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Russian Consumers Brace for Austerity
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Russian Consumers Brace for Austerity

The end of 2014 was tough for Russian consumers. The national currency exchange rates took a nosedive in November and December, causing panic throughout the financial market and hampering overall consumer sentiment. By the end of the year, consumer confidence in Russia had fallen eight points, the most dramatic quarterly decline of the last three years, to a score of 79. And this trend could continue—it’s likely that the consumer confidence of late last year will drive consumers’ outlook for the first half of this year.

So the question that marketers and retailers operating in Russia need to answer is: How do I win with the new Russian consumer who suddenly has far less disposable income than a year ago? Winning today will definitely be difficult, given the environment, which means that assortment and price are more important than ever.

According to Nielsen’s recent “Russian consumer in the new economic environment” study, one-third of Russian shoppers claim that they had 20% less household income in December 2014 than in August 2014. That percentage matched the one-third of consumers who said their income decreased back in November 2008, when the world financial crisis reached the Russian market. In addition, many Russian consumers believe they have less money because the products they buy cost more. Notably, 70% claimed that they spent 19% more on products in December than they did in August. As a result, one-third of shoppers say they buy fewer items than they did three months ago, while 78% say they are making more economical choices.

So with pressure on their wallets, many Russian shoppers appear to be saving by simply not going to stores. The discount channel was the primary trade format that attracted customers in December. Comparatively, patronage at hypermarkets, supermarkets and open markets dropped, while traditional stores have not been able to compete on price with retail chains.

It appears, consumers will make changes related to matters of convenience, service and shopper experience when their financial situations deteriorate. Common wisdom would suggest that purchase behavior in tough times will most often be driven by lower prices. As such, assortment and price are going to play a crucial role going in to this year, because Russians have gotten used to product variety and don’t wish to witness empty shelves.

It’s likely that consumers will put their spending on hold in the coming months, as very few see reasons for optimism: 60% of Russian consumers expect prices to rise significantly, while 30% predict the quality of goods will decline and assortment will dissipate.

Despite the negative sentiment, there is still room for optimism and new growth opportunities among certain segments and markets. That’s because Russian consumers, especially the urban middle class, grew accustomed to higher living standards over the past 10 years, and they don’t want to lose the feeling of being well-off. For example, when spending on things like short-term vacations becomes too pricey, consumers will try to maintain their feeling of prosperity elsewhere, such as on higher-end food or entertainment. As a result, it’s the right moment to strengthen brand value and put emphasis on core brands of the product line. Moreover, the experience of previous crises has shown that companies that have invested in innovations at tough times have always met recovery in a stronger market position.

The challenge for marketers today is to spot these growth opportunities and reveal areas of unsaturated consumer demand. There are consumers ready to pay for premium products—and now is the time to think harder about making an offer that they simply can’t refuse.