Growth should have been stronger and more consistent. Mixed economic indicators are causing real concern.

2011 might be turning into a better year than 2010 for many consumer product companies, but very few feel they have "cracked" Russia.

Cracking Russia

Local consumer products executives feel that growth should have been stronger and more consistent and mixed economic indicators are causing real concern. Against this backdrop, the challenge facing many local leaders is communicating to headquarters how much Russia can grow and how fast. With companies reporting a mixed performance, the focus is on getting back to basics — redefining what customers want, how the value proposition should play, what operating model to adopt and how best to use social media.

We look at how companies are:

• Focusing on critical success factors
• Feeling more optimistic about the second half
• Leveraging social media in Russia
• Rethinking operating model, talent, retailers and government intervention
• Asking the right questions

Interesting facts

	Sluggish economic growth in the first quarter — GDP grew at 4.1% year-on-year compared with 4.5% in the previous quarter — may slow down sales trends in the second half of the year.
	Inflation has risen to 9.6% but should fall to 8.2% or even less by the end of the year and the Russian Government is expected to boost social spending with the upcoming elections. With an oil price above US$100 per barrel, all these factors point to reasonable consumer spending levels.
	Real disposable incomes have been battered this year, falling 5.5% in January, in part due to the huge rise in January 2010. But this was also followed by weak figures in February and March of -0.6% and 0.7%, respectively.
	Real wages (after inflation) have seen a similar pattern at 0.6%, 0.7% and -0.4% in the first three months of this year.
	Curiously, the figures for retail sales are comparatively solid: rising 4.2% in the final quarter of 2010, growing only 0.5% in January but then rising again by 5.8% in February and 4.8% in March. This may be explained by Russians eating a bit more into their savings, as well as by the fact that retail sales were very slow in the first months of last year, so some of this year's number is mathematical bounce-back.
	Furthermore, disposable income trends remain strong: a middle manager in Texas earns gross annual income of US$60,000 and is left with US$7,500 disposable income after mortgage, pension payments and other necessary expenditures. His Moscow counterpart earns US$24,000 but has disposable income of US$10,000.
	Recent reports have also shown that retail spend per capita in Moscow is €7,600 while across Germany the figure is €5,600, the same number as in the United Kingdom.

Takeaways from the Russian consumer products market in 2011

What do you need to know about consumer products companies operating in Russia? Here are some of our findings from conversations with executives:

• For all companies, 2011 is looking better than 2010
• Most executives agree that there is still a market for premium
• All executives are experimenting with social media
• Human resources and talent management are still on the top of everyone's agenda
• Getting the "right" operating model is critical to success

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Contacts

• One of our global consumer product leaders