Economic power is clearly moving east. According to the International Monetary Fund, GDP is expected to grow within the BRIC countries 61.3 percent between 2008 and 2012, compared with just 12.8 percent for the G7 nations. Today, global consumption patterns clearly favor developing markets and in Russia, the growth potential is tremendous.

But Russia is unique, holding so many characteristics that are more aligned with developed markets, high disposable income, high brand awareness and penetration of new technologies (i.e., mobile phones). This dual developed and developing markets landscape is a great opportunity for consumer goods and technology companies.

Challenges / Opportunities
Succeeding in Russia today, though, is not that easy. Its shear size, spanning eight time zones, can be a logistical challenge from a distribution standpoint. A fragmented retail landscape, coupled with a slowly recovering economic environment will make it challenging for Russia to maintain the momentum of growth demonstrated over the last 10 years.

But that momentum – especially for modern trade, which represents half the market of most categories, continues to grow and offers vast opportunities to retailers. The potential for continued growth can be quantified by looking at volume indexes within categories across other countries that show massive room for expansion. For example, categories like liquid soap, or new segments in shampoo, or a lack of truly innovated new products all point to opportunities to increase penetration and consumption.

Where to Focus
The future of Russia’s growth will come from:

• Rising middle class – accessible, less traditional and more experimental. Western brands will likely dominate.
• Urbanized second tier cities – 73 percent of the population live in urban areas with accessible links to mobile device connectivity.
• Over-proportion of younger consumers – 40 percent of the population is under 30, compared with 27 percent in Europe.
• Targeted distribution – retail consolidation and increased promotional spend will drive war on the shelf. Distribution will be paramount to winning.
• Demand chain tactics – shoppers will become the center of attention – moving from supply chain to demand chain.
• Retailer brands – economies of scale and a new “value-for-money” mindset among consumers will dominate.

The shopper is the center of everything. A keen focus on not just what they say, but what they do will define success for the future.

A relief from the heat came in the form of increased consumption of soft drinks in Russia, which increased 24% since last year. Despite experiencing low levels of consumer confidence since last year, the market is now one step away from changing to positive dynamics as signs of recovery are beginning.

Dwight Watson, Managing Director, Nielsen Russia

Unlike its booming and optimistic BRIC neighbors, Russia has been experiencing the lowest level of consumer confidence. The deepest decline was registered in April 2009 that affected the consumer packaged goods (CPG) market. The drop in sales reached its lowest point in Q4 2009, when the total CPG retail volume decreased by almost 10%.

According to preliminary data, the Russian CPG market is one step away from changing to positive dynamics. For the first time in the past year and a half, the non-food sector reported positive growth in July 2010. The food-sector is still behind, but due to stable growth of basic products, and the jump of sales in seasonal products, the recovery process is speeding up.

Thirst Quenchers
One major contributor to this growth can be attributed to the hot summer weather and the increase in soft drink consumption compared to last year. The National Urban Retail sales volume of carbonated sweet drinks (CSD), ice tea, juices, and Kvass grew by 24% in total, compared to July 2009. And the results were even 8% higher than in pre-crisis July 2008.

The fastest sales dynamics is observed in comparatively young segments such as Kvass (fermented non-alcoholic beverage made from stale dark sourdough rye bread)—where growth was also fueled by consumers’ excitement about the innovative launches. This traditional national drink became an absolute champion with 89% volume growth. Carbonated sweet drinks—the largest segment of the market—grew by 19% in volume and mineral / drinking water rose by 33% in 19 major Russian Cities.

Return to Growth
Although other tracked CPG market categories did not report such high growth, the negative trend is bottoming out and we anticipate a return to volume growth. However, recent price increases taken in September are concerning, which could contribute negatively to consumers who need to continue tightening their spending belts. Manufacturers and retailers must address consumer’s need for value in order to drive category sales and market share and ensure success moving into 2011.

Nielsen’s latest Russian Market Tracker Pulse report on consumer packaged goods sales in Russia for the first half of 2010 details the market performance trends throughout 2009–2010. The quarterly tracker is based on Nielsen’s Retail Measurement data across categories from major segments such as packed food and beverages, personal care, home care, cigarettes, pet food—audited by Nielsen on the National Russia geography and contains Nielsen’s fast-moving consumer goods (FMCG) index, food and non-food indices, which contain information on nominal and volume sales dynamics and average price change.

The average price of smartphones dropped 2% in the first six months of the year compared to the same period in 2009 and by 5% versus 2008.

“The drop in the average price of smartphones has put them in the hands of more Brazilians, regardless of their income level.  In the small but rapidly growing smartphone universe, 15% are owned by consumers in the two lower income levels,” said Thiago Moreira, Regional Product Manager of The Nielsen Company’s Telecom Practice in Latin America.

One of the great attractions of smartphones is the variety of functions they offer.  Survey respondents said that cameras, FM tuners and MP3 players were the most sought after features.  Sales of phones featuring cameras increased 33% in the first half of the year, while those featuring FM tuners jumped 76%.  Sales of phones featuring MP3 players grew 74%, while those with GPS products went up 52%.

Looking to the future, smartphones featuring digital TV – which currently account for 2% of the category’s sales – will be the goal for many Brazilian consumers.  More than 50% said that they intend to have such a feature on their next mobile handset.

“With the increased interest in that feature from consumers at all income levels, the strategic segmentation of that market becomes key to carriers and manufacturers alike,” said Moreira.  “It is critical that they have a deeper understanding of the criteria and motivations Brazilians have for purchasing the phones they do.”

Robert Buckeldee, Managing Director, OTC/Pharmacy Services, Nielsen Europe

SUMMARY: The over-the-counter (OTC) medicines category remains highly attractive with significant growth potential from both developing markets and established European and North American markets. However, the economic downturn has affected usage in several ways, which is troubling for both governmental agencies and manufacturers of the OTC products.

The global market for over-the-counter (OTC) non-prescription medicines remains buoyant, with growth in value sales in 2009 estimated at 4.7%, bringing the value of the category to over $95 bn (source: Nicholas Hall Company).  Much of this growth has been driven by developing markets, with double-digit growth recorded in Brazil, Russia, India and China (BRIC).  Many established mature markets for OTC medicines recorded very modest levels of growth.

As wealth and economic prosperity filters down through the layers in the BRIC markets and consumers find they have more disposable income, categories like OTC medicines will benefit from consumers helping themselves to treat minor ailments and prevent illness.

But as economic woes continue to circle around North America and Western Europe, and governments need to tighten the belt of public spending to help manage record debt levels, spending on healthcare within these developed economies will also come under intense scrutiny.  Only recently, the government in Greece has withdrawn state reimbursement from non-prescription medicines and they will not be the last to make radical changes to their healthcare financing.

The market for OTC medicines in developed Western Europe markets should start to see significant growth over time as consumers are encouraged to take proactive involvement in managing minor ailments and make less reliance on the state for help.

Hands-On Health Care
Against this backdrop, it is important to gauge consumer sentiment towards OTC medicines since the height of global economic uncertainty.  One year ago in March 2009, Nielsen asked consumers around the world whether the global economic crisis would impact their usage of the OTC medicines category.  Close to 50% of consumers globally indicated behavior would change, with one-quarter stating they would use the products less frequently and one-fifth saying they were more likely to use natural and traditional remedies.

Move the clock forward one year after the global economic crisis has affected day-to-day life and the same questions elicit key changes.  Most notably, only one-third (34%) of consumers now indicate the global economic crisis will affect their usage of non-prescription medicines in the year ahead.  A year of experience of the “new world order” has made more consumers realize that self-care is too important to put at risk.

Of those who indicate they will change OTC usage, there are subtle shifts in intentions compared to last year.  The 2010 results show a greater percentage of consumers now plan to visit the doctor more, buy cheaper products, and stop buying the products completely.

Protecting Equity
There are some key regional variations behind these changes.  The notion of visiting the doctor more frequently, and by extension being prescribed medicine rather than buying OTC products, is troubling for governments who need to manage healthcare budgets.

A recent study published by the PAGB in the U.K. —the trade association for manufacturers of over-the-counter medicines and food supplements—estimated that 57 million general practice consultations take place each year to treat minor ailments at a cost of £2bn to the National Health Service (NHS).  Governments need to take positive action to ensure consumers to visit the pharmacy as the first point of care for minor ailments and encourage them to buy OTC medicines.

Of concern to manufacturers of OTC products is the increase of consumers intending to purchase cheaper products or to stop buying them altogether.  Buying cheaper products feeds into an established trend and the growth of store brands and generic products within OTC medicines is proof that consumers increasingly understand the power of the active ingredient, as opposed to the brand.  The issue of dropping out of the category was relatively strong in the U.S., India and South Africa.  Market trends later in the year will determine if this intention is followed-up by action.

Within OTC medicines, supply feeds demand for store brands and generics, not the opposite.  So it is no surprise that the intention to buy cheaper products manifests itself in countries where chains are prevalent or where generics already have a strong foothold.  While market shares for store brand or generic products are generally lower than more mainstream branded grocery categories, the trend is rising and manufacturers need to invest in brand equity to protect sales.

Divergent Growth Strategies for East & West
The OTC medicines category remains highly attractive with significant growth potential from both developing markets and established European and North American markets.  Consumers understand that they can use OTC medicines without breaking the bank of their personal finances.

In developing markets, it is up to manufacturers to sell the benefits of their products to new consumers.  In Europe and North America, strategies will need to involve a more complex partnership with government agencies, healthcare professionals, pharmacists and retailers to encourage consumers to treat minor ailments without resorting to aid from state infrastructure and public finances.

As we focus our attention on 2010, clearly the global marketplace is redefining itself. Not only in economic terms but more importantly in consumer terms. Consumers are more diverse, demanding and connected than ever before. To help give you a clearer look into what’s ahead, Nielsen has assembled videos from our global team to deliver insights into what consumers watch and what they buy. With evidence of a recovery emerging, understanding the global trends and local conditions is essential to success.

“In the previous Nielsen Global Consumer Confidence survey conducted in March, we were seeing the first signs that as far as the world’s consumers were concerned, the recession had bottomed out. Three months later, they’re starting to embrace the idea of recovery – which is a major turning point,” said Jonathan Banks, Business Insights Director, The Nielsen Company.

In Nielsen’s latest survey, which polled 14,029 online consumers in 28 countries late in June, 71 percent of respondents thought their country was in recession – a positive reduction of six points from a high of 77 percent when the survey ran in March 2009.

“The BRIC and Asian markets have recorded the greatest jumps in Consumer Confidence Indices in the past three months,” noted Banks. “Consumer confidence in India jumped 13 Index points, and climbed 9 points in Japan, South Korea, Hong Kong and Indonesia. Consumer confidence rose 8 Index points in Taiwan and Brazil, and 7 points in Singapore, Turkey, Russia, Philippines and the UK. The only exceptions to this upswing were in the USA and New Zealand, which held flat in the second quarter, with Germany the only country to register a decline of one Index point,” said Banks.

Even in the market registering a small decline – Germany – there are encouraging signs that a recovery is imminent. According to the Nielsen survey, nearly one in three Germans (29%) said the recession would be over in the next 12 months, compared to only 22 percent three months ago. One in three Germans also thought “now is a good time to buy the things they want”, indicating a renewed willingness to spend on discretionary items. Thirty-eight percent described their personal finances as “good” for the next year.

“This is one of the strongest indicators of a global consensus among consumers that the worst is over, and that finally, there is light at the end of this long tunnel. And consumers in emerging and Asian markets are clearly of the view that they are driving in the recovery lane now,” added Banks.
The latest Nielsen Confidence numbers are a welcome return to positive, confident territory for consumers in the developed Asian markets of South Korea, Taiwan and Japan, who have been battling economic inertia and political instability for several quarters.

“Asian consumer confidence appears to have been boosted through successful government economic stimulus packages that were speedily and effectively implemented at the onset of the global recession,” noted Banks. In the world’s second largest economy, the Japanese government implemented tax breaks, introduced cash deductions and subsidies on new car purchases, as well as providing cash payment and premium gift coupon schemes to stimulate spending.

“As well as expanding credit terms to small and medium sized businesses, in Japan there are even incentives to purchase eco-friendly household appliances as part of the government’s new environmental policy, and national toll prices for motorways have been discounted to encourage domestic tourism,” observed Banks.

Stock market gains in the BRIC and Asian markets have also had a major impact on consumer confidence,” said Banks. More than any other region, stock markets in Asia have rallied and property prices are starting to regain their pre-recession values. Russia’s stock market is up 60 percent from the start of the year and Taiwan is up over 50 percent. Brazil and Singapore’s stock markets have gained around 40 percent in the past six months and the South Korea and Hong Kong stock markets are up over 30 percent. With stock market gains so intrinsically linked to consumer confidence in Asian markets, it’s no surprise that Asian consumers are most confident about a receding recession, led by Hong Kong (-14 pts), Taiwan (-13 pts), Singapore and Japan (-12 pts), India and China (-10 pts).

“Positive economic news and growing consumer optimism in the past few months have definitely led consumers in these markets to believe that economic recovery will come sooner rather than later,” said Banks. According to the Nielsen survey conducted in March this year, 28 percent of Singaporeans said they expected their recession to end within 12 months – last month this number rose to 39 percent. UAE consumers also share this sentiment. In March, 32 percent of UAE consumers thought the recession would be over within a year but in June 43 percent said they expected the recession to be over before the middle of 2010.

Latest Nielsen data also shows that consumer confidence in the UK – a country that has suffered one of the most dramatic downturns in consumer confidence in the last year – is on the rebound, climbing 7 Index points in the second quarter. “UK consumers are getting the hang of consuming less. People with jobs – still the overwhelming majority – now have more disposable income as they reduce spending on big-ticket items like cars and holidays. With mortgage interest rates at their lowest levels, savings rates are increasing quickly and this has increased financial confidence,” said Banks.
“Consumers know that recovery won’t happen overnight but there has certainly been more good news than bad in the past few months,” noted Banks.

The decline in constant bad economic news in the media has directly impacted on the topics consumers are talking and blogging about. According to Nielsen Buzzmetrics, Nielsen’s service for measuring online conversations, the number of online discussions, or” buzz”, in the UK mentioning the word “recession” dropped around 60 percent between late March and late June this year. “People’s obsession with the recession has switched to how to live and spend more moderately in a new economic era,” said Banks.

Italian consumers have also become more optimistic, showing a strong gain of 7 Index points – their highest Nielsen Consumer Confidence Index since the second half of 2007. “Our survey supports recent Italian government figures which indicate that consumer confidence is returning to the Italian economy. In the last three months, Italian consumers’ concern for job security and the economy fell by 4 percentage points respectively, while average supermarket prices fell 0.2 percent in June 2009, indicating that consumers are less concerned about rising food bills than they were two years ago,” said Banks. The rise in consumer confidence in Italy has also been positively impacted by the government’s stimulus policies and the significant decline of negative economic coverage in the media. Online discussions mentioning the word “recession” have decreased by 35 percent this year according to Nielsen.

Globally, job security and the economy remained consumers’ top two concerns in life but even the level of these concerns has abated in the last three months and recorded declines of two and four index points respectively.

In the past six months, the index has plummeted to a record low 77 points from 84 points. The catalyst: Latin America, Russia and other emerging nations are now feeling the full effects of a recession that began in the United States, officially, in December.

Though consumer anxieties about the economy take many forms, the most widespread fear centers on job loss. For the first time in the Nielsen survey, it was global consumers’ top concern, ranking No. 1 in 31 out of 50 countries surveyed.

Six months ago, only 9 percent of respondents cited job security as their primary worry. Now, nearly a quarter (22 percent) indicated they were more worried about going without a paycheck than over issues like work/life balance and the economy overall.

“With global redundancies affecting every industry, the economy and job security have eclipsed all other concerns in life today,” said James Russo, Vice President of Global Consumer Insights at The Nielsen Company.

Declining confidence has changed spending habits, with 70 percent saying they have taken steps to save on household expenses. Purchases of new clothes and out-of-home entertainment are the biggest casualties, with 56 percent and 53 percent of respondents cutting spending in those areas respectively. Forty-five percent have cut down on takeout meals, and 41 percent have switched to less expensive groceries.

Even when the economy improves, 40 percent will continue to try to save on gas and electricity, down from 45 percent economizing in that area now. And more than 20 percent will continue to look for less expensive groceries, cut down on takeout meals and buy fewer new clothes.

U.S. Confident, But Not as Much as China

In contrast to global worries, the confidence of U.S. consumers dropped only slightly, to a score of 80 from 82 and 83 for the second and first halves of 2008, respectively. (For the sake of reference, overall U.S. consumer confidence indexed at 100 during the second half of 2007.)

The modest U.S. decline may be a harbinger of better times. “We may be at, or at least very near, a bottom in this economic cycle,” Russo said. “Specifically in the U.S., while [consumers are] clearly adjusting their spending and savings, with 40 percent stating they are paying off debts and putting into savings. Americans are increasingly optimistic.”

Indeed, nearly 20 percent of Americans polled predicted an economic recovery within the next 12 months. Internationally, nearly one in five (23 percent) said their countries will emerge from the recession within a year. The Vietnamese and Indians made this prediction most frequently, with response rates of 60 percent and 56 percent, respectively.

Despite consumer confidence falling overall, the survey revealed interesting disparities among respondent nations. Consumers in Indonesia, Denmark and India seemed to be the most optimistic, with confidence ratings of 104, 102 and 99, respectively. Still, 77 percent of those polled across the globe indicated their homelands were in recession, up from 63 percent who said the same thing six months ago. Surprisingly, 65 percent of Chinese respondents denied there was any recession in progress at all.

“While China’s economy has undoubtedly slowed, February retail sales are still 15 percent up on last year and many Chinese consumers now believe the next 12 months could be a good time to go back to investing in stocks and property,” said Chris Morley, managing director, The Nielsen Company China.

Nonetheless, the weight of currency devaluations, weak export markets and falling commodity prices caused emerging markets like Russia (down 29 points to 74), UAE (down 21 points to 89) and Brazil’s (down 15 points to 82) to turn in consumer-confidence figures that had plummeted significantly. Consumers were the most pessimistic in South Korea, with consumer confidence score of 31, Japan (42) and Latvia (48).

Perhaps the survey’s most telling finding was that Latin America has seen its confidence shaken. “Six months ago as developed markets hurtled towards the epicenter of a global recession, Latin America was the world’s most optimistic region,” Russo said. “However, it hasn’t taken long for the tentacles of the global recession to reach them.”

The Nielsen Global Consumer Confidence Index, compiled twice a year, tracks spending habits and concerns among 25,420 Internet users across 50 countries. Respondents were surveyed between March 19 and April 2.

Download the report.

Meanwhile users across the U.S. and Europe commonly use their phones to access news and information online, Nielsen found. 

Entertainment, gaming, and music websites rank among the top five categories visited via the mobile Web in all four BRIC countries, while email, weather, news, and search are the top categories for both American and European mobile Internet users. 

In the U.S., entertainment, music, and games place eighth, ninth, and tenth respectively. 

View the full press release.

Read coverage of Nielsen’s findings in the Business Standard and The Economic Times.