- The document discusses how the protracted recession in Russia is affecting consumers and businesses. It summarizes the findings of a survey conducted to understand how attitudes and behaviors have changed.
- Consumers are feeling significant impacts of the recession and have become more negative in their outlook. They are changing their spending habits by switching to cheaper brands, buying more on promotion, and shopping more at low-budget retailers. Businesses have also adjusted their perceptions and are making more structural changes to their business models to prepare for the "new normal".
- The recession is expected to have long-lasting impacts on consumer behavior in Russia. Consumers will likely continue habits of being more price sensitive and cautious with their spending even after
2. B
Contents
Introduction 1
Summary of key findings 2
This time it’s different 5
Consumers’ response 6
Impact on business 14
Getting ready for the future 18
Contacts
“Change before you have to”
Jack Welch
3. 1
Introduction
After lengthy boom times, Russia’s
consumer market is now undergoing
a sharp contraction that is ushering in
fundamental change. We believe that
the effects of this protracted downturn
will be severe and will radically alter
the consumer and business landscape
for years to come. In light of this, we
have conducted this survey for the
second year in a row to track what
the most significant changes are and
how attitudes and perceptions among
consumers and companies alike are
being reshaped by the “new normal”.
We hope that our findings will give
businesses and investors the insight
they need to assess the opportunities
and risks in Russia as well as provide
clear-cut guidance for developing
future strategies.
• How is the economic downturn
affecting companies and consumers?
• What are the short- and long-term
expectations for the duration of the
current economic situation?
• How are consumers changing their
spending habits as a result of the
crisis?
• Can we expect similar trends to roll
over into the post-crisis period?
• What will Russia’s post-recession
consumer market look like?
• Is the crisis affecting consumers
across different segments?
• How are companies adapting to the
new realities?
• How can companies best prepare
for the post-recession?
About the survey:
In conducting the survey, we used the same methods and metrics as last year, and
covered the same time period. To better understand the various aspects of Russia’s
current economic crisis, we conducted in-depth research, consisting of:
• a survey of 2,000 Russian citizens representing a cross-sample of Russia’s
urban population
• 20 in-depth, follow-up interviews with consumers that we had interviewed for last
year’s survey, which we conducted while personally accompanying subjects on
their everyday shopping trips, where we sought to pinpoint how their behaviour
as consumers had changed and what was driving the change
• a survey of 62 middle managers at Russian and multinational corporations with a
presence in the Russian market, focused on understanding the impact the crisis
is having on their businesses
• over 18 interviews with top managers of companies active in Russia about the
strategic challenges they face, as well as the opportunities that the crisis has
brought and how they plan to respond
• open-source and publicly available research and data on economic indicators
and consumer confidence
• comparisons to other foreign markets that have recently experienced a crisis
• analysis of the current crisis in the context of past Russian economic downturns
This year we have focused primarily on in-depth interviews with the same people we
spoke to last year so as to accurately gauge how their attitudes may have changed
and why.
We should note that the opinions of consumers and managers may occasionally
paint a picture that differs from the hard statistics that we have benchmarked them
against. For example, sales managers have been quite negative due to declining
volumes, although higher prices have partially compensated for this, but the decline
in volume has tainted their perceptions more.
Key questions covered
4. 2
Summary of key findings
Russia is now mired in a
protracted recession, which
differs significantly from the
country’s last steep downturn
in 2009 and will likely have a
much slower path to recovery.
While signs of recovery may
now be visible on the horizon
they offer substantially less
prospects for renewed growth
than in previous decades
due to a very different set of
macroeconomic conditions
While consumers and companies
alike appeared to be somewhat in
denial last year, both still hoping
for a quick recovery, our research
shows that there is now a widespread
acknowledgment and acceptance of
the current situation and outlook.
The survey shows that consumers are
feeling significant effects from the
crisis and have become more negative
in their perceptions of their personal
circumstances and their expectations
for a limited recovery.
The upper middle class has started to
feel the impact of the crisis more, while
people at the lower end of the scale
are very concerned whether they will
be able to bounce back once recovery
finally sets in.
Businesses that had been quite hopeful
for a quick recovery only a year ago
were mainly making purely tactical
changes then, but have now adjusted
their perceptions and are preparing for
the “new normal” with more structural
changes to their business models.
Consumers are changing their
behaviour to a significant degree
During the period of fast growth seen
over the previous decade, Russian
consumers were very luxury and brand
focused, and driven to spend.
The short-term impact of the crisis has
been a widespread switch to cheaper
brands, cutting down on consumption,
buying more on promotion and
shopping at low-budget retailers.
In terms of attitudes, consumers have
become 1) more discriminating and
critical about what they buy and what
services they get, resulting in a stronger
trend toward switching to other retailers
or making complaints when dissatisfied;
2) more price and quality conscious
concerning what they buy; and 3) even
more price and finance conscious, which
affects personal savings strategies.
In addition, consumers have changed
their long-term outlook and now feel
more insecure about the future, and
unsure of whether they can rely on
government pensions to cover their
needs once they retire.
This protracted recession is leading
Russian consumers to become more
price-sensitive and display cautious
behaviour, which is actually similar
to that of Polish consumers. The two
groups are comparable in disposable
income levels, although Poland
experienced a much more subdued
upturn and slower growth in disposable
income than Russia has.
We expect these behaviours to stick and
the recession to act as an accelerator for
certain trends that had already started
long before it set in.
Our research from economic
downturns in other countries shows
that several behavioural changes can
be “sticky” (e.g. channel shifts, private
label acceptance or switching brands).
5. 3
Russian сonsumers have also indicated
that they plan to continue with certain
newly acquired habits after the
recession.
Before the recession set in, consumers
had already started to show greater
sophistication and more awareness of
the choices they have and differences in
product quality in their search for value.
As noted, they now feel more uncertain
about their future prospects, which
may lead to higher savings rates once
they are able to save again.
The changes we observed differ
across segments and geography;
in particular, we now see a strong
divergence between Moscow and
Russia’s other regions.
In the previous decade, all Russian
regions sought to catch up with
Moscow in terms of the pace of
development and growth in disposable
income, which supported rapid
expansion into the regions to seize on
the consumer boom.
Now, we are starting to see a
divergence, with Moscow showing
greater stability while its medium-sized
peers across Russia, cities with less
diversified economies, are deteriorating
much faster.
As we have seen elsewhere, major cities
in Russia look and behave more like
those in other countries, which could
mean that Moscow and some other
cities will vary greatly from the rest of
the country.
In response to these changes,
companies need to adapt their
offerings (i.e. what to offer, how to
offer it, at what price, and how to
communicate value to consumers).
This will require adaptation to new
realities and an understanding of the
consumer’s needs.
Paradoxically, though, many
companies have cut back on basic
market research just when obtaining
consumer insights is becoming a critical
factor in weathering the recession.
Thus, they may not be communicating
the right messages (e.g. different values
should be highlighted, a different
product mix).
In the past two decades
companies have been focused
on managing rapid growth,
launching new products,
increasing production capacity
and building distribution
channels
During this period, businesses grew
more complex, while the focus on
costs has lessened and the maturity
of processes has not developed at the
same relentless pace.
With post-recession growth expected to
be modest at best, market dynamics are
changing fundamentally, prompting
companies to adapt and transform the
way they operate to prepare for the
“new normal”.
Not only because of shrinking demand,
but also because of changing consumer
behaviour, the higher cost of imports
and overcapacity in many markets is
changing the competitive dynamic
and forcing companies to rethink their
business models and enhance their
capabilities.
Whereas last year companies were
mainly carrying out purely tactical
changes (e.g. cutting spending on
travel, marketing, etc.), the changes
are now becoming more structural in
nature (e.g. operating model, cutting
production and logistics costs).
However, we see considerably more
space for further adaptation as
companies still have a lot of room for
making improvements in business
processes and workforce productivity.
In addition, companies need to rethink
their product offerings and competitive
geographies (for example, several
segments have now become more cost-
competitive compared to others, which
should help boost exports).
Therefore, even given the challenges
of a protracted downturn, Russia’s
new economic environment offers
ample opportunities to succeed and
grow profits for those companies
that are sufficiently agile and can
adapt successfully, together with
their customers, to current market
conditions.
7. 5
This time it’s different
This recession has not been as
steep as previous downturns,
but it is affecting consumers,
while the road to recovery
is less clear
In contrast to 2008-2009, when Russia
and the rest of the world experienced
a full-blown banking crisis, and 1998,
when Russia was hit with a debt and
currency crisis, what we’re seeing this
time around is more of a textbook
recession in an economy that is still
heavily dependent on commodities.
However, there is no doubt that the
severity of this recession has been
exacerbated by the imposition of
sanctions by the United States and the
European Union as well as Russia’s
counter sanctions, which have increased
inflation and restricted financing.
Although the economic slowdown
may have seemed somewhat sudden,
growth had been limited long before
the oil price took a sharp plunge.
This time is also different because
of the more protracted nature of the
downturn. While the current drop in
GDP may be less steep than previous
declines (-4% in 2015 versus -7.8%
in 2009), we are now already well
into the second year of decline.
The most optimistic growth forecast
for 2016 is currently -0.2%, while
a contraction of 1.2% has already
been posted for 1Q 2016.
But, most importantly, this recession has
had a heavy impact on the consumer,
with high inflation and limited salary
growth resulting in a sharp decline
in real incomes (-4% in 2015) and,
consequently, purchasing power.
In April 2016, real disposable incomes
fell 7.1%, marking the severest decline
since May 2015, when a 7.7% drop-off
was posted, according to Russian Federal
State Statistics Service (Rosstat) data.
With Russia’s economy now in its
second year of recession, the current
downturn is beginning to show
signs that the inevitable recovery
will be slow and difficult. Moreover,
current macroeconomic factors are
not supportive of a speedy, robust
recovery.
Consumer behaviour can play
a critical role on the path to
recovery
We expect Russian consumers’ response
to their declining purchasing power to
echo how their Western European and
Japanese peers reacted in the aftermath
of their countries’ crises in 2009 and
1997-1998, respectively. Specifically,
consumers cut back on spending for
an extended period in the post-crisis
stage due to shaken confidence,
changed perceptions of long-term
financial security, endangered
pensions, and the increased need
to reduce personal debt loads, such
as the trend seen in several Western
European countries of voluntarily
paying down mortgages early.
In Europe, dampened consumer
confidence and subdued spending
habits had a negative impact on long-
term recovery prospects. Unlike in the
EU, however, Russian consumers tend
to have relatively lighter personal debt
burdens given the considerably lower
level of mortgage lending in Russia.
But, there’s no question that consumer
confidence has been shaken and long-
term perceptions have become more
cautious, thus negatively influencing
future spending decisions, which
in turn could well further dampen
recovery prospects.
8. 6
Consumers’ response
Consumers are more
downcast this time around...
Eighty-six percent of consumers
responded that Russia is experiencing
a crisis, or slightly more than in last
year’s survey. In addition, this year
79% of consumers surveyed said that
they are personally affected by the
crisis, representing a 5% year-on-year
increase. While this may not signal
a big change in percentage terms, it
represents considerably more in terms
of perception. More than one-third
of those surveyed said they saw their
income fall in the past 12 months. If
we match the dynamics of income
distribution for all respondents with
CPI, we see that 91% have experienced
a real decline in income.
What this means essentially is that a
number of consumers are continuing
to fall out of the middle income
bracket into the lower income strata.
In speaking with some of our in-depth
interviewees from last year, we noted
that, by and large, they have not seen
any positive change and view the
current situation and the future in a
more negative light.
“The crisis started for me when
one of my friends got laid off.”
…and are now more pessimistic
about the prospects for recovery
and the future
Our respondents this year believe that
the crisis will not end before early
2019, compared to last year’s survey
when the expectation was for recovery
to arrive by mid-2017 (by comparison,
businesses are more optimistic on this
account, believing that the crisis will
end by 2018).
Some of those we interviewed last
year who had been expecting a quicker
recovery, now tell us that they simply
“don’t see any reason why the situation
would improve in future”.
Figure 1: Reported income decline has accelerated, with visibly more people reporting
nominal income declines of -10% or more
9
7
3
4
2
20% 15
10-20% 15
10%
7%
7-10%
10-20%
20%
CPI =7.2%
Real
income
decline
Share of respondents whose nominal income has changed in respective way, %
Increase
Decrease
45No change
91%
2Q 2018
1Q 2019
Last year - same for business
and consumers
2Q 2017
Figure 2: Consumers and business executives now differ on when the downturn will end
Weighted average duration based consumers’ and businesses’ responses
Business
Consumers
9. 7
Previous consumer behaviour
patterns are no longer viable
as they were shaped largely by
the legacy of the “rapid growth”
story of the 2000s
Real incomes had been growing
rapidly in Russia over the past decade
(on average by about 7% annually in
real terms). As a result, people were
consuming more, including buying on
credit, behaviour that was driven by
the widespread expectation that things
would only get better and that a higher
income tomorrow would cover debts
incurred today. Currently, however,
declining real incomes and very
modest, downsized expectations for
the future are making such confidence-
driven consumption patterns
untenable.
“For example, before the crisis I could
make impulse purchases; I could buy
an expensive, brand-name handbag
just because I wanted it. But, now,
I realise that I must be more rational
about what I buy, although it’s not
pleasant for me.”
As a result, we are seeing
fundamental change in
consumer behaviour
Change is visible first of all in
consumption and shopping:
the overwhelming majority of our
respondents say that they have begun
taking measures to cut expenses
(84% versus 79% last year). Thirty-
six percent of survey respondents
said they can afford “a lot less” goods
and services, while 28% responded
“noticeably less”. In core categories
(food, apparel, cosmetics and hygiene)
52% of respondents are either buying
less or have started buying cheaper
products, compared to 47% in our
2015 survey.
Increased purchases of goods on
promotion are extremely visible this
year. As well, this has become the
most popular tactic for saving on food
purchases.
Our in-depth interviews suggest that
impulse purchases have been virtually
eliminated from normal shopping
routines. Our interviewees tend to
interpret this not just as a way to realise
savings, but more of an overall step
in the right direction as such “impulse
purchases were useless anyway and often
unhealthy”, as one respondent put it
regarding impulse purchases of food
items.
Meanwhile, private label products
are enjoying a high rate of adoption
across all income brackets. Russian
consumers tend to be well aware of
private label goods (only 11% are
unfamiliar with the category). A
majority of respondents (73%) have
bought private label goods, with 13%
reporting having bought more private
label items this year. Meanwhile, 55%
of respondents believe that goods sold
under a private label are no worse than
brand-name goods. Respondents are
now more willing to try private labels,
as demonstrated by increased use of
private label items among big city
residents and higher-income shoppers.
In our in-depth interviews, we often
heard that opting for a private label
item is seen as a “good habit to have
acquired”, with three-quarters of those
who tried such items saying they would
keep buying them even after the crisis.
“I have tried private labels and now
see that the quality is OK. Going
forward, I will continue […] – I no
longer have any prejudices against
them.”
“I didn’t think about it [private label]
before, but now […] I’m choosing
whatever’s cheaper.”
Buy less
2015 2016
27
31
+4%
Buy
cheaper brands
20
21
+1%
Buy more
on promo/discounts
14
24
+10%
Buy from
cheaper retailers
12
14
+2%
Figure 3: Buying more on promotion or discounted items is the most growing
savings tactic
Share of consumers who have resorted more to specific savings tactic*, %
* more than 1 answer possible
10. 8
Consumer attitudes toward buying
on credit have significantly changed:
thirty-nine percent of respondents
claim to have taken out some type of
loan (same as last year). However, the
vast majority of respondents (88%)
have no plans to take out any further
loans in the upcoming year. This is
confirmed by our in-depth interviews,
in which some respondents said
taking out loans during such a crisis is
highly risky, and even “irresponsible”.
One said: “I don’t know what will
happen tomorrow and, in general,
any sort of credit represents a sort of
bondage you are sinking yourself into.
But, who knows what will happen
tomorrow? Maybe everyone will be
laid off. The situation isn’t very clear.”
Such comments are indicative of the
current declining trend in Russian
banks’ consumer loan portfolios and
the increased share of non-performing
loans.
This year, we are seeing even less
propensity to save anything for the
future, although the underlying
reasons differ: most respondents
(60%) are unable to save, and the
number of non-savers has increased
since last year (55%). Among those
respondents that actually have
managed to save, 65% claim that the
amount they could earmark as savings
declined over the past 12 months.
In line with last year, of those
respondents that managed to save
anything at all, 68% first spend only
on everyday needs and save the rest of
their income. Only 32% save first and
then spend the rest of their income on
current consumption. Our in-depth
interviews suggest that this “spend-
first” behaviour is sometimes driven by
people’s historical experience of having
lost savings in the collapse of the Soviet
Union and Russia’s 1998 default crisis.
Such a “spend it while you have it”
mentality may also be due to fears of
galloping inflation that threatens to
erode the value of rouble-denominated
savings. This also reflects significantly
reduced consumer trust in Russia’s
national currency, which we hear from
our respondents and can see in official
statistics, which show a shift in bank
deposits away from rouble accounts
toward foreign currency accounts.
“I don’t trust the rouble; all of my
savings are now going directly into
dollars or euro.”
There’s a limited sense of financial
security: the vast majority of
respondents listed financial security
as their most important basic need.
One of the factors driving this is the
perception of current instability
and worries about unemployment.
Figure 4: The percentage of past-due loans is increasing in Russia and has now exceeded peak levels last seen during the
previous crisis
10.9%
0
1
2
3
4
5
6
7
8
9
10
11
15
5
0
20
25
30
10
01.01.2016
01.04.2016
01.10.2015
01.07.2015
01.04.2015
01.01.2015
01.10.2014
01.07.2014
01.04.2014
01.01.2014
01.10.2013
01.07.2013
01.04.2013
01.10.2012
01.07.2012
01.04.2012
01.01.2012
01.10.2011
01.07.2011
01.04.2011
01.01.2011
01.10.2010
01.07.2010
01.04.2010
01.01.2010
01.10.2009
01.07.2009
01.04.2009
01.01.2009
01.10.2008
01.07.2008
01.01.2013
Key rate rise and
subsequent tightening of
issuing consumer loans
Individuals loan portfolio, trln RUB in Apr’16 prices
Share of loans with past-due (90 days) payments in individuals loan portfolio, %
9.4%
are not saving
60%
40%
2015* 2016
* 55% were not saving in 2015
Source: The Central Bank of the Russian Federation
11. 9
Many of our interviewees mentioned
fears about getting laid off in the near
future.
“[Ever since the crisis began,] I’ve
been afraid to lose my job and that
I won’t be able to find a new one. So,
now you just have to work more, and
do what you can to hold on to the job
you have.”
But, another very important driver is
uncertainty about long-term sources
of financial support and lack of faith in
the pension system.
“They say there won’t be any pension;
I wouldn’t be surprised.”
“I don’t rely on [the pension system].
I rely more on my children.”
Most importantly, we’re observing
a change in consumer mentality:
people are becoming much more
critical and demanding. In our in-depth
interviews, we heard how respondents
are now critically evaluating the quality
of the products or services they are
getting, and how they are taking action
and demanding satisfaction. “After
[getting unsatisfactory service], we
called in a TV reporter and went back
to that [local supermarket] to demand
an apology from the store manager”, one
interviewee told us. As another person
said: “After unwanted construction
work started in our backyard, we [the
neighbourhood community] initiated
a class-action lawsuit, something
we would not have done one or two
years ago.” People are also now more
conscious of their purchases and
savings. “We started to gather in groups
to pool our resources and buy everyday
items at wholesale prices”, one in-depth
interview subject said.
2015 2016
12k
78
86%
8
12-20k
79
85%
6
30-50k
78
88%
10
20-30k
79
84%
5
50к
84%
70 14
Share of respondents across different household income groups who have
increasingly reacted to recession during the last 12 months, %
Figure 5: The higher income brackets are starting to catch up to lower income
brackets in terms of adopting ways to economise
We are seeing how consumer
responses differ across various
Russian regions and income
brackets
Compared to last year, the highest
income brackets are noticeably catching
up to their less affluent peers in terms
of adopting cost-saving measures.
We have also noted an apparent
divergence between Moscow and
other Russian regions, with Moscow
consumers markedly more upbeat:
consumers in Russian cities with
500,000 to 1 million-plus inhabitants
report being most affected by the crisis
and their situation is getting worse.
This group experienced the greatest
nominal decline in income (reported
-4.0% based on our 2015 survey vs
-7.4% this year). These cities had the
lowest number of respondents claiming
that nothing has changed in their
behaviour since the crisis began. In
contrast, Moscow-based consumers feel
better than a year ago and much better
than consumers in Russia’s other cities.
Moscow had one of the lowest rates of
decline in income, and was the only
city where the rate of decrease has
shrunk (reported -2.6% based on our
2015 survey vs -2.1% this year). Our
in-depth interviews show that Moscow
inhabitants on average have a more
positive assessment of the current state
of the economy – 3.09 versus 2.75 out
of 5 by those from other regions.
Figure 6: Moscow residents assess the
current state of the economy
more positively on average
Respondents’ average assessment of
the current state of Russia’s economy
3.09
2.75
RegionsMoscow
0
1
2
3
4
5
12. 10
Overall, Russia’s “new”
consumption patterns are
reminiscent of countries
marked by longstanding
consumer frugality, such as
Poland; clearly, the crisis is
accelerating this shift
Polish consumers, while having
similar disposable income levels, have
developed along a very different path
than their Russian peers. Specifically,
they have not enjoyed the type of
high-growth boom marked by rapidly
rising disposable incomes that had
until recently supported high consumer
spending in Russia.
As a result, Poles have exhibited
frugal spending habits for a long
time, providing fertile ground for
developing private labels, discounters
and economy retail formats in the non-
food segment. The Russian consumer
is only now approaching such spending
patterns, and rather abruptly so
as massive changes in consumer
behaviour have occurred within the
span of just 12 months. One high-
income Muscovite explained, “There is
no longer this idea of being ‘chic’. Now,
we have started to be more practical,
more down-to-earth.” A middle-income
respondent said: “My approach has
become more rational, even though
wages haven’t changed. Something in my
head has just changed.”
As previously, we are seeing
reduced expenses across
categories, where both
similarities and differences can
be observed
In all product categories, this year we
have seen the increased importance
of promotions, which is by far more
pronounced in the food segment,
potentially due to other measures
(such as buying less) approaching their
maximum level.
Similar to last year, a degree of
brand loyalty has also been observed
in different categories. In the food
category, for example, 35% reported
switching to other brands (versus 31%
last year), while this number is two
times lower in apparel at 17% (versus
16% last year).
“I still want quality clothing. Yes, it’s
expensive, but it should be quality
and not look like what everybody else
is wearing.”
Share of consumers who have appealed to buying more on promotion
or discounted items, %
ApparelFood Cosmetics, perfume
hygiene items
24%
38%
18%
10%
8%17%
2015 2016
Figure 8: Disposable incomes in Poland and Russia in international dollars (PPP)
Poland
Russia
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Poland
Russia
CAGR:
+5%
CAGR:
+10%
Figure 7: Food category is where buying on promo appears to be most important
Source: Euromonitor
13. 11
Figure 10: The longer this crisis lasts, the greater the changes will be in consumers
long-term behaviour
20
15
Private label
30
10
Fewer impulse
purchases
35
5
Price/promo
monitoring
45
35
Cheaper retailers/
hypermarkets
2015 2016
Share of respondents who would like to retain their new habits after the economic
situation becomes better, %
Among the higher income bracket,
we see continued reduction of
entertainment and recreational
spending. Interestingly enough, in
our in-depth discussions with people
at their homes, they tended to speak
differently about this. For example,
while many still describe travel as one
of their priorities in life, patriotism is
now frequently cited as a reason for
cutting back on foreign travel.
“Travel is a priority; I’m trying to save
more on food, household items, etc.”
Our findings last year suggested
that these “new” behaviours
are here to stay; this year,
we’re seeing further proof that
“sticky” habits are becoming
even stickier
Increasingly, consumers are more
likely to continue closely monitoring
prices and product promotions even
after the crisis ends. Forty-five percent
of respondents from different income
brackets and regions agree on this,
compared to 35% in the previous
survey. “No matter what, I’ll buy on
promotion, and it seems to me it will
always be like this”, answered a middle-
income respondent. In addition,
more consumers now prefer to stick
with cheaper retailers – 20% versus
15% in last year’s survey. Some form
of shopping discipline has begun to
be the norm, as 65% of respondents
said they are taking a more rational
approach to spending as well as
resisting the temptation of impulse
purchases. However, only 15% said
they have become accustomed to more
“rational” shopping when it comes to
shoes and clothing, i.e. buying purely
out of necessity, while 30% would like
to spend more on such items when
the crisis ends. Buying fewer everyday
goods is probably the only measure
that will reverse once income growth
starts picking up.
36
51
20-30k
53
12-20k
58
12k
50
62
50k30-50k
Share of people with monthly household
income of over RUB 50,000 who have
cut spending on …
Eating out
Domestic
travel
Foreign
travel
42
47
33
40
54
67
2015 2016
201
201
Figure 9: Higher-income consumers
have cut spending on eating
out and travel
14. 12
Figure 11: UK consumers continue to stick to economy measures even after economy
went up
GDP per capita real growth in UK vs discounters share, %
GDP real growth
7.7
3.3
20103.6
3.5
2015
2010
2015*1.9
0.8
-4.9
-1.3
2008 2009 2010 -2015
Discounters share
(Modern Grocery
Retail)
Looking back at the EU experience,
we observed that people didn’t
necessarily give up a number of the
anti-crisis savings tactics they had
adopted during the downturn once
the EU economies recovered from the
2008-2009 crisis. Great Britain is a
good example: During the 2008-2009
crisis, discounters like Aldi and Lidl
started to grow rapidly based on their
“economy” value proposition. Our own
consumer research back then showed
that retailer choice was one of the most
“sticky” behaviours. In the years that
followed, one can clearly see those
findings confirmed, as discounters are
not only continuing to grow, but also
accelerating the pace of growth.
Bill Simon, former CEO of Walmart’s
US operations, noted that thrifty
behaviour has become an essential
feature of the modern consumer: If you
look at data from Millennials, who have
really sort of grown up with this, price is
more important to them ... than it was to
the last generation. (Source: Reuters)
So, companies must adapt their
offerings to cater to the “new”
consumer
The frugal consumer is here to stay:
our intensive research into consumer
habits confirms that Russian consumers
are fundamentally changing their
spending behaviours in ways that are
likely to be permanent. Having lived
through more than one economic crisis,
Russians will likely continue to be more
cautious in their spending, even after
the economy eventually returns to
growth.
This will require rethinking the
consumer offering, including:
• What to offer? – What is the
optimal product mix; which new
products should be introduced
and which current ones should be
dropped from the assortment? How
can we extend the current brand or
launch a new one at different price
points?
• How to offer this? – Which
channels will need investment in
the new environment?
• At what price? – Given changes in
price sensitivity, is the price and
promotion strategy still valid or
should it be adjusted?
• And, how do we communicate this
value to consumers?
Continuing on the latter theme, the
fundamental laws of branding are
not changing: the “brand promise”, or
the role of the brand for the consumer,
means:
• presenting an image and inducing
aspiration;
• conveying information about the
product; and
• reducing the risk of a unsatisfactory
purchase.
Even in the current situation, the role
that brands play is still very important.
Over 65% of our respondents say that
brand consideration is part of their
purchasing decisions, across categories.
But the focus is clearly shifting from
aspiration to value. The majority (56%)
of those who stay with favourite brands
also display a higher-than-average
sensitivity to promotions.
Can brand owners retain such
loyal but frugal customers
before they make a “sticky”
switch to cheaper segments?
We believe that the answer is:
Yes, they can
But, this will take a paradigm shift.
Yet, what we too often see during
a recession is that many companies
cut back right away on the basic
market research that provides critical
consumer insights and, so, may not be
communicating the right things (e.g.
reinforcing the quality message). This
effectively breaks the OODA-loop of
marketing (Observe, Orient, Decide
and Act). Instead, such companies
essentially put the proverbial
“cart before the horse” by starting
with action (i.e. cutting spending
on marketing) just when initial
* Cumulative to 2009
Source: Euromonitor
15. 13
observation (i.e. gaining consumer
insight through research) is most
critical.
At the same time, however, we are
seeing many leading players already
adapting to the new environment, for
example by fully leveraging big data
to understand their consumers’ actual
definition of “value”, as well as using
advanced analytics to model effective
and profitable promotional campaigns,
and following the consumer across
shopping channels to offer the right
product at the right time. Clearly, those
companies that make such efforts will
be the winners, not only now but in the
longer-term “new normal” environment
as well.
Brands must be redefined to keep pace with today’s rapidly changing
market environment
Today’s consumers are looking for more value; they are more selective because they now
have less spending power. Given this, many brands are having a difficult time adjusting
after a relatively long boom period. Russian consumers in particular have been very
brand loyal. As consumers are downshifting, changing their values and buying patterns,
retailers are responding by expanding their private label offerings.
As the crisis has deepened, brands have been affected unevenly across segments and
market positioning. For example, many local food manufacturers have been able to cope
and even thrive, while importers of branded durable goods have been hit hard. The calm
middle of non-food FMCG seems to be experiencing moderate difficulty, trying to pass
exchange rate-induced cost inflation along the value chain to retailers and consumers.
During such turbulent times, there is a big temptation to save on promotion, cut marketing
budgets and, most dangerously, cash in on brand names by introducing cheaper, lower-
quality versions of a well-known product under the same brand name. But, this can be
a major mistake. In times of crisis, brands change neither in function nor in value. While
fewer consumers may have the money to afford premium brands (which is a temporary
effect), this fact should have no influence on those who still can and want to buy their
favourite brands and enjoy the quality they are used to.
To mitigate the effects of the crisis, successful brand owners can employ a range of
tactics to stave off a decline in the bottom line. First, shrinking package size (without
changing quality or messaging) can allow for selling either smaller, more affordable units,
or larger, longer-lasting units of a product. Second, a crisis can have a telescoping effect,
leading to more granular consumer insights and thus the need for more focused market
research. Yet, so often when a crisis hits you see the typically knee-jerk, seemingly
intuitive reaction of cutting costs on market research, which is a soft target as one of the
easiest discretionary spending items to reduce.
While most companies automatically economise on market research in times of crisis, the
most successful ones take a counterintuitive tack and do the exact opposite – they invest
more in market research. After all, when if not during a crisis does a company need to
better understand what has changed in the mind of the consumer and in their shopping
behaviour? Finally, branding and marketing efforts overall should keep aiming at reaching
the consumer, while being ever mindful of subtle changes in consumers’ value systems.
For example, if pre-downturn advertising tends to place greater emphasis on emotional
appeals to pride, status and self-indulgence, when crisis sets in the same marketing
vehicles and branding instruments are typically re-messaged to deliver a more functional
appeal centred on product performance, endurance, total cost of ownership, and other
practical considerations.
So, increased insight into changes in consumer spending should help Russian consumer
goods companies to rethink their communications strategies and brand portfolios (i.e.
where to stretch, change and innovate), as well as to focus on how best to distribute
their products, especially given changes in channel mix and the sharp divergence of the
Greater Moscow consumer market from the rest of the country.
16. 14
Impact on business
Echoing last year’s survey, most
companies report being affected
by the crisis, although 14% say
it has been in a positive way
In line with last year, 72% of managers
say that their companies have been
affected by the crisis, either positively
or negatively. A strong majority (58%)
report that the effect has been negative.
And, most respondents are
feeling increasingly more
negative about the economic
environment than they did one
year ago, and are not expecting
an “instant” recovery
In this year’s survey, only 45% of
managers believe that the economy
will improve within the year, compared
to 68% in 2015. In line with last year,
managers continue to think that the
crisis will be over in two years; but,
this time, recovery is expected in 2018,
not 2017. However, respondents have
no illusions about the prospects for
“instant” recovery. There is a consensus
view among them that Russia’s current
economic situation is exceptional, with
55% of respondents saying they believe
the current recession will have an even
more pronounced negative impact on
the Russian economy than the last crisis
in 2009.
The current crisis is having a
profound impact on corporate
performance, as company
after company reports revenue
declines for the second year
in a row (in real terms)
On average, companies in all sectors
are experiencing additional declines
in revenue. In the past 12 months,
companies reported an average revenue
decline of 7%, in addition to the 10%
decline reported last year. When asked
about their companies’ revenues, the
managers we surveyed tend to think
in broader terms than pure revenues,
often focusing on a mix of sales
volumes, prices and actual revenues.
As a result, we see their responses as
being indicative of real-term revenue
growth dynamics, the core drivers of
which can be outlined as follows:
• 67% of respondents report shrinking
general market demand (due to
lower real disposable income or
cost-cutting)
• 33% have been affected by a
decrease in market prices
• 29% report that they are losing
market share, which may be of
greatest relevance for middle and
premium segment players, whose
consumers are increasingly trading
down and switching to cheaper
analogues
At the same time, companies are
suffering from cost increases,
leading to a significant squeeze
on profits
The vast majority of managers reported
increases in material costs (90% versus
77% last year) and similarly high
level of overheads. As expected, an
especially strong impact has been seen
among those companies that rely on
imported materials. “[We have to raise
prices as] we use imported materials
and local distributors have raised their
prices”, a regional dairy products
company reported.
Figure 12: The majority of businesses
have been negatively affected
by the crisis
Figure 13: How did the market share of your company change in money terms? Why?
Negatively affected
Positively
affected
58% 14%
A premium multinational distiller:
“[We have lost market share
as] consumer purchasing
power has decreased and
our product is not so cheap”
A mainstream Russian distiller:
“[We have gained market
share as] our product is more
attractive for the consumer,
and thus they have started to
consume more of it.”
17. 15
But, this negative effect from the
crisis is not uniform, with some
sectors and types of companies
either suffering or benefiting more
than others
Fourteen percent of respondents reported
a positive effect from the crisis on their
companies. The main beneficiaries have
been local manufacturers whose products
compete with imports and have not had to
raise prices as much as their competitors
(56% of those that are positively affected).
Agribusiness sector companies have
also benefitted greatly from exchange
rate changes, Russia’s counter-sanction
measures and government support
programmes. Despite having seen
numerous export-boosting initiatives
among our clients last year, official
statistics show that exports overall have
declined (when measured Jan-Feb 2016
versus Jan-Feb 2015).
Banks and industrial companies have
taken a more significant hit compared to
consumer goods, which is attributable to
the relatively protected status of demand
for foodstuffs as well as the supportive
effect of consumer price inflation on
nominal revenues. However, consumer
goods companies are on a downward
trend (managers report on average
stronger revenue declines than last year:
-4% vs -1% in 2015). This echoes with the
increased frugal behaviours of consumers.
This is also seen in official data with a
real consumer goods market growth rate
of 2015 versus 2014, where 2015 looks
worse almost in all categories.
Larger companies, however, enjoy a
stronger position than smaller-sized
operations, and are reporting feeling less of
the negative impact of the crisis, with some
even posting gains in market share. On
average, the smaller companies (i.e. less
than 2,000 employees) that we surveyed
reported average revenue decreases of
12%, whereas larger companies (i.e.
more than 2,000 employees) saw average
revenues decrease by only 2%. In future,
we expect changes in market consolidation,
with small and medium-sized companies
being forced out or exiting the market
altogether.
Figure 14: The most negative aspects of the crisis
Share of respondents who experienced effect from negative aspects of the crisis, %
Increase of
material cost
90%
Sales decrease
due to lower
demand
67%
Increase
of overheads
60%
Inability
to finance
new projects
47%
29%
Increase
of working
capital cost
Agriculture the new oil?
Russia’s agricultural sector is booming. The protective measures implemented by
the Russian government in response to European sanctions and Turkey’s actions in
Syria have created unique conditions for local agribusinesses by allowing them to
boost production as part of Russia’s import substitution effort. In addition, the recent
rouble depreciation has enhanced the competitiveness of local Russian meat and grain
products to the point where many domestic agribusiness companies have begun to look
at expanding their sales geographies with a view to entering new foreign markets and
becoming international players.
For large-scale agricultural producers, this implies rerouting outbound logistics flows
and obtaining product certifications in accordance with international requirements.
For medium-sized players, tapping such new opportunities requires making major
investments in production practices, process maturity and infrastructure. As we observed
recently, several players who are seeking to capture this growth opportunity have
increased production volumes by extensively scaling up their farming operations while,
at the same time, neglecting such critical success factors as improving processes,
biosecurity, coordinating transport infrastructure and optimising distribution networks.
As a result, Russia is fast becoming a European leader in animal antibiotics use, while
simultaneously approaching the bottom ranks of Europe’s national-level animal health
ratings, as evidenced by an outbreak of porcine reproductive and respiratory syndrome
virus (PRRSV). So, to achieve sustainable success while avoiding the types of food
scares and outbreaks of disease that China and some other countries have experienced,
Russian agribusiness players must catch up with best practices by introducing processes
that increase food quality and security.
There are many opportunities for agricultural production companies to improve efficiency
given the low level of process maturity. These include typical process development
initiatives but also the introduction of “lean” best practices, which have proven to be
highly effective in the agricultural sector across the entire production chain (provided that
employees are properly trained). One specific challenge for meat production companies
is cross-functional coordination, which requires thorough sales and operational planning
and tightly aligned KPIs, which to date has typically not been the case in Russian
agribusiness.
We have also noted that very few Russian agribusiness players currently have strong,
mature go-to-market and branding strategies in place, thus providing ample room for
improvement. This is visible in the massive amounts budgeted and spent on above-the-
line (ATL) and below-the-line (BTL) marketing without precise monitoring of the effects,
thus leading to margin leakage and underperforming sales channels with low service
levels and dissatisfied customers.
In conclusion, this could well be the beginning of a golden age for the Russian
agribusiness sector, which already boasts many large-scale companies. But, to succeed
in the longer term and capture the nascent export potential, these companies will need
to ensure that their internal corporate structures are in shape and limber enough to keep
pace with the rapid market growth.
18. 16
In response to a more structural
crisis, more companies have
started to take optimisation
measures
Key categories of immediate cost
cutting are still on top of the list:
• Procurement still tops the list of
cost-cutting priorities (buying fewer
and cheaper materials, cutting
down on fleet management and
office supplies)
• Cutting marketing expenses is still
cited as a key optimisation measure
• Cost reduction in production and
logistics have increased significantly
In addition, this time we are
seeing a significant increase
in structural cost reductions
Within procurement, we have noted
some changes in the status quo for
key measures. Specifically, we are
seeing an increasing number of
procurement managers who reported
having changed supplier terms (up
by 15 percentage points [pp] versus
2015), as well as procurement
policies (up by 17pp versus 2015) and
procurement localisation (up by 12pp).
Meanwhile, straightforward reductions
in stock keeping units (SKUs) (down by
41pp) and simple volume reductions
(down by 26pp) have become less
popular. Very notable is the reported
increase in the share of companies that
are implementing sales and distribution
optimisation initiatives, which is up by
31pp compared to 2015. In particular,
many companies have started to
rethink service levels, with the share
of managers reporting this up by 14pp
versus 2015. This trend effectively
mirrors what we are seeing among our
clients, who are increasingly initiating
route-to-market optimisation projects.
67%
37%
34%
22%
47%
47%
155
31
9
1
Increase compared
to 2015, %
2015
Procurement
Production
Sales and
distribution
Logistics
Marketing
Value proposition
64% 60%
55%
55%
Advertising
reduction
Discounts
reduction
Marketing
channels change
POS marketing
reduction
2016
2015
36%
Promo costs
reduction
86%
38%
57%
48%
76%
64%
86%
Figure 15: Companies are now more focused on optimisation
Figure 16: Main measures for cutting marketing costs
Share of respondents who implemented optimization measures, %
Share of respondents who implemented certain measures in marketing, %
19. 17
Within marketing, we have seen a
decreasing focus on reductions in
such “discretionary” spending items as
advertising (still the No. 1 cost-cutting
target but down by 22pp versus 2015),
while more companies have reported
changing marketing channels (up by
17pp).
Overall, we are seeing a more
sophisticated approach in how such
cost-cutting measures are being applied
as opposed to top down temporary
reductions.
However, much more can
be done
For example, companies are not
reporting a strong focus on their value
propositions: 78% of sales managers
state that they have taken no measures
to change their value propositions. A
regional dairy products company told
us, “[We are losing customers to cheaper
products, but] … we cannot switch
to producing lower-segment products
as this requires re-equipping our
production lines, which we do not have
the money for.”
Production optimisation, which
should follow value proposition (e.g.
by implementing “design-to-cost”
approaches and lean transformation),
has yet to become a top priority for
corporate cost optimisation efforts.
In addition, our survey found that
79% of companies do not use
outsourcing, while 71% have not
localised production.
In the long term, we expect to
see a shift even further towards
complex restructuring of
business models
We believe key success factors are
changing and that, to be successful,
companies must 1) address changing
consumer needs and 2) become
“leaner”. This would require adjusting
value propositions, which in turn
should induce fundamental changes
in business models, including
production changes. In addition,
given the still immature state of
business processes among Russian
companies, we think that there is still
room for widespread adoption of lean,
continuous improvement techniques,
especially among local manufacturers.
Finally, overall corporate strategies
should be more closely linked to KPIs
for individual departments, including
cross-functional KPIs.
Russian retail market has been growing exponentially in the past and is now going through
its first significant longer term slowdown. The significant devaluation of the currency rate
forced retailers to increase prices but consumers have not been able to afford this. This has
immediately led to a shift of consumers to lower priced formats such as the soft discounters
in food retail. As a result, the key promise of retailers has become low prices. To support
this promise they drastically changed assortment by including a higher share of cheaper
products and by decreasing the width of its assortment. Private labels and cost optimization
are key levers for supporting affordable price and good quality of goods. In spite of
decreasing consumption, developers are trying to hold their profits and we see a deficit of
attractive places for new stores. Some big box retailers are testing new formats of stores,
which look like real discounters.
While retailers can still increase their market shares, in many segments store density is
reaching high levels. This is exacerbating the need to be cost competitive. In the past
gross margins were high for Russian retailers and operations costs were less efficient than
international benchmarks, partly due to the complexity of the country, partly due to the
focus of management on rapid growth. Now retailers are forced to lower their cost base
and optimize their assets in order to maintain profitability in an environment with increased
competition and cost pressure. Western retailers started this development many years
ago as their markets were already more consolidated. For Russian retailers with less to no
market growth there is ample opportunity to do and most retailers are only at the beginning
of a significant operational transformation that provides a lot of potential.
This operational transformation consists of several areas. For example using new
technology such as big data analytics and predictive analytics help retailers to convert their
huge number of their data into real money in sales and decreasing of advertising costs,
however this development is still in its infancy, as we still see limited local capabilities and
with a lot of potential to be achieved. The spreading of automation processes for time
planning of staff in stores and equipment of stores tools like self-checkout machine, roll
containers and other tools for reducing labour cost has become visible. We are helping
many retailers to implement lean stores processes and rationalise assortment as reliable
answer for current challenges. Integrated planning to lower working capital and supply chain
costs and increase service levels is another lever with a lot of prospects for many retailers.
Retail moving rapidly from growth paradise to cut throat competition
20. 18
Getting ready for the future
While the crisis of 2008-2009 was short
and steep, and followed by a period
of strong growth, we are now looking
ahead toward a post-recession period
that will be marked by much slower
growth. Therefore, the challenge
for companies today is not only to
successfully navigate the current
recession but also to operate within the
bounds of the so-called “new normal”.
Limited growth on the horizon
After nearly two decades of rapid
expansion during most years, the
growth outlook for Russia is now a
lot less rosy for the next 5-10 years,
barring a currently unforeseen very
strong uptrend in oil prices and
fundamental renewal of economic
infrastructure and regulatory reform.
First, most economies develop in
waves and very few are able to grow
three decades in a row, especially once
they reach the middle-income level.
As very open economies with high
levels of investment in technology
and education and a strong focus on
services, South Korea and Taiwan have
been notable exceptions. While most
emerging countries went through a
significant slowdown after reaching a
certain state of a production oriented
industrial economy.
Second, several of the factors that
had driven strong growth in Russia’s
economy in the previous decades are
now no longer in play, at least for
the medium term, with the obvious
main factor being high oil prices.
However, such other factors as a
growing working-age population,
high investment flows and increased
utilisation of the Soviet-legacy asset
base combined with the oil price to
support growth. But, all of these factors
have now changed. Oil is less likely
to return to its historical highs, as
increased supply from shale plays will
likely create a ceiling. The working-age
population will decline over the next
few years due to Russia’s low birth
rates in the 1990s amid the economic
shocks of the Soviet collapse. Russia’s
fixed asset base is mostly well utilised
but in need of renovation. However,
increasing of the asset base will require
more new investment, which is stymied
by continuing capital outflows (and
current sanctions).
As consumers change their shopping
habits and cautious companies look at
potentially postponing spending and
investments, the inevitable recovery
could well be delayed further.
Therefore, even in a post-recession
and post-sanctions economy (the latter
is vital for improving the climate for
attracting financing), Russia’s growth
outlook is modest at best with scenarios
of GDP growth of between 1.5-2.5%
most likely.
Figure 17: As customers become more demanding, it is vital that companies successfully shape perceptions of the desired
customer experience to their competitive
Expectations are being shaped
by experiences outside of
your industry, where content,
interactions and features may be
much richer and more compelling.
Easy access to research and data
will expose efforts to mislead
and enable comparison to your
competitors; transparency and
authenticity are required.
Undifferentiated products and
services, lack of loyalty, easy
access to alternatives and low
barriers to defection mandate extra
effort to retain your customers.
... expect more ... are informed ... have choices
21. 19
Supply driven market:
· Focus on fast growth
· Competition for customer
new to market
· Customers are more focused
on availability then on costs
Success factors:
· Rapid expansion
· Good distribution
· Reliable quality
Demand driven market:
• Customers are more
mature and more price
and quality conscious
• Competition is higher
• Market is oversupplied
• Switching between the
suppliers is more often
Success factors
• Consumer insight
• Cost excellence
• Flexible operating model
From managing
rapid expansion...
... to optimizing for
the new normal
Riding the wave Fighting for every inch
Figure 18: The slower growth environment will lead to change in market drivers and success factors
There are, however, some potential
benefits to be derived from lower oil
prices. The so-called “Dutch disease” of
a strong currency due to high oil and
gas sales tends to make other industries
less competitive. As the noted Dutch
football player Johan Cruijff once
said: “Every disadvantage has its
advantages.” Now is as good a time as
ever to diversify the Russian economy.
Toward that end, several sectors
have become more cost competitive
in comparison with other countries,
opening up opportunities to develop
more export-oriented industries.
Succeeding in Russia’s
“new normal” will require
a fundamental change in
corporate business models
The country as a whole needs to see
a rebalancing of the economy in this
changed environment, and the same
applies to companies.
Previously, most companies were
focused on managing rapid growth
in what we would define as a very
supply-driven market. Demand was
growing so fast across segments that
companies were building new plants,
launching new products, expanding
into new cities, and competing for new
customers and new markets. At the
same time, customers – both ordinary
consumers and B2B – were more
focused on product availability and
quality than on price.
In the past two decades, Russian
businesses have modelled their
structure on a rapid-growth model –
one that no longer exists. Management
teams were very focused on the top line
and a lot less concerned about their cost
structure and managing their processes.
At the same time, though, rapid growth
led to the increased complexity and
scale of their companies.
In today’s new landscape, we are seeing
a shift toward a more demand-driven
market, with more supply capacity
than demand in several segments,
where customers are more mature
and more price and quality conscious,
with tougher competition with more
professional procurement departments
and more switching between suppliers
and, potentially, between brands.
This has compelled companies to
fight for market share, which requires
both a focus on the top line through
product differentiation and providing
a strong customer experience, while
simultaneously managing the cost
structure and bottom line to be price
competitive and profitable. Together,
these strains are forcing companies
to rethink their business models so as
to better navigate the “new normal”
of low growth and a more frugal and
sophisticated customer, and the coming
post-crisis competitive landscape.
The changes that we are seeing now
were wholly predictable and entirely
logical. But, they are occurring
much faster than in a number of
other markets, with Russia’s current
recession acting as an accelerator.
22. 20
Challenges (and opportunities)
ahead
Our survey and our experience with
clients show that companies are
beginning to improve their business
practices in order to deal appropriately
with the new reality. While we believe
these are moves in the right direction,
they signal what is just the beginning
of what should prove to be a significant
transformational journey for those
companies that seek to operate
successfully in Russia over the next
decade.
Meanwhile, those companies that
are slow to adapt will place the
future of their business in jeopardy.
However, companies that are serious
and dedicated about their own
transformation will be able to grow
their share of the large Russian market,
with the added potential of expanding
their revenue base beyond Russia
through increased exports.
Figure 19: Previous growth drivers are no longer at play: current consensus expectations for the medium term economic
development are rather moderate
-8
-4
0
4
8
12
2008 20122006 200720042002 2005 20182010 20152014 20172009 2011 201320012000 2003 2016 2019
Real GDP annual growth in 2000 – 2015 and 2016-2019 consensus forecast*, %
Aver.
Annual
Growth: 1%
2013-2014 1H:
• High oil price
• No sanctions
• Stagnation explained by the
structural economic reasons
2018 on:
• 2013 dynamics to
continue unless
structural changes
happen in the economy
Aver.
Annual
Growth: 1.5%
• Growth of working-age population
• Relatively high investment flow
• Increased utilisation of fixed asset base inherited
from USSR
• Fast-growing oil production sector
– Intensive exploration of natural resources
– Oil price increase
• Other factors of labour productivity growth
– Steady stream of high-achieving new graduates
– Transfer of “simple” technologies
• Decrease in working-age population
• Low investment amount
• Utilisation of fixed asset base at ceiling level
• Stagnation of oil production sector
– Limited exploration of new fields
– Stable oil price
• No other factors in labour productivity growth
Before 2008 After 2018
Key factors of GDP growth
VS.
*International Monetary Fund, The World Bank, J.P. Morgan, Ministry of Economic Development of the Russian Federation,
SP, Sberbank, Morgan Stanley, Economist Intelligence Unit, Global Insight
Within the business community,
the word “crisis” generally carries a
negative connotation, and along with
it a pessimistic outlook and lower
expectations. However, it is our view
that the new environment in Russia
offers ample opportunity to succeed and
grow, provided that companies have the
requisite agility and ability to adapt to
today’s challenging market conditions.
23. 21
Special thanks
Anastasia Shevchenko
Anna Dzhalladyan
Igor Koganovsky
Ilya Malyarenko
Kirill Kuzmin
Ksenia Butorina
Louise Dickson
Mikhail Molozhaviy
Olga Ivanova
Stephen de Bethune
Tatyana Metelkina
Vyacheslav Buyevskiy