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Analysis & Opinion
19.10.09 Gone With The Crunch
By Svetlana Kononova

The financial crisis has had a profound impact on Russians’ lifestyle. Previously known as a high-spending hedonist, the average Russian consumer has slashed his spending on luxuries and even on basic items such as food. And although businessmen are seeing green shoots of recovery, analysts warn that the new austerity is here to stay for the foreseeable future.

According to a survey conducted in September by the independent pollster the Levada Center, 62 percent of Russians say the credit crunch has affected their everyday life. Thirty-nine percent of respondents believe Russia is already going through hard times, and 33 percent opine that the country will face hard times in the nearest future.

Data from the state-owned All Russian Public Opinion Research Center (VTsIOM) shows the same trends. Forty-one percent of respondents complained of falling income and inflation, according to a recent poll. Eighty-three percent said they had cut down on expenses, and 88 percent of those living in big cities and 78 percent of those in small towns and villages said they have changed their consumption habits. “I used to spend up to 2,000 rubles daily on nothing before the crunch,” wrote a blogger who goes by the nickname of Zeev. “I used to buy useless magazines, CDs, books. I used to spend a fortune for business lunches. But now I have limited my daily expenses to 60 rubles. I bring a home-cooked meal for lunch when I am working in the office and I download new films from the Internet at home to entertain myself. I only buy cheap food in the Ashan supermarket.”

Analysts believe the credit crunch has strongly affected Russians’ consumption patterns.

“During the period of impressive economic development, Russian people were continually affected by the conspicuous consumption of premium goods,” said Vitaliy Vladykin, a research analyst for Central and Eastern Europe at Euromonitor International. “However, people were forced to reduce their expenses and review their consumption patterns because of growing unemployment and decreasing incomes and confidence.”

Little by little, people began to switch from premium brands to products from economy and standard price segments, according to Vladykin.

The second trend is import replacement. Imported goods are rapidly losing ground to domestically produced rivals due to the devaluation of the ruble. Recent research conducted by Euromonitor International found that 72 percent of consumers in Russia buy food produced by local manufacturers daily or several times a week. This is one of the highest rates in the world, matched only in China. In the United States and the EU countries, no more than 30 to 40 percent of people prefer local food.

Moreover, Russians have been forced to change their food preferences. According to a survey conducted by Profi Online Research, consumers are trying to reduce their expenses by cutting back on delicacies. About half of respondents said they now buy caviar and sweets much more rarely that they used to. But they have started to buy more cheap pastas and ready-made meals.

Food purchases still make up the bulk of Russians’ expenses, with the average Russian spending a quarter of his budget on food and drinks. And although analysts expect food expenses to decrease to some 22 percent of the consumer goods basket in 2010, it would remain the largest part of a family’s budget. “Russian consumers show two new patterns now,” said Valeria Yerina, a spokesperson for Profi Online Research. “Firstly, they are looking for the shops where staple goods are cheaper than in other shops and supermarkets. Secondly, they tend to buy less frequently.”

The second trend is a significant characteristic of a recent situation on the clothes market in Russia. Forty percent of consumers have started to buy fewer clothes and seven percent have stopped buying clothes at all, according to recent surveys. “Before the crunch, the average shopper could buy three evening dresses just because she liked them,” said Andrew Shmounk, who owns a fashion boutique in Moscow, “but now people tend to buy only the clothes they really need.”

“Some customers stopped making purchases at all, and other clients limited their budget,” he added. However, Shmounk also believes the situation has begun to improve in recent months. Clothes sales are growing one again, he said, albeit slowly.

This trend might be explained by Russian female mentality, since it is always extremely important to look your best. Russia leads the world in the number of consumers who are prepared to spend their disposable income on clothes, according to an online poll conducted in 28 countries by the Nielsen Research Company.

But it is holiday spending that has been affected most by the credit crunch. According to a recent VTsIOM poll, 39 percent of respondents could not afford to go anywhere on holiday in 2009. Another 26 percent said they spent a holiday at home “to do housework or home improvement.” Fifteen percent of respondents spent their vacation at a dacha, and nine percent visited relatives in other Russian towns and villages. Only three percent of Russians could afford to spend their holidays abroad this summer. Forty-one percent of people who could not afford to travel anywhere said they were not happy with their holiday.

Additionally, Russians limited their spending on evenings out. “More than half of Russians go out less often than they used to, according to our research. This pattern has affected business in clubs, restaurants, theatres and cinemas,” Yerina said.

And most analysts agree: the new “post-crunch” consumption patterns will continue for the foreseeable future, even if incomes do increase.
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