Russia: Growth Market for the Future

EXECUTIVE SUMMARY

Demand Factors

Socioeconomic factors
Demographic factors
Consumer-led factors
Summary 1 Opportunities and Challenges Affecting Demand for Consumer Products and Services

Consumer Market Trends

Chart 1 Key Consumer Markets in Russia 2002/2007

Outlook

Factors affecting future demand
Sector forecasts
Chart 2 Forecast Growth in Key Consumer Markets in Russia 2007/2012

INTRODUCTION

Overview

Consumer spending spurs economic growth
... with a little help from the oil industry
Challenges persist
Summary 2 Russia: Key Facts

The Importance of Russia's Natural Resources

Petro-dollars form basis of growth
Moving away from the "petro-state" image

Political Background

The power of the President
A decade of reforms
The emergence of the oligarch
Government pledges to eradicate corruption
Relations with the West deteriorate

THE ECONOMIC PICTURE

Economic Overview

GDP growth
Table 1 Russia: Economic Indicators 2002-2007
Inflation
Chart 3 Inflation, Real Money Supply Growth and Real Private Sector Credit Growth: January 2001-January 2008

Problems with Infrastructure

The Business Environment

Russian businesses fail to adapt to market economy
WTO membership pending
Onerous regulations deter would-be investors
New laws encourage investment
Multinationals continue to arrive in droves
Chart 4 FDI Inflows into Russia 2002-2007

Regional Inequalities

Growth concentrated in Moscow
Economic migration
Magadan, Chukotka, Kamchatka to benefit from investment

Comparison with Other BRIC Markets

BRICs to catch up with G6 by 2041
Effects of the credit crunch
Summary 3 Comparison of BRIC Market Economic Indicators

MARKET DRIVERS AND CONSTRAINTS

Growing Prosperity

Higher disposable incomes
The growing elite
Emergence of middle class
Poverty remains rife
Chart 5 Real Growth in Average Gross Income by Age Group 2001/2007
Table 2 Russia: Households by Annual Income Band 2002-2007
Ownership of luxury durables
Table 3 Russia: Ownership of Selected "Luxury" Durables by Income Decile/Quintile (% households) 2006

Changing Spending Patterns

Spending freed up through market reforms
Food and drink still accounts for largest share of budget
Service sectors benefit most from rise in spending
Table 4 Russia: Consumer Expenditure by Sector 2002-2007

Demographic Factors

Declining population
Birth rate low but rising
Gender gap and life expectancy
Ageing demographic
Population by ethnicity
Immigration versus emigration
Table 5 Russia: Key Demographic Data 2002-2007

Changing Household Structures

Chart 6 Russia: Households by Type 2002/2007

Improving Educational Standards

Well-educated workforce
Ambitious youth battle for university places
Russia to change to European model of higher education

Urbanisation Trends

Slowdown in urbanisation
Table 6 Russia: Population by Rural/Urban Split 2002-2007
Development of major cities
Chart 7 Major Cities 1980, 2000 and 2020

Consumer Borrowing

Banking sector develops
Chart 8 Personal and Total Loans Growth Rate, and Personal Loans as a Share of Total Loans Q1 2004-Q3 2007
Credit on the increase
Table 7 Russia: Number of Credit Cards and Transactions 2003-2008

Changing Eating Habits

Busy lifestyles fuel convenience trend
Modern retail instils confidence in fresh foods
Rising incomes lead to higher meat consumption
Russians enjoy eating out more

Attitudes Towards Health and Beauty

Unhealthy lifestyles lead to low life expectancy
Beauty is a priority for Russian women

Attitudes Towards the Environment

Pollution reaches record levels
"Green" associated with luxury rather than conscience

Shopping Trends

Shopping malls become leisure destinations
Quality is a priority
Internet shopping takes off

A Culture of Luxury

Flamboyancy re-emerges with new-found wealth
Survey of the rich
Table 8 Attitudes of Affluent Consumers Towards Luxury Brands 2007
Potential growth segments
Summary 4 Top Ten Luxury Segments 2008

Illegal Trade

Counterfeit goods are rife
Smuggling gradually eases off
Contraband cigarettes threaten retail market
Table 9 Values of Counterfeit and Pirated Goods in Russia 2008

The Influence of Media and Advertising

Media trends
Growth in adspend
Chart 9 Adspend 2003-2008

Modern Communications

Internet becomes widespread
Mobile phone usership reaches saturation
Chart 10 Possession of PCs and Growth of Internet Users 2003-2008

CONSUMER MARKET TRENDS

Packaged Food

Market trends
Table 10 Russia: Sales of Packaged Food and Hot Drinks by Sector 2002/2007
Company developments

Soft Drinks

Market trends
Table 11 Russia: Sales of Soft Drinks by Sector 2002/2007
Company trends

Alcoholic Drinks

Market trends
Table 12 Russia: Sales of Alcoholic Drinks by Sector 2002/2007
Company trends

Cosmetics and Toiletries

Market trends
Table 13 Russia: Sales of Cosmetics and Toiletries by Sector 2002/2007
Company trends

Other FMCGs

Market trends
Table 14 Russia: Sales of Other FMCGs by Market 2002/2007
Company trends

Consumer Durables

Market trends
Table 15 Russia: Sales of Selected Durable Goods by Market 2002/2007
Company trends

Automotives

Consumer Foodservice and Tourism

Market trends
Table 16 Russia: Sales of Consumer Foodservice and Tourism 2002/2007
Company trends

RETAIL DEVELOPMENTS

Store-based Retailing

Retail trends
Table 17 Russia: Retailers' Sales by Type of Outlet 2002/2007
Company trends

Non-store Retailing

Retail trends
Table 18 Russia: Non-store Based Sales by Type 2002-2007
Company trends

OUTLOOK

Political and Economic Prospects

The effects of global recession
Inflationary pressure set to ease
The impact of the Russian-Georgian conflict
General increase in wealth
Table 19 Russia: Forecast Economic Indicators 2008-2012

Trends to Watch

Consumers remain optimistic
Status culture to fuel growth of luxury goods
Service is key to good business
Focus to shift to the regions
Illegal trade will remain rife
Higher incomes means more cars
Food safety to take priority over environmental consciousness
Health trend will offer new opportunities
Shopping facilities to expand
Eating out to become more popular
Domestic and international tourism set to increase

Retailing Outlook

Retail trade will continue to consolidate
Modern grocery formats will continue to develop fastest
Internet retailing to grow at expense of direct selling
Vending to benefit from search for convenience

Consumer Market Forecasts

Packaged food
Table 20 Russia: Forecast Sales of Packaged Food by Sector 2007/2012
Soft drinks
Table 21 Russia: Forecast Sales of Soft Drinks by Sector 2007/2012
Alcoholic drinks
Table 22 Russia: Forecast Sales of Alcoholic Drinks by Sector 2007/2012
Cosmetics and toiletries
Table 23 Russia: Forecast Sales of Cosmetics and Toiletries by Sector 2007/2012
Other FMCGs
Table 24 Russia: Forecast Sales of Other FMCGs by Sector 2007/2012
Durable goods
Table 25 Russia: Forecast Sales of Selected Durable Goods by Sector 2007/2012

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