Insights

How to Succeed in Russia
Article

How to Succeed in Russia

Dwight Watson, Managing Director, North-Eastern Europe

Economic power is clearly moving east. According to the International Monetary Fund, GDP is expected to grow within the BRIC countries 61.3 percent between 2008 and 2012, compared with just 12.8 percent for the G7 nations. Today, global consumption patterns clearly favor developing markets and in Russia, the growth potential is tremendous.

But Russia is unique, holding so many characteristics that are more aligned with developed markets, high disposable income, high brand awareness and penetration of new technologies (i.e., mobile phones). This dual developed and developing markets landscape is a great opportunity for consumer goods and technology companies.

Challenges / Opportunities

Succeeding in Russia today, though, is not that easy. Its shear size, spanning eight time zones, can be a logistical challenge from a distribution standpoint. A fragmented retail landscape, coupled with a slowly recovering economic environment will make it challenging for Russia to maintain the momentum of growth demonstrated over the last 10 years.

But that momentum – especially for modern trade, which represents half the market of most categories, continues to grow and offers vast opportunities to retailers. The potential for continued growth can be quantified by looking at volume indexes within categories across other countries that show massive room for expansion. For example, categories like liquid soap, or new segments in shampoo, or a lack of truly innovated new products all point to opportunities to increase penetration and consumption.

Where to Focus

The future of Russia’s growth will come from:

  • Rising middle class – accessible, less traditional and more experimental. Western brands will likely dominate.
  • Urbanized second tier cities – 73 percent of the population live in urban areas with accessible links to mobile device connectivity.
  • Over-proportion of younger consumers – 40 percent of the population is under 30, compared with 27 percent in Europe.
  • Targeted distribution – retail consolidation and increased promotional spend will drive war on the shelf. Distribution will be paramount to winning.
  • Demand chain tactics – shoppers will become the center of attention – moving from supply chain to demand chain.
  • Retailer brands – economies of scale and a new “value-for-money” mindset among consumers will dominate.

The shopper is the center of everything. A keen focus on not just what they say, but what they do will define success for the future.