ALTERATIONS IN RUSSIAN CONSUMER PURCHASING PATTERNS AMIDST THE SANCTIONS ERA

As a result of the stricter sanctions policy imposed on Russia, numerous foreign companies were compelled to withdraw from the region in early March 2022. Subsequently, the Russian market underwent significant transformations across all sectors of its operations.

Experts unanimously agree that the decision to exit the market does not work in favor of the departing companies. On the contrary, reestablishing their presence in Russia would prove considerably more challenging for them compared to new brands entering the market.

“Russia has long been an appealing market and will continue to be so… It’s widely understood that leaving the Russian market may be easy, but returning will be exceedingly difficult, if not nearly impossible… Their market share will swiftly be taken over, within a matter of weeks or months, and they won’t be easily reinstated.” – Elena Basalaeva, Professor at Plekhanov Russian University of Economics and expert at Executive.ru, asserted.

Recognizing the significance of this critical juncture, PepsiCo, ranked 7th among advertisers in Russia, was among the first to contemplate the situation. The company’s headquarters announced the suspension of its operations on March 9, 2022, affecting brands such as Pepsi, Mirinda, and 7Up. Nonetheless, PepsiCo’s Russian branch actively embarked on exploring future prospects through the introduction of the new brand “New Cola” and deliberated the release of a distinct line of beverages tailored for the Russian market. Additionally, the company already possesses a local brand called “Russian gift” (kvass), which has the potential to significantly expand its product range in the future.

Anton Stelmakov, one of the founders of Famous Amazing Brands, believes that PepsiCo could modify the beverage recipes to dissociate the new products from the discontinued brands. Many experts consider such a marketing strategy as the most optimal for companies considering a return to the Russian market at a later stage, particularly in the realm of consumer goods and the mass market category as a whole. The Russian consumers have already begun to shift their perceptions of these brands.

This was revealed by the NAFI analytical center, which found that 45% of Russians responded negatively to foreign brands exiting the market. Among the respondents, 63% expressed their willingness to utilize the products of these companies if they resume their operations, while 67% showed no regret over the termination or suspension of these companies’ activities.

Moreover, 23% of Russians have completely lost their loyalty and will no longer purchase products from the departed brands, and 22% criticize the companies’ policies (although they may reconsider their stance upon the companies’ return to the Russian market). This sentiment is more prevalent among individuals aged 45 and above.

On the other hand, young Russians (18-24 years old) and middle-aged citizens (35-44 years old) have exhibited a more neutral attitude. They have not altered their perception of foreign brands and intend to resume purchasing their goods if the opportunity arises. However, Russians particularly lament the departure of McDonald’s, IKEA, and Inditex (Zara, Bershka, etc.). In essence, the impact is primarily felt within the mass-market category and consumer goods.

Meanwhile, an ambiguous political situation has emerged within the luxury segment.

Bloggers Stage Protest Against Chanel

It is widely recognized that the success of any brand relies not only on product sales but also on the establishment of a shared ideology within the company. This cultivates a loyal audience that supports the brand’s principles and values. In the luxury brand realm, this connection is even stronger. However, once it is disrupted, it becomes nearly impossible to win back customers.

Regrettably, this future seems plausible for the renowned French brand Chanel in Russia. Like many other foreign companies, the brand suspended its operations in the country in early March 2022, ceasing product supplies and closing its online store. Initially, many of the brand’s clients in Russia reacted with understanding and loyalty towards this decision.

However, the situation took a turn when the brand introduced new restrictions for Russian buyers residing in other countries. Subsequently, the company faced a wave of criticism.

It all began when Laura Jugelia, an influential author on a popular Telegram channel, reported that her friend was denied service based on nationality (specifically, being a Russian citizen) at a Chanel boutique in Dubai. A similar incident occurred with Lisa Litvin, a Russian woman who was asked to sign an official statement renouncing the use of Chanel products within the Russian Federation. This incident gained attention on the widely-followed Russian Telegram channel, Antiglyanets. Following this, Chanel representatives attempted to clarify their position regarding sanctions against the Russian Federation, but their response came too late.

Russian bloggers initiated a social media movement, calling for a complete boycott of Chanel products. Prominent figures such as Marina Ermoshkina, Ekaterina Guseva, Victoria Bonya, and others actively participated in this action.

In a short span of time, the anti-brand movement escalated into acts of property damage. In early April, stickers depicting Adolf Hitler were plastered on several Chanel boutiques in Moscow and Paris, insinuating that the company endorsed racial discrimination against its Russian customers.

This statement had significant repercussions, impacting not only the brand’s customer base but also a substantial portion of its loyal following. It is likely that Chanel will face a prolonged process of rebuilding its image, both within Russia and internationally. The negative incident received widespread publicity, resulting in a substantial deterioration of the brand’s reputation.

Furthermore, it should be acknowledged that reentering the market poses a complex marketing challenge for any company. Given the current economic and political climate, there are various potential scenarios to consider. These may involve the introduction of a new brand or expanding and diversifying the product range (e.g., PepsiCo).

In all cases, it is crucial to recognize that the current situation has brought about significant changes in the overall behavior of the Russian audience, particularly in terms of their purchasing patterns.

Path to Budgetary Savings

“The current economic challenges have hit many Russians before they had the chance to recover from the financial hardships brought on by the pandemic. Employees in various industries, aspiring entrepreneurs, older individuals left unemployed, as well as young professionals, find themselves facing difficult circumstances once again. Russians anticipate the need for even stricter budgetary measures and the pursuit of additional sources of income…” (Timur Aimaletdinov, Deputy General Director of NAFI Analytical Center).

This perspective is echoed by numerous experts, who observe that Russian consumer behavior has shifted towards prioritizing budgetary savings.

Romir, a company that monitors the Fast-Moving Consumer Goods (FMCG) index on a monthly basis, discovered that Russians reduced this index by 0.7% in March compared to the previous month. Experts consider this a negative factor as the FMCG index reflects the population’s level of well-being. Furthermore, the proportion of budgets allocated to consumer goods determines the availability of funds for other necessities such as leisure, healthcare, clothing, and home improvements.

Recent findings by NAFI reveal that 66% of Russians intend to decrease their expenses due to the current economic and political circumstances. Additionally, over half of the population plans to seek additional sources of income, while 25% are willing to utilize previously accumulated savings in case of severe financial difficulties. Some individuals are also considering selling off assets.

Gender differences in behavior are also noticeable. Women are more inclined to cut costs seriously (72% vs. 60% for men). However, the female demographic does not intend to drastically abandon their accustomed lifestyle: 56% plan to seek additional income, 27% are prepared to dip into existing savings, and 16% would use credit cards as a last resort to cover current expenses. On the other hand, men are more inclined to sell property (21%) or borrow money from friends (24%).

Experts from Online Market Intelligence (OMi) have also identified a trend towards savings among Russians (75% of survey participants with average income) during this period. According to their data, over 50% of respondents plan to reduce their spending in the near future. Among them, 61% have already purchased or plan to purchase goods as reserves, primarily focusing on food, household chemicals, and hygiene products.

Furthermore, 61% of respondents believe that their financial situation has worsened. For almost every category surveyed, over 50% of respondents opt for a savings strategy (except for medicines and baby food). Currently, people are cutting back on expenses related to the HoReCa sector (hotels, restaurants, and cafes) as well as subscriptions.

When it comes to media consumption, both men and women have made similar decisions. The majority of respondents have chosen to abstain from using social media platforms that have been blocked in the Russian Federation. Currently, individuals aged 45 and above rely on TV channels and news feeds on popular search engines, while younger people prefer platforms like Telegram and YouTube. Some women still turn to Instagram bloggers for information*, although their numbers have significantly decreased: 31% of women currently compared to the previous figure of 77% before the resource was blocked. It is worth noting that a young audience under 24 continues to access the service via VPN.

The percentage of YouTube users has also experienced a decline, although not as pronounced as other sources. Presently, it stands at 80% (previously 94%). However, the Russian audience for Facebook* and Twitter has noticeably diminished, with figures of 11% (previously 51%) and 8% (previously 28%) respectively. The peak usage of all social networks occurred between February 24 and March 2.

Conversely, the frequency of visits to popular marketplaces has remained relatively stable for now. The only exception to this trend is Aliexpress, which is understandable considering the presence of products from countries that are unfriendly towards Russia on this platform.

What Does This Mean?

It is crucial to consider all these factors when engaging in promotional activities within the Russian market and to understand the reasons behind the shift in consumer behavior towards financial resource optimization. The OMi study indicates that the majority of Russians, particularly women, are experiencing stress due to the current political situation. Consequently, it is reasonable to assume that this leads to a reduced purchasing power and negative emotions.

Therefore, the marketing strategy of any brand, whether it is reentering the market or newly establishing itself, should be based on the principle of offering benefits and promoting financial prudence, which is highly relevant to Russian consumers at present. Entrusting this task to QB Agency specialists, who are adept at finding the appropriate approach for any segment of the target audience in Russia, would be advantageous.