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Getting real about Russia - Negotiating with retailers and focusing on cost - EY - Global

Getting real about Russia

Negotiating with retailers and focusing on cost

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The cost of managing government intervention and dealing with ongoing issues of corruption should not be under-estimated.



Negotiating harder with retailers

Like the consumer environment, the retail market in Russia is also becoming more normal. As one executive commented: “The rapid rise of modern trade, growth of discounters and the emergence of own label reminds me more of the ‘central Europe normal’.”

Modern trade is growing, the traditional traders that are left are strong, and all are becoming more specialized and more demanding. In addition, the market is consolidating. As a result, companies commented that trade spend is rising and negotiations are becoming tougher.

“Because the sector is still inefficient, they are putting more pressure on FMCG companies as they need margin.”

Retailers are forcing discount promotions on the manufacturers and massive rises in the value of retailers’ real estate holdings have also helped to consolidate their power in the market, giving them greater power in negotiations with manufacturers.

Focusing on cost

Retailers are not the only cost driver for consumer products companies however. Competition for talent has pushed up salary expectations while the government continues to raise operating costs through a combination of higher excise duties on products like beer, higher direct taxes and increased investment expectations.

As one executive pointed out: “it’s hard to raise prices more than inflation, but with salaries, tax and excise costs rising rapidly, it is a tough decision that may have to be made.”

The cost of managing government intervention and dealing with ongoing issues of corruption should not be under-estimated either. While the business-to-business environment is normalizing, relationships between business and government remain difficult.

“The costs and difficulties of running well controlled and compliant businesses are growing” commented one attendee.

“Many government officials have introduced a myriad of regulatory changes intended to fuel the possibilities of corruption. This drives significant cost, compliance rigor and constant distraction.” Most companies have had to appoint compliance officers specifically in order to manage this issue.



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Getting real about Russia

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