Getting real about Russia
Pre-recession, growth was easy to achieve. Now, one “cannot cheat the consumer” and must work harder to run the business with more discipline.
Russia is outperforming other European markets, but it's no longer a place where capturing growth and profit is easy.
Post the global recession, it has become a normal value-focused FMCG operating environment in which companies are having to become more realistic about market potential and more disciplined about how they run the business to deliver top and bottom line growth.
We hosted a meeting in December 2011 for country leaders of some of the world's largest consumer products companies operating in Russia.
Take a closer look at some of the ideas that emerged from that meeting.
Here is a quick summary of where consumer product companies stand on their thinking about Russia.
- For most companies, 2011 has been an “OK to good” year, having seen high single digit to low double digit growth, with some geographic markets and categories stronger than others. Premium is still growing ahead of the rest of the market.
However, for some, it has been the toughest for years and a number are predicting 2012 to be worse than 2011. Despite this, Russia remains the best market in Europe.
- As part of the market’s “normalization,” executives observe that Russian consumers are seeking value for money and becoming more discerning. As in many other markets, the consumer is polarizing – down trading in value products while trading up in premium and luxury.
- Modern retail, although still small in comparison to traditional retail, is expanding fast and becoming more powerful; as one executive explained, “It is increasingly tough negotiating with retailers.”
- The view is that, pre-recession, growth was easy to achieve; now, one “cannot cheat the consumer” and must work harder to run the business with more discipline to deliver both strong top and bottom lines. Having the right team and the right capabilities is crucial.
- One executive commented that if companies want to grow, “they need to accept complexity and work with it,” targeting different consumer segments, channels, and price points; another one highlighted the importance of “giving real innovations to the consumer,” in particular in premium.
Mass market/value products remain a challenge for most; reinventing the business model to sustainably approach that market, despite cost pressures, may be key to long term growth prospects.
- It is becoming increasingly challenging and critical to manage the expectations of global and regional headquarters, especially as these become more pronounced due to the lack of growth in the rest of Europe. Despite increased pressure to deliver the bottom line, executives feel that Russia should still be a market worth investing in.
However, they recognize that Russia competes internally for that investment with other BRIC nations and that it cannot longer be treated as an investment market forever, where growth is the only key indicator.
As one executive commented “it is the right time for the bottom line to rise in Russia.”
- Cracking Russia: consumer product approaches in 2011.
Consumer products companies are struggling to crack Russia. Many are failing to meet market growth estimates and are lagging uncomfortably behind headquarters' expectations. What are the lessons from 2011 so far and what are the critical success factors? We look at what's been achieved and what lies ahead.
- Brand new order? The changing consumer products value paradigm
Leading consumer products companies are creating value despite a complex environment by innovating their business models and sharpening their execution. Read more.