dolls

Unravelling the mysteries of the Russian doll

View from Russia

From Obamaphobia to Trumpomania, Russia has gone through more than four years of political and economic instability, accompanied by a great surge of patriotism and isolationism. In a country where the majority of citizens strongly support their leader, what is the landscape like for foreign brands and who are the winners in the race to this market?

As in most countries undergoing an economic downturn, mass-market brands are affected by a weak currency (the rouble has dropped by nearly 50% in the past four years) and less disposable income among the middle and lower classes. Add strict sanctions and bans on a variety of foreign products, and you end up with a scenario where growing in this market can appear nearly impossible.

Some brands have reacted to these changes with a drastic shift in pricing strategy. IKEA is planning a cost-cutting exercise, aiming to reduce one-fifth of its prices in Russia by an average of 15–20% this year, with some products reduced by up to 40%. In what is perhaps a more covert move, a number of foreign food products appear to be traded through Russia’s neighbouring and satellite markets. For instance, it is not unusual to find clearly recognisable French cheeses being labelled as Belarusian.

Retail has also been affected, but is showing signs of recovery. After early Russian sanctions on foreign companies, many retail outlets were closed. But now, three of America’s top fast-food brands, KFC, Burger King and McDonald’s, are reclaiming their spaces, accounting for 23% of retail openings in 2015–2016.

Convenience and discount segments have thrived during the recession but, more surprisingly, so have certain segments of the luxury industry. The wealthiest consumers see the devaluation of the rouble as an opportunity to invest in goods that have become significantly cheaper. They are looking to invest in something durable and valuable, and the luxury automotive segment is the clear winner. Porsche set a new record in Russia in 2015, with sales up 12.4%, while companies such as Mercedes-Benz are moving production to Russia to further consolidate their position in the market.

Government propaganda has helped to maintain – and even strengthen – the growing sense of patriotism across the country. A recent Havas study shows that Russians are extremely proud of their country and its overall image at an international level, with about 75% of consumers expressing pride in living there. Interestingly, the grandeur of the country does not draw inspiration from the present; instead, it relies on old Soviet heroes from World War II or the space race, such as Yuri Gagarin.

Brands taking the market by storm have opted to tailor their approach, playing into this sense of national pride. While McDonald’s is still seen as producing broad, global campaigns from its US base, competitor and relatively new market entrant Burger King has hit the nail on the head by creating local campaigns that are seen as being truly ‘Russian’. From domestic cultural references to wordplays, it has embraced the local culture, using humour to mock its own origins. A good example of this is its tactic of changing the name of its ‘Americano’ coffee to the ‘Russiano’. Will we see other foreign brands take the trend to another level and endorse former Soviet-era heroes to win the hearts of their Russian customers?

While TV is still the predominant advertising channel, with an expected 44.2% share of media spend in 2017, digital follows close behind with 36.5% and a double-digit growth. The latter is an efficient method for reaching cross-section audiences, but it poses two major hurdles for foreign brands.

First, while roughly 80% of the Russian population backs their president, this percentage predominantly comprises the middle and lower classes. The remaining 20% high-net-worth segment accounts for a substantial majority of the country’s disposable income. Some brands may face the challenge of choosing between market share or short-term income gains – staying away from touchy political and social topics is obvious, but identifying them may prove easier said than done.

Second, to make matters more difficult, regulations, sanctions and bans are ever-changing. One of the most recent examples is Russia’s decision to ban LinkedIn for its failure to comply with data laws requiring internet companies to store Russian users’ personal data on Russian servers.

However, despite strict regulations, strong isolationism and a form of patriotism that looks very much to the past, the Russian market is anything but stagnant. In fact, among younger segments, the market is in full pursuit of transformation. So it’s no surprise that over the past few years, fitness and lifestyle trends have taken the Millennial market by storm. With a weak rouble and a country in search of a more optimistic outlook, there is an opportunity for innovative brands to enter the market by embracing the local culture.


Mélanie Chevalier is the founder and CEO of Creative Culture. This piece was taken from our March issue of Market Leader.

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