Consumer Behavior in RussiaResearch by the Company “GfK-Rus”
2016 turned out to be slightly better than the previous year for Russia in a number of economic indicators. Certain politicians and experts hastened to announce that the country had passed the bottom of the crisis. Indeed, the GDP, the industrial production index and retail turnover had been declining slower than in the previous year. Inflation decreased almost two-fold. It was only the incomes of the Russian population that kept plummeting faster than at the beginning of the crisis – by 5.1% to 2015 and by 13.5% to the pre-crisis 2013. In 2017, according to forecasts by “GfK”, the decline of real incomes will continue and will equal 3.6%.
How do the state of personal finance and the situation in the national economy affect the moods of Russian citizens, and how do their consumer behavior and social settings change as a result?
RESULTS OF 2016– PROSPECTS OF 2017
According to the all-Russian study by “GfK”*, all in all Russians estimate 2016 to be slightly worse in terms of themselves and their family than 2015, although hopes for improvement in the current year remain high. For the country as a whole, 2016 was not very good either, even though better than 2015. High hopes for 2017 are present in this regard, too. Are they realistic and are they destined to be fulfilled? The revival of the Russian economy will undoubtedly depend on consumer moods and whether buyers will want to spend – and afford spending.
Russians’ reaction to a decline in the economy was most negative in February 2016, when consumer sentiments, which affect the intention to purchase, were the worst since November 2014 and reached the level of the previous crisis of 2009. Starting with April 2016 there was an improvement in consumer sentiments across most regions of Russia. By the end of the year the Consumer Sentiment Index, reflecting consumer assessment of the situation in the country and consumers’ expectations for the future, reached 92 points for Russia. While this implies that negative sentiments prevail, the figure is incomparable to 69 points in February 2016.
Certainly, consumer moods are not consistent across the whole country. For instance, citizens in the Northwestern region and Siberia are the most pessimistic at the moment. The survey by “GfK” identified the largest number of optimists in North Caucasus (99), in the Central region (98) and in the Far East (94).
Consumers in the Far East have spirited up quite a bit – one can observe the most significant recovery in consumer moods in this region, growth equaling 18 points starting with September 2016. Since 2013 and up to that point the region was at the bottom of the Russian list in terms of the Consumer Sentiment Index.
The moods of Moscow residents are characterized by volatility – from period to period both declined and increases in sentiments have been recorded, which is caused both by unstable assessments of the current situation in the country and the constantly changing personal expectations regarding the future. By the end of 2016 Muscovites’ moods worsened, and as a result the Consumer Sentiment Index** declined from 97 points in September 2016 to 93 in November. Before that it fell from the positive 102 points in April to 90 points in July.
In general, by characterizing overall sentiments among Russians in 2016, one can state that they indicate both habituation and expectation, the population getting used to life in a declining economy but expecting improvements.
Throughout 2016 one could observe how the consumer was adapting to the new economic reality. Whereas in the first quarter of 2016 56% of respondents stated that the crisis concerned them personally, in the fourth quarter of 2016 the share was 48%.
The panic connected to ruble devaluation died down. In November only 25% of respondents reported keeping track of the exchange rate, as opposed to 55% in February 2016. The share of citizens expecting prices for food to grow decreased somewhat.
The only indicator that did not change was the expected duration of the crisis, which, by most respondents, has been stated to be 3-4 years or more since November 2014.
It is no surprise that, in the conditions of declining incomes and delays in economic recovery, consumer behavior remains in ‘crisis mode’. One of the key saving strategies is refusing or postponing planned purchases of durable goods. Both in 2015 and in 2016 two thirds of the population stated that they were ready to give up said purchases.
According to the all-Russian survey performed by “GfK”, in the fourth quarter of 2016 only 8% of Russians were planning to purchase a car in the next 2 years. However, cars are not the only category suffering from the declining purchasing power. When asked what they are ready to save on in case the economic situation gets worse, most Russians state that they may give up purchasing clothes, footwear, furniture and jewelry, travels, restaurant visits and apartment repairs.
The saving habit did not only concern durable goods. The consumer reconsidered their everyday expenses, including those on food products. Most of all consumption in physical terms declined in the following categories: fish and seafood (-7.3%), bakery products (-6.5%), groceries (-3.5%), sweets and snacks (-4.2%), meat products (-2.3%), and dairy products (-2.1%).
All in all, the picture of changes of sales in FMCG product categories in 2016 looks as follows. Consumption of food products decreased by 1.5%, and purchases of household chemicals dropped by 0.7%. There was an increase in consumption of medications (by 5.9%), pet supplies (by 11.3%) and personal care products (by 2.3%).
Below is the list of habits obtained by Russian consumers that we believe will stay for a long time.
* Nothing excessive. Consumers try to only purchase what they really need, and like making lists. This primarily concerns FMCG purchases. According to the consumer panel by “GfK”, the share of consumers who make daily purchases of goods they require increased – the frequency of purchases in Russia grew by 5.2% in 2016.
* Active search for the best prices and promotions. Consumers now actively look for discounts and bargains. People are more likely to buy private label products; they choose larger packages more often and look for stores offering the lowest prices. Russians are increasingly looking for promotional goods, and in some categories the share of promotions reaches 40% in value terms. In order to find promos, consumers examine promotional flyers and consult online aggregators before making purchases.
* Mobile usage. Tendencies in consumer behavior in retail indicate that new technologies have been increasingly affecting how buyers choose and purchase goods. Studies by “GfK” based on a cross-media panel revealed that FMCG purchasers actively use mobile applications. Price aggregators, which allow the user to compare prices and obtain information about promotions, are among the most popular apps. According to “GfK”, “Edadeal”, one of the applications, significantly increased its audience over the past few months and is now among the ten most popular applications***.
Who benefits from these new consumer habits? In the current situations channels that correspond with the expectations to buy quality products ‘for cheaper’ are growing. In monetary terms, growth of discounters and hypermarkets amounted to 18.1 and 7.8% respectively. Supermarkets were less successful, growth in 2016 equaling 1.8%. The overall turnover of modern trade formats in 2016 increased by 12%.
Speaking of the consumer market as a whole, the leader among sales channels was the Internet. According to the cross-media panel by “GfK”, during the past 2 years the audience of e-commerce grew by 1.5 times.
2017 – IS THERE HOPE?
Despite the fact that Russians keep saving money, some indicators of consumer behavior improved.
For instance, the attitude towards advertising became more positive. Apparently it is caused by advertising now helping the consumer find optimal purchase options.
Consumers are starting to return to spontaneous-and-rational type of buying. The share of buyers who value the price the most while choosing goods declined by 2 p.p. Compared to 2015, there was a 2 p.p. growth in the share of consumers visiting stores with a shopping list, whereas the share of those who, at the same time, make impulse purchases, also increased by 1 p.p.
Shopping experience became more important. In 2016, compared to 2015, the share of Russians who visit several stores looking for cheaper everyday goods decreased by 4 p.p., whereas there was a 3 p.p. increase in the share of buyers who value the atmosphere of the store more than the system of discounts.
In addition, there was an increase in the number of consumers open to novelties, immediately purchasing goods having appeared in the market: their share grew by 2 p.p.
People are ready to pay for quality: the share of consumers who agree that organic products should cost more increased by 5 p.p.
There is positive news for fast food chains and stores with ready-to-eat foods as well: the share of those who consume fast food increased by 3 p.p.
Given the above, even though in 2016 there were no significant changes in consumer behavior among Russians and the saving habit was established firmly, some shifts take place and indicate a return to pre-crisis buying habits, which may positively affect the results for the consumer sector in 2017.
* The all-Russian omnibus study by “GfK” has been conducted since 1991 and involves personal interviews for a sample of 2,200 people aged 16+, representative of the Russian population.
** The Consumer Sentiment Index is an arithmetic average of partial indices (Current State Index and Consumer Expectations Index), calculated based on responses to each of the five questions asked. The value of the Consumer Sentiment Index can range from 0 to 200 points. The interval from 0 to 99 points is called the ‘pessimistic assessment’ and implies that the population considers the situation to be deteriorating. If the value equals 100 points, it means that the population regards the situation as stagnating, as the share of positive responses equals the share of negative responses. If the interval is from 101 to 200 points, it implies that the population sees the current and future situations as improving.
*** Among Internet users in Russia, as of the 3rd quarter of 2016.
“GfK” in Russia