MOSCOW: Brand owners in the FMCG sector remain cautiously optimistic about their prospects in Russia, despite the fact shopper behaviour has been "inexplicably volatile" during the financial crisis.
Ernst & Young, the consultancy, interviewed senior executives from 15 global consumer products firms active in the country to understand current conditions and the future outlook.
It found growth rates typically moderated dramatically in the recession and trading patterns regularly appeared "inexplicably volatile".
"Executives across sub-sectors complained they have never seen such fluctuating business results as in the last six to nine months," E&Y's study stated.
In the beer category the imposition of higher excise duties by the government placed particular strain on brewers.
Meanwhile, the luxury segment was comparatively robust, but most respondents said wealthy customers now expect a joined-up strategy covering the entire retail experience, product quality and pre- and post-sales service.
Even here, accurate forecasting often proved difficult given shifting consumer spending habits, contributing to a suggestion that gauging success might not rest on profits.
"The erratic movements in companies' top and bottom lines, coupled with the overall slowdown in volume growth, has meant companies may turn increasing to market share as a better performance metric," E&Y said.
"Unaffected by factors that dong profitability … market share is a pure measure of how well companies are performing."
Looking forward, consumer insights - preferably generated in real-time - will be essential, as building an appropriate price architecture is assuming vital importance.
Although high-end products have demonstrated relative resilience, portfolio diversification centred upon "affordable innovation" should be an integral approach leading in to the anticipated recovery in 2011.
"There is a view that Russia is a unique market among developing markets, in that premium and affordable happily coexist," the report said.
Major concerns for multinational corporations listed by E&Y include the expense of doing business in Russia, along with a scarcity of domestic talent and soaring salary demands.
However, while Russia often requires a greater cash investment than China and India for seemingly smaller returns, its GDP per capita is around five times higher than these two countries.
The organisation predicted that if China delivers an annual expansion of 10%, Russia should witness an uptick of 5%, and the US of 3%.
Sales per capita are also between five and 20 times greater, the market is relatively developed, disposable incomes are rising, real wages are going up by between 4% and 5% and unemployment is decreasing.
"Our view is that Russia remains a strategic 'must have', albeit … it will take longer to realise the upside potential this market offers," Emmanuelle Roman, global markets leader, consumer products, at E&Y said.
"While the premium sector will continue to hold up, there are significant opportunities to address the emerging post-crisis value-led consumer and those consumers further down the pyramid."
Data sourced from Ernst & Young; additional content by Warc staff