both in terms of brand equity, shopper loyalty, and basket size. Shoppers did not perceive discounters’ as providing their key communicated value – best prices for all goods – and started to switch back to hypermarkets where they spend the majority of their monthly grocery budget. Consumer loyalty must be built on trust.

Format Performance in Russia: Moscow and St-Petersburg
Hypermarkets Supermarkets Discounters
Equity
Frequency of Shopping
Basket Size
Penetration
Loyalty
Source: Nielsen
KEY
. = Higher than in other formats vs. last year.

. = Lower than in other formats vs. last year.
. = No considerable change vs. last year

Value – not price – is driving shoppers

Notwithstanding the price sensitivity of cash-strapped consumers, Nielsen’s study shows that low prices are not really the main store choice driver today. Value for money is. Assortment is the second most important driver for store choice. This is especially true in Moscow where getting good quality fresh food in modern trade is more difficult than in the port city of St-Petersburg where fresh-food delivery is not an issue. In St-Petersburg, where the modern trade development, retail concentration and competition is very similar to the European shopping experience, good service and a nice shopping environment are also key store choice drivers.

Shoppers want wider choices and a better experience

The rising number of specialty or niche stores that build assortment on one or two basic product categories, such as bakeries, meat stores, fruit and vegetable stores, and dairy stores are gaining popularity with consumers. The importance of these specialty niche stores will grow as consumers turn to them for better quality, freshness and wider choice. These specialty stores can also turn into an opportunity for the small retailer and owner of impulse kiosks and pavilions who will be affected by the new law banning beer from kiosks after 2012.

War on the shelves

As shoppers make more decisions based on the importance of ‘value for money’ and make decisions more often in-store, competition for consumers’ choice will move to the shelves. Correct price and assortment decisions and effective in-store communications will be vital for retailer and manufacturer success, which is especially true for products where brand power is low.

Promotion pressure is growing

The number of items sold on promotion is growing in each product category and is an effective means to drive basket size. Nielsen reports that 43 percent of survey respondents in Moscow and 54 percent of respondents in St-Petersburg say they seldom change stores based on promotions, but actively look for promotions in stores where they usually shop. Promotions will become an even more important means to drive consumption and market share. Manufacturers and retailers need to make smart promotion decisions and be careful to not over-promote the product category or take too many temporary price reductions. This could lead to devaluation of the brand power in the category, open the gates for private label expansion and potentially decrease the sales potential of the category in the long-run.

Now is the time to drive brand equity

The new wave of consumer pessimism will be a good test for manufacturers’ brand power. This is the time when leaders can get the best of the situation by investing in shopper marketing. At the same time, it is also an opportunity for new brands, including store brands or private labels, which will be able to offer shoppers the value for money they desire.