19 March 2019
Russians Poorer But More Discerning After Five Years of Sanctions
With this month the fifth anniversary of the post-Ukraine sanctions, what impact have they had on Russian retail?
With this month marking the fifth anniversary of the first tranche of US / EU sanctions imposed against Russia in the wake of the Ukraine crisis, how has this international ostracism affected the country's consumers? How, indeed, do contemporary Russians view themselves in comparison to their counterparts in less boycotted jurisdictions? The answers – some of them largely as expected, but a number a little less predictable – can, by and large, be found in the latest iteration of Nielsen's Consumer Wealth Dynamics Research Report.
According to the findings of the New York-headquartered market-research group, 38% of Russians now believe they are worse off than they were five years ago, although 34% actually see themselves as better off. Perhaps most significantly though, just 3% of respondents saw themselves as genuinely financially secure.
Drilling down into the figures a little more, 34% of Russians saw themselves as moderately comfortably off, while 63% claimed to be able to afford only the most essential everyday purchases. Overall, the statistics paint a picture of a society where the everyday reality and expectations of most consumers are marginally below the global average.
In terms of how the country's consumers are now allocating their discretionary expenditure compared with 2014, the survey showed a considerable change. Overall, the majority of respondents indicated that a greater proportion of their income now goes on everyday essentials than in the pre-sanctions period. In line with this, 64% of respondents said utility costs, such as gas and electricity, now account for a higher share of their spending, while 70% said their food bill as a proportion of their earnings had risen noticeably.
Among the other areas where the proportion of spend had also risen was non-food consumer goods (with 47% of respondents allocating more to such items), electronics and IT (36%) and clothing (35%). Inevitably, these increased demands on the household budget have entailed cuts to spending in other areas.
The biggest casualty here was travel, with some 50% of all respondents indicating that this is now off their household agenda. Tellingly, this is three times the figure reported with regard to consumers in other Central / Eastern European countries. Alongside travel, the other sector to suffer most noticeably was entertainment / dining out, with 28% of respondents having cut back dramatically in this area.
Inevitably, the shifts in consumer behaviour over the five-year period have had a clear impact on the overall nature and format of the wider Russian retail sector. Perhaps counterintuitively, however, Nielsen's findings indicate that, even as disposable-income levels have dropped and consumer confidence has diminished, buyers' expectations have risen and the market, overall, has become more sophisticated.
Five years on from the first sanctions, the average Russian consumer, although arguably less well-off, is seen as more quality-conscious, more socially-responsible in terms of their purchase decisions and more inclined to take an environmentally-committed stance. At the same time, the country's consumers also expect prompt and efficient service, value for money and reliability.
It is a combination of these factors that is believed to have helped spur the growth of Russia's e-commerce sector. Indeed, such has been the impact of the rise and rise of digital marketplaces that many conventional retailers have been obliged to launch their own online offers, frequently looking to compete with the established players via faster delivery times or the provision of hard-to-find niche products.
At the same time, with consumer's financial self-esteem (or lack thereof) a key determinant as to which retail segments will thrive, the enforced austerity of the past five years has proven to be a huge spur to the expansion of the country's discounter chains. Yet not every discounter variant has prospered.
Essentially at the mercy of changing consumer preferences, those discounters specialising in clothing, household electric appliances and various dietary staples (including meat, seafood, tea and coffee) have done exceedingly well. By contrast, for discounters reliant on sales of non-alcoholic carbonated drinks, frozen food and bottled mineral water, it has been a somewhat lean period.
In terms of just what informs purchase decisions, the survey also showed that the primary influence on 33% of all Russian consumers was word-of-mouth recommendations from friends and family members. In something of a blow to conventional media, only 6% of Russians said TV commercials made an impact on their buying choices, with the figure falling to just 3% in terms of the number of respondents swayed by outdoor advertising.
Leonid Orlov, Moscow Consultant