#19 - JRL 7206
US Department of Commerce
International Trade Administration
Consumer Trends in Russia
By Polina Belkina
Polina Belkina is a BISNIS representative in Moscow, Russia.
Russia's sizeable population (143 million) helped attract foreign commercial attention when the country began opening its markets in the 1990s. Despite the sheer size of the market, consumer behavior and trends throughout the 1990s, together with other factors, diminished the hopes of many aspiring market entrants while inspiring others able to tap niche markets and segments. Consumer trends in Russia continue to change as consumer power and purchasing activities increase. Some important aspects of Russian consumer behavior are the development of Russian consumption habits and segmentation of consumers, attitudes toward brands (domestic and foreign), trends in retail development, and differences between consumers in the regions versus Moscow. Careful consideration of such information may be useful to companies in evaluating market prospects and planning a market entry strategy for Russia.
Primary Consumption Profiles
Consumer goods manufacturers, distributors, and advertisers are now showing increased interest in the structure of the Russian consumer market. The new focus has been on segmentation based on consumption habits, rather than on traditional demographic gender-and-age and income characteristics. GfK RUS (www.gfk.ru), one of the leading market research firms in Russia, recently conducted a study that revealed seven primary consumption profiles in the Russian consumer market. Between August 2001 and August 2002, practically all of these consumption profiles underwent radical changes. The three most promising segments for foreign firms entering the market do not represent the largest consumer segments but offer the strongest potential because of their consumer behavior.
The first promising group of consumers, called "innovators," should be the focus of suppliers' attention. The share of these consumers in Russia as a whole in 2001 was rather small--only 8 percent, but relatively large in Moscow, constituting 18 percent. This group has higher than average consumer potential. Most of the group is under 30 years old, are business people and white-collar employees, live in major cities, and exhibit innovative consumer behavior. They prefer to spend their free time involved in sports activities and "active" leisure, and eat out in restaurants featuring exotic cuisines. In 2002, the share of this type of consumer increased from 8 to 15 percent in the Russian market.
The second promising group of consumers in Russia is the cluster called "spontaneous" (19 percent of consumers in Russia and 23 percent of consumers in Moscow). Single men who often buy goods impulsively dominate this group. Their consumer potential is average, while their consumer behavior has a tendency toward innovation.
The cluster called "ambitious" comprised 11 percent of consumers in Russia (9 percent of consumers in Moscow) in 2001, but in 2002 for Russia its share grew to 15 percent. These consumers rely on advertising when looking for a product. A large share of them live in regional capitals and major industrial cities.
Russian versus Foreign Brands
As purchasing power among Russia's various consumer segments has increased, a preference for domestically produced items (Russian brands) has also increased. Some foreign manufacturers have sought to become more competitive on the market through local production of "Russian" brands, creating "national" brands, which have gained popularity among Russian consumers. Meanwhile, as incomes have grown, some consumers have started to turn back to international brands, while keeping their positive attitude towards local brands intact.
It is also worth noting that promotion and advertising of international brands has increased. Aggressive advertising, promotion policy, and slight decrease in prices are currently the three most important factors shaping consumer choice.
Competition between local brands and international brands is intense. International brands, particularly in the fast-moving consumer goods market, have benefited from a recognized reputation and the improved financial situation of Russia's consumers. Meanwhile, local brands are currently perceived as high quality, a good value-for-money, and benefit from Russians' patriotic impulse to buy "Russian-made" products.
Retail Stores and Russian Consumers
Household spending habits for Russia's urban populations, particularly for such consumer goods as food, cosmetics/toiletries, and household supplies, illustrate the role of the primary retail channels in Russia's grocery stores, produce markets, and supermarkets. Currently, some 37 percent of such spending takes place at small, multipurpose grocery stores, while "wholesale" produce markets (or farmers' markets) account for 24 percent of such spending, and another 12 percent of these purchases are made at large-scale grocery stores, or supermarkets.
Retail trends suggest that large-scale stores will become increasingly popular. However, most Russians outside Moscow and other major cities still do their shopping at small grocery or convenience stores or other specialized stores because of their convenient location, as well as at consumer goods markets, because of low prices. At the same time, Russia is witnessing the rise of a new consumer channel--medium-sized discount supermarkets, such as Piaterochka, Kopeika, and Aldi in Moscow.
Regions versus Moscow
Given the growing number of regions beyond Moscow considered to have relatively high business development potential--including St. Petersburg, Rostov, Krasnodar, Nizhny Novgorod, Tatarstan, Bashkortostan, Samara, Yekaterinburg, Krasnoyarsk, and Irkutsk--a final but important note related to consumer behavior in Russia for any company considering market entry is that significant differences exist from region to region. It may come as a surprise, but some businesses report finding that the real differences between neighboring regions in Russia may in fact be greater than between neighboring European countries. Companies considering entry into the Russian market in several regions should prepare not just one nationwide plan, but several business plans or a multifaceted plan to reflect the unique aspects and demands of different regions. Russia’s current experience suggests that those who go to the regions first and use local resources effectively are most likely to become market leaders.
More information on retail development in Russia, including a longer version of this article is available on the BISNIS Consumer Goods page at www.bisnis.doc.gov/consumer.htm.
This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)