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Making it work in Russia - OK year for consumer products - EY - Global

Making it work in Russia

"OK" year for consumer products

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In 2011, companies expect a "steady to good" year for consumer products businesses.

Business in Russia has improved, but the market hasn't taken off yet. Executives need to manage their headquarters' expectations. However, Russia is poised to be the engine for European growth.

Russia: a worthwhile challenge

Consumer products executives working in Russia report that the market is attractive and the risks are manageable. The glory days of 2007-08 are gone forever, but companies expect a "steady to good" year in 2011 for consumer products businesses.

In 2010, there was a gap between economic and business results. Indicators for gross domestic product growth, disposable income and real wages started rising in January 2010, but consumers didn't begin to confidently spend until the end of the year.

Engine for European growth

Russia remains the fastest growth market in Europe. It performs far ahead of its closest Central and Eastern European competitors, Turkey and Poland. Additionally, its growing middle class gives buyers more disposable income.

The numbers in Russia's future hold promise for consumer products companies.

  • Russia will be the largest consumer products market in Europe by 2022-24.
  • Companies reporting single digit growth in 2010 are projecting 11%-14% growth in 2011.
  • In 2011, we expect Russia to account for 35%-40% of the regional market share on average for more than a few major consumer products companies.

There are some negative numbers on the horizon. While 20% of consumer products companies are growing above 10%, 20% report flat or falling growth.

Premium products performing strongly

Russian's middle class is in a good position for the future thanks to a lack of debt, low taxes, less exposure to the stock market and higher levels of savings. Added up, this gives Russians more spending power than Americans.

Premium products remain in demand with Russian consumers. The market continues to "premiumize" in coffee, dairy, alcohol, tobacco and other segments. Still, in 2010 the rate of growth didn't meet operating plans.

Still, Russian consumers don't blindly buy premium consumer products. They want high quality products and are beginning to compare prices and learn more about products to find the best. In this way, they are becoming more like consumers in other areas.

Managing HQ expectations

Global management is still focused on execution risk in Russia. The risk is relatively high due to:

  • Relative lack of transparency
  • Lack of predictability
  • Unreliable regulatory environment
  • Large scale counterfeiting

Russian business leaders continue to work hard to manage the expectations of global headquarters management and communicate the opportunities and complexities of the market.



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