The new Russian consumer: fewer brands, more health

Russian consumers are starting to look a lot like progressive European citizens when it comes to purchasing behaviour. Brand fetishism and expensive products are making way for health and sustainability. According to consultant Jan Dirk Waiboer, many Russians aren’t guided by political anti-western sentiments in their pattern of spending, but rather by rational calculations.

The World Cup is in full swing in Russia. Interest from foreign supporters has been somewhat disappointing up till now. However, the Russians have so far bought more than 800,000 tickets. That’s nearly a third of the total available.

To be sure, the Russians have the benefit of being able to buy ‘category 4’ tickets. These are only available for Russian citizens at about a fifth of the price for the cheapest tickets for foreign visitors. Even so, 15 euro is still a serious amount for many inhabitants of Russia, even more so considering the average monthly income of 285 euro of inhabitants of the Saransk region, where some of the matches are played.

Careful spending isn’t just a characteristic of Russian who don’t have much income. More affluent citizens don’t spend their money for no reason either. This development doesn’t just apply to the World Cup. Across the line, entrepreneurs should be wondering if their marketing fits the current societal trends. How do Russians make decisions as consumers after a few years of crisis and decreasing spendable income, and without the prospect of a new boom? What has changed and what should foreign companies consider when trying to sell their products and services in Russia, as far as this is permitted by sanctions?

In the past foreign producers saw Russia mostly as a premium market, which mostly cared about availability and a western, fancy image. Now they have to try to serve the bargain segment. They now also have to introduce cheaper product versions, perhaps even budget brands, in order to serve the masses. This isn’t just the case in large cities, but also in provincial towns. It can be done by having a clearer presence online and by developing more effective logistics to lower transport costs.

Everyone now understands that the booming years, with their high economic growth driven by high prices of raw materials, will never return.

After the crises of 2009 and 2014/16, in which the economy shrank by two per cent per year and Russia’s disposable income decreased because of a limited rise in wages and higher inflation, the country’s now experiencing some economic growth, and consumers have more to spend as well. The growth differences between large cities and the rest of the country, however, are enormous. 

Moscow is the absolute frontrunner. The average income per head of the population is as much as twice as high as in other cities, and four times as high as in rural areas. But the financial crisis has left its marks across the line. In the past ten years, Russian households have learned to adapt to the new reality: they’ve become more careful and pragmatic, and they now focus more on getting their money’s worth. Twenty million people are still living below the poverty line.

The Boston Consulting Group has recently conducted a new research among roughly 4,000 Russian consumers to gain an insight into how their preferences and choices have changed in recent years, and how they think about the future.

The research shows Russians think ‘family and home’ (83%) and ‘health’ (78%) are most important, and these are mentioned more often than ‘freedom,’ ‘prosperity’ or ‘comfort.’ There’s hardly any difference between men and women, nor between age categories. These notions are reflected in the spending patterns of the Russians, who might have become more reserved in their general spending, but they’re willing to spend more on matters that increase the quality of living of their family.

In 2013, 42 per cent of the Russians thought they were happier the more they spent. That figure has now dropped to 28 per cent. It’s not surprising that mostly a large part (30-40%) of the lower income groups (up to 700 dollar per month) are decreasing their spending, while this is the case for only 20 per cent of households with a monthly income of 1,700 dollar or more (‘affluent’). This also fits the image that Russians have become much more aware of price: 57 per cent buys more bargains (2013: 40%). They would like to buy better quality, but the love for premium shops and A-brands appears to be decreasing. Approximately half the consumers is not planning on buying more in premium shops (49%) or to buy more A-brands (55%). This is also reflected in a decreased longing for brands as an important element of their own identity. Only 24 per cent of consumers still recognise themselves in the statement ‘Brands reflect my values and who I am’ (2013: 34%).

The fact that brands are now less important, is apparently not connected to geopolitical tensions. After all, there’s no perceptible significant shift to Russian brands at the expense of western brands. There is still a clear difference between brands that do well independently of category. For instance, Russians prefer local brands when it comes to daily fresh dairy products, but they prefer international brands when it comes to products such as coffee and tea, because these products aren’t traditionally associated with Russia. Clothes and fashion are the playing field of international brands much more as well.

Looking at categories Russians are willing to spend more on, healthy food is mentioned often: not just fresh products, such as fruit and vegetables (26% wants to spend more on these), but medicine and vitamins as well (22% wants to spend more on these). Organic food is also becoming more and more popular in Russia, although only three per cent of the population regularly buys organic products now.

This goes hand in hand with a decline in planned expenses for less healthy categories, such as smoking, frozen products, ready-meals and sweets (10-15% of consumers). For more expensive categories such as white goods and electronics, we see a sharper decline (roughly 45% is planning on spending less) and procrastination, because consumers want to wait until they can better afford these goods.

The booming years might be over, Russia continues to be a large market with 140 million inhabitants. Large cities in particular show increasingly more recognisable, nearly western, consumer behaviour. ‘More expensive is better’ is no longer true for all Russians. The schizophrenia of ten to fifteen years ago – being poor but buying expensive products – is over. Russians are more aware of prices and more focused on budget products, regardless of the fact whether these are Russian or western brands. The anti-western mood in political circles apparently has no actual influence on consumer behaviour, in the end, Russians are very pragmatical and economically driven: How much do I have to spend and what can I buy with it?