Russian consumer markets face slowdown but not crisis in 2014 & 2015

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gfkNuremberg, October 22, 2014  – According to GfK forecasts, the majority of Russian consumer market sectors will face slowdown, if not stagnation, in 2014 and 2015. Recent decrease in confidence due to international sanctions resulted in both business and consumers tightening their belts. However, some macro-economic indicators show that the situation is objectively far from being critical and the next two years may see the start of new growth for the market and its players.

 

Russia’s gross domestic product (GDP) will show +0.5 percent growth in 2014. At the same time, export and import volumes will decrease by 8.7 percent and 2.2 percent accordingly. But there is positive news as well. The “Index of Industrial Production” in Russia will grow faster:  +1.1 percent in 2014 vs +0.4 percent in 2013, and the freight turnover is expected to increase by 4.5 percent in 2014, vs the decline of -1.4 percent seen in 2013.

 

Another major impact is the growth of inflation. GfK estimates that it will reach 7.4 percent as a result of events this year, which will mean an effective halt in growth of consumers’ real incomes. And GfK data show that the readiness of the Russians to spend money on goods and services has already decreased. This trend became visible as early as 2013 – considerably before the sanctions started – when six out of ten (60 percent) of Russian respondents said they were worried by the growth of prices, two in ten (21 percent) said they had problems paying current bills and one in ten (11 percent) had difficulties paying their debts or loan instalments.

 

This lack of confidence in their financial situation has decreased Russian consumers’ readiness to take credit. In spring this year, 34 percent of the Russian respondents said that it was not the best time to take credits – up from just 28 percent in autumn 2013.

 

The key strategies that Russians are adopting to reduce their spending are: cutting down on leisure travel and vacations (20 percent of respondents), postponing the purchase of new clothes or shoes (17 percent), and cutting down on attending cultural events (16 percent) and doing home renovation (13 percent). They are less inclined to economize by reducing spend on food (10 percent), home appliances and electronics (8 percent), mobile communications (5 percent), books, video films, magazines and newspapers (5 percent), games and toys (2 percent), cable and satellite TV (1 percent).

 

FMCG:

With the decline in consumers’ sentiments, GfK estimates that the retail trade turnover in Russia will slow down, achieving only 2.5 percent growth (in comparable prices) by the end of 2014, compared to 3.9 percent growth in 2013.

 

As one of the largest sectors of the Russian consumer market, the fast-moving consumer goods (FMCG) sector demonstrates comparatively confident growth. According to the forecasts based on GfK Consumer Panel data, FMCG sales in Russia will grow by 5.5 percent in 2014. Food inflation remains the most important factor that influences consumer basket value here, growing from 8.6 thousand RUB in 2013 up to 9.7 thousand RUB in 2014.

 

The recent embargo measures limiting import of food products from countries that have introduced economic sanctions against Russia have not yet visibly impacted the dynamics of most food categories. The impact, if any, might be seen by the end of 2014, when existing stock is sold out. Two categories where the Russian counter-sanctions can considerably change the competitive market straight away are Fresh Unprocessed Products and Dairy. But even here, it is worth noticing that those international companies that run manufacturing plants on the Russian territory are under less pressure in the current economic situation.

 

Home Appliances and Consumer Electronics:

In contrast to FMCG, the stability of the Home Appliances and Consumer Electronic markets in Russia are less secure. According to GfK, the market will lose around 2 percent (in ruble equivalent) in 2014 and end 2015 with 0 percent growth. Sales are being influenced by the decrease in consumers’ purchasing power due to the devaluation of the ruble and the growth of prices. In addition, the Russian market follows the global consumer trend, where we see considerable sales decrease in the photography products, MP3 and DVD-players, and home cinemas – largely due to the growth of online or ‘on demand’ video and music consumption.

 

There is some good news too. Russians’ love of technological innovations will give some support to Home Appliances and Consumer Electronics, especially in the largest and the fastest growing categories – Major Domestic Appliances and Smartphones.

 

Russia’s smartphone demand is driven by the consumers’ need for mobile internet access. According to GfK data, during the last three years the sales of smart devices with WiFi and/or 3G+ wireless access function almost doubled in number of items sold, rising from 36 percent of the full category in 2011 to 69 percent in 2014. In total, Russians have bought more than 200 million connected devices since 2008.

 

However, the decrease of purchasing power is increasing competition in the technology market. Regional specialized chains and traditional computer technology stores are facing the strongest pressure, due to national chains strengthening their positions during 2014 and the consumer move to online sales. GfK forecasts that the value share of online retail in Home Appliances and Consumer Electronics will grow by 15 percent in 2014.

 

Alexander Demidov, Managing Director of GfK Russia, comments, “The Home Appliances and Consumer Electronics sectors reflect the key trends that are happening across the whole Russian consumer market. We are seeing consumers using online more and more for both researching and purchasing products. In the current situation of economic discomfort, the winners are going to be those companies and brands that implement cross- and omni-channel strategies to respond to these trends in consumer behavior. GfK surveys during the market crises of 1998 and 2008 showed that the successful companies were those that never stopped investing in their consumer relations and marketing. In such periods, understanding your consumer is more important than ever.”

 

GfK Russia tracks consumer behavior and sales of goods and services in the major sectors of consumer market – FMCG, automotive, retail, home appliances and consumer electronics, pharmaceutical and healthcare markets, telecommunications, finance and insurance, and others.

 

About GfK

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