The growth rates of disposable resources in rural Russia are impressive. Even considering inflation rates of 8.8 percent (both in 2009 and 2010), real disposable resources of rural households grew by about 10 percent since 2008. Rural Russia is transforming. And this has awakened the interest of marketers looking for expansion opportunities.

Signs of Growth
If the maturity of telecommunication infrastructure is one of the key growth indicators for market development today, Russia’s rising Internet and mobile phone penetration rates show positive signs. Since 2009, the number of Internet users in Russia increased 30 percent, according to the International Telecommunications Union.

And while the highest Internet penetration of users is still found in urban Russia, development of Internet usage in rural Russia is growing rapidly. Growth rates in rural households are almost twice as high as in urban homes, which can be attributed to the recent deep transformations in rural Russia.

A Changing Retail Landscape

Retail infrastructure in rural and urban Russia differs considerably—an important factor when considering marketing and distribution strategies. There are almost twice as many retail outlets in urban Russia than there are in rural regions. And while the majority of retail stores in rural Russia are introduced as minimarkets and food stores of traditional trade, an interesting dynamic is emerging as growth rates of modern trade formats in rural Russia are high and they sometimes even surpass modern trade development in urban Russia.

In 2011, two of the biggest retail chains announced plans for further expansion in small communities. Expanding the modern trade universe in rural Russia will offer tremendous potential for FMCG-businesses to establish positions in the rural market.

And while the establishment of a strong market position in the rural landscape can be challenging due to logistical distribution difficulties, rural Russia is not an isolated part of the market. Market concentration levels in rural Russia, as well as the main market players for the majority of categories analyzed by Nielsen, are generally similar to the urban market, indicating that rural Russia is aligned with—not separate from—urban Russia.

The Battle for Shelf Space
Most retail outlets in rural areas are traditional stores and the sales area is typically limited, which makes the distribution of goods a battle for shelf space. To succeed, a deeper understanding of rural consumer demand is necessary.

Given the restricted shelf space in rural Russia, an increase in the number of brands and SKUs in retail outlets is limited. Increasing share in rural areas is mainly possible through product range streamlining and replacing brands and SKUs with new ones that are in higher demand. It is becoming increasingly important to better understand how rural and urban consumer choice differs. A comparison of the top 10 SKUs in urban and rural Russia suggests at first glance that consumer choice does not differ much.

On average seven out of the top 10 SKUs are the same in rural and urban Russia. However, the penetration of brand leaders in the urban market is significantly lower in rural Russia. This disparity between the demand of rural consumers and the supply of rural Russia generates a potential for those manufacturers who are able to enter the market with the product range that can satisfy the unmet demand of rural consumers.

“Fair” Price
As the average disposable resources of rural households per household member are only about 60 percent of those in urban households, rural consumers are price sensitive. However, a shopper in a rural store actually pays from one to 11 percent more than they would in an urban store. More challenges for direct distribution, a longer supply chain and higher transportation costs drive prices up in rural stores.

First-in Advantages
In the days of high competition, being proactive is one of the main secrets to success. The first to seize new opportunities will likely also be the first to profit the most. Rural Russia is no doubt a challenging market to satisfy, but it is also big and changing. And change always offers new opportunities to those who can see the latent and emerging demand and are proactive enough to satisfy it first.

Grocery spending is slowing down

More than 70 percent of Russians say the state of their personal finances is bad or not so good, according to Nielsen’s second quarter global online consumer confidence survey. As a result, consumers’ average monthly spend on groceries has slowed. In Moscow, consumers’ average grocery basket spend has slightly decreased, bringing the cash outlay for grocery goods equal to the amount spent St-Petersburg for the first time (~16 thousand Rubles). Consumers dealing with rising costs typically turn to retail channels that can offer better prices, like discounters. But in markets with a high level of competition, such as Moscow and St-Petersburg, discounters have actually started to lose consumer loyalty.

Hypermarkets are gaining back their positions

In 2010, discounters in Russia gained favor with shoppers because of their low price positioning. But today the situation is reversed. According to the Nielsen ShopperTrends 2011 study, hypermarkets are gaining back their positions – both in terms of brand equity, shopper loyalty, and basket size. Shoppers did not perceive discounters’ as providing their key communicated value – best prices for all goods – and started to switch back to hypermarkets where they spend the majority of their monthly grocery budget. Consumer loyalty must be built on trust.

Value – not price – is driving shoppers

Notwithstanding the price sensitivity of cash-strapped consumers, Nielsen’s study shows that low prices are not really the main store choice driver today. Value for money is. Assortment is the second most important driver for store choice. This is especially true in Moscow where getting good quality fresh food in modern trade is more difficult than in the port city of St-Petersburg where fresh-food delivery is not an issue. In St-Petersburg, where the modern trade development, retail concentration and competition is very similar to the European shopping experience, good service and a nice shopping environment are also key store choice drivers.

Shoppers want wider choices and a better experience

The rising number of specialty or niche stores that build assortment on one or two basic product categories, such as bakeries, meat stores, fruit and vegetable stores, and dairy stores are gaining popularity with consumers. The importance of these specialty niche stores will grow as consumers turn to them for better quality, freshness and wider choice. These specialty stores can also turn into an opportunity for the small retailer and owner of impulse kiosks and pavilions who will be affected by the new law banning beer from kiosks after 2012.

War on the shelves

As shoppers make more decisions based on the importance of ‘value for money’ and make decisions more often in-store, competition for consumers’ choice will move to the shelves. Correct price and assortment decisions and effective in-store communications will be vital for retailer and manufacturer success, which is especially true for products where brand power is low.

Promotion pressure is growing

The number of items sold on promotion is growing in each product category and is an effective means to drive basket size. Nielsen reports that 43 percent of survey respondents in Moscow and 54 percent of respondents in St-Petersburg say they seldom change stores based on promotions, but actively look for promotions in stores where they usually shop. Promotions will become an even more important means to drive consumption and market share. Manufacturers and retailers need to make smart promotion decisions and be careful to not over-promote the product category or take too many temporary price reductions. This could lead to devaluation of the brand power in the category, open the gates for private label expansion and potentially decrease the sales potential of the category in the long-run.

Now is the time to drive brand equity

The new wave of consumer pessimism will be a good test for manufacturers’ brand power. This is the time when leaders can get the best of the situation by investing in shopper marketing. At the same time, it is also an opportunity for new brands, including store brands or private labels, which will be able to offer shoppers the value for money they desire.

Like many markets across the globe, Russia is easing its way out of the global recession, and its economy is exhibiting signs of recovery. In fact, with a large and expanding middle class, a youthful population, and vast natural resources, most observers agree that Russia is poised to experience strong economic growth in the years ahead.

Distribution Opportunities
Having weathered a long economic storm, Fast Moving Consumer Goods (FMCG) brands are operating in a different economic environment. Throughout the recession and its aftermath, manufacturers and retailers were particularly pressured to reach consumers effectively. The most successful tactic was the tried and true power of distribution. Despite change, the physical environment of Russia remains the same as ever: geographically, Russia is a huge country with a logistically challenging terrain. It has battled a fragmented retail environment and difficult distribution chain for years. Historical wins in the retail market have belonged to companies who invested in and implemented efficient distribution strategies. This was and remains the surefire way to reach Russian consumers in retail outlets beyond the major urban centers of Moscow and St. Petersburg.

FMCG brands and marketers have long known that Moscow and St. Petersburg offered major sales opportunities; currently, the two big cities provide over 20 percent of the country’s FMCG sales volume. To win in the new economy, brands in Russia must reach the millions of consumers in the smaller cities and towns that represent untapped demand. Certain retail outlets have recently expanded in these areas, creating shelf space and sales opportunities for brands that are able to make the requisite distribution investments.

In particular, specialist retail outlets made big gains throughout Russia in 2010, creating new distribution opportunities for even the country’s leading brands.

As the Russian recovery increases in scope and speed, FMCG brands and marketers who act now to position themselves for growth in the outer regions and in the new retail outlets are most likely to see the biggest gains.

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.

Myth #1: Russia is not innovative.
Innovation in Russia is growing rapidly. In fact, in terms of new product investment, Russia is ranked in the top 10 countries for innovation testing. On average, 20 percent of the products in a given category are new launches, with over 100,000 new UPCs coded in 2010. However, this plethora of choice can cause confusion, with consumers, retailers and brand managers alike, and can in itself even stunt innovation, and result in a lack of focus on what consumers actually want.

Myth #2: New product launches = guaranteed success in Russia.
As the largest country in the world, covering 17.1 million square kilometers and spanning eight time zones, one might think that there are surely enough people to make any new product launch successful. The truth is, less than one in five new launches succeed in market. And even the most successful will only achieve volume share in the 0.6 to 0.7% range. In fact, the success hurdle in Russia is higher than other markets due to a highly fragmented retail trade environment and intense competitive pressure.

Myth #3: Russia is different from other countries.
While it may be true that Russia is different from other countries culturally, the ingredients behind innovation success are common across markets. Looking at the characteristics that explain new product survival across markets we see the same pattern: the need for strong product delivery, adequate levels of marketing support, underlying appeal of the concept idea and purchasing dynamics. The key differences are in terms of what relevant, appealing and differentiated innovation means to Russian consumers, and also in terms of making new products available to them, given the challenges of the retail environment which is critical for sales.

Myth #4: Speed is of the essence.
It’s not necessarily the first mover that wins, and if you can truly own a category you can make yourself untouchable. However, it’s not guaranteed and over time, the offering that best meets consumer needs will come out on top. Understanding consumer needs, setting the entry barrier high and providing a unique solution is a sure way to guarantee success. By quickly building strong awareness and accessibility and taking the time to educate consumers, long-term investments will be sustained.

Myth #5: International brands = success.
While multinationals can take advantage of being global, true success will be found by thinking global, but acting local. The Russian population is diverse and requires precision targeting. Know your consumer and their unique needs, and make sure that your offering speaks to them. Leverage perceptions of brands with Russian heritage, as well as international prestige. Draw on the somewhat contradictory demands of being traditional as well as forward thinking. Recognize the differences for Russian consumers and embrace what makes their demands difference from those in other markets.

Myth #6: Price is king.
Don’t be intimidated by charging a premium price if the benefit is justified. There are many ways to make your price accessible to consumers and by doing so, justify even a premium price. Consider strategies such as changing your competitive set, offering size variations (up-size to take advantage of a lower cost per use, or down-size for a lower cost outlay), and offering new benefits over and above current offerings and consider appealing to a different target audience as well as explicitly communicating price discounts.

Myth #7: You only need to do one thing right.
Successful innovation is not just about coming up with good ideas. It requires a deep understanding of local market knowledge, consumer understanding and category insights, together with organizational processes that support and encourage innovation. If you don’t have this, the best ideas will not translate to the best launches.

The opportunity to grow in Russia is huge and growing. Keep in mind a few important take-aways:

• Keep a global perspective, but local expertise.
• Set appropriate expectations.
• Don’t overreact to changes in the marketplace but stay flexible and adaptable.
• Understand how to optimize your process.

For those willing to take the challenge, the rewards are enormous. Don’t let your competitors beat you to it!

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.

Motivating Factors
In a recent Nielsen online survey, car owners from Russia’s largest cities cited practical reasons such as wanting a safer or better equipped car when considering an automobile change. But while sensible reasons dominate, there is evidence that less practical motives are driving forces as well. The Nielsen study showed there are signs the Russian consumer market is recovering and that discretionary spending like car purchases is expected to grow. The research reveals an increasing importance placed on emotional motivation—one in five car owners say they want to change a car because they are ‘bored’ with the current one.

Price is Paramount
While Russians are feeling confident in the stability of their personal finances—two in three expect the state of their finances to remain the same or improve over the next 12 months—there is caution. One-third of those planning a car change in the next three years are prepared to spend conservatively by choosing lower-priced brands, more economical models, and basic packaging. Consumers cite the growth of car prices in Russia and increased interest rates as factors.

Payment Plans
Russian car owners plan to fund a vehicle purchase mostly through loans. Loan demand is expected to grow in the very near future—44% of those planning to buy a car in the next 12 months intend to use a loan; and both large, well-known financial institutions and small banks will have an equal crack at winning consumer attention. However, receiving a loan from a recognized bank is less of a priority than securing a loan with the most benefits. Options like early payoff without penalty and simple, clear credit terms are favored by consumers.

Funding Options
The Russian government’s recently launched subsidy program to encourage sales of Russian-produced cars received a lukewarm reaction—only 15% said they are interested. But 37% of consumers are ready to use the trade-in option offered by auto dealers.

Car dealers have an opportunity to better educate prospective buyers about trade-in options. Sparse or unclear information about the service and its benefits was cited by 15% of consumers who said they do not have enough information to make an informed choice. The majority of skeptics believe they would make more money selling their cars directly.

Cautious Optimism
The continuing uncertainty in the stability of the national economy and the current high rate terms of loans make one in three potential buyers moderate their appetites to avoid risking the family budget. A reduction of loan rates and the active promotion of alternative car sales programs would likely provide a timely solution to help car owners receive what they want without breaking the bank.

Jean-Jacques Vandenheede, European Business Insight Director

SUMMARY: Following the positive trends exhibited in the first quarter of 2010, the second quarter was a disappointment. Contributing to the poor results was a technicality: this year, the traditionally busy Easter weekend was part of the first quarter whereas last year it was part of the second. As a result, Q2 growth rates suffered. But beyond this simple calendar issue, economic fundamentals were weak as the Euro debt/Greek crisis dominated the news and reminded shoppers of the need for cautiousness.

This quarter marked the first time that value growth has fallen short of +1% since Nielsen debuted the European Growth Reporter in 2007. Volume growth rates were lower in Q2 than in Q1 in 15 of the 21 markets we monitor, with Hungary, the Czech Republic and Switzerland being the key exceptions.

Despite having the highest consumer confidence in Europe, Norway saw a sharp decline on a quarter-by-quarter basis (from +8.7% nominal value growth in Q1 to -0.9 in Q2). Germany and Italy also played roles in holding down the overall European number, with Germany falling from +1.7% in Q1 to -2.1% in Q2 and Italy dropping from +1.0% to -1.7%.

The East-West divide we saw in Q1 remained in place in Q2. Western Europe, while still posting disappointing results, was fundamentally stronger than Eastern Europe. Rampant inflation persisted in Albania, Bosnia and Ukraine, while volumes continued to decline in Bulgaria, the Baltics, Romania and Russia.

Improvements in the economy have prompted some consumers to make the “large item” purchases such as buying a house or renovating an existing home or buying a car that they may have delayed during the depths of the economic crisis. While they may be slowly opening their wallets for these purchases, they remain skittish about spending on grocery items, continuing to seek out promotions, private label goods and other strategies that increase value for money. We expect this trend to continue until the European consumer is convinced that recovery has firmly taken hold.

Total European View – Q2 2010

Negative Growth Trends

Nominal value growth dropped sharply, decreasing to 0.9% in the second quarter of 2010, a 1.6 percentage point fall from the first quarter of 2010 and a decline of three percentage points from the same period in 2009. Overall, unit value increased 0.8% while volume growth came to a standstill, up 0.1%

Country Analysis – A Europe United by Uncertainty

Turkey continued to show the most significant growth in unit value, increasing 3% since last year and volume grew by 4% here. Slovakia saw solid growth in volume (+4%) although unit value showed no increase whatsoever. Finland showed 2% volume growth, although the country posted the largest unit value decline as a result of significant deflation (a factor that also affected unit values in Ireland, Portugal and Switzerland). Unsurprisingly, Greece showed declines in unit value (-1%) and volume (-4%) as the country’s shaky finances hurt consumer confidence.

While the overall results were poor, there were a few notable standouts. France saw nominal value growth rise by 2.1% compared to the same period last year, with very modest gains in unit value and volume growth (+1% each). The UK posted nominal value growth of 3.2% with gains in unit value (+3%) being seen as modest inflation creeps back into the food sector once again. Volume growth here was (+1%).

About the Nielsen European Growth Reporter
This report compares overall market dynamics (value and unit growth) in the fast moving consumer goods sector across Europe. It is based on the sales tracking Nielsen performs in every European market, and covers sales in grocery, hypermarket, supermarket, discount and convenience channels.

The report is based on the widest possible basket of product categories that are continuously tracked by Nielsen in each of these countries and channels, and this edition reports on week 15 of 2010 through to week 27 of 2010.

Glossary
Nominal value growth: Percentage change in value sales (expenditures) as measured by the total basket of reported product categories i.e., overall value growth.

Unit value growth (price change): Percentage change in the average retail price per unit in the total basket of reported product categories i.e., price inflation/ deflation.

The unit of volume in the basket varies by category (e.g., liters, kilograms, tons etc).

The change in average price per unit may result from:

• Price changes of individual products
• Change in the mix of purchased products; more or less expensive products, more or less promotions, etc.
• Channel switching; more or less purchases in discount stores, or hypermarkets, or convenience outlets, etc.
• Product or channel mix changes may be induced by price change or may just be the result of market dynamics.

The unit value growth reflects how consumers experience ‘cost of living’ in their actual grocery shopping behavior. The volume growth is the percentage change in purchased volume (quantity) of products.

Read the full report on European consumer uncertainty.

Venkatesh Bala, Chief Economist, The Cambridge Group

SUMMARY: Consumers around the world are hungry for access to information and communication, especially in countries with a growing middle class. Defying classic economic models, the demand for communication (cell phones) leads traditional media growth, signifying a global, disruptive phenomenon. The demand for information via the Internet follows slower, more predictable growth patterns. The implications for marketers: lead with mobile advertising in high-growth, emerging economies.

The demand for information and communication is being reshaped around the globe, especially in countries with a growing middle class such as the Russia, India and China and some N-11 (Bangladesh, Egypt, Indonesia, Iran, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam) economies. Recent projections from the International Monetary Fund indicate that over the next five years, growth in real Gross Domestic Product (GDP) in emerging markets will be substantially higher than in developed economies.

Notably, the large BRIC economies are expected to expand by four to five percentage points more each year from 2010-2015 than the established markets of G-7 nations including the U.S., U.K., France, Germany, Italy, Canada and Japan.

New Markets, New Models
Market players in media, telecommunications, consumer products and financial services seeking to reach the rising middle class in forming markets will need to re-think standard market development approaches. The key to success lies in understanding the unique ways in which the demand for information and communication will evolve, and how those patterns differ from established countries.

A simple way to think about the demand for information and communication is to examine Internet and mobile phone penetration for every 100 people in a country. Analyzing the relationship of those two technology penetration levels with other variables such as income and time provides a good forward looking window into demand evolution.

Defying Classic Economic Models
The difference in Internet (information) and mobile phone (communication) patterns and trends between developing and emerging economies is striking. Internet penetration for established economies follows a fairly typical pattern, rising with income levels, and requiring a threshold of around $20,000 of per capita GDP to achieve 50% penetration.

Not so for mobile communication, for many reasons, several of which are raised here. First, mobile penetration often exceeds 100% because people own multiple mobile phones. Second, while mobile phone penetration also rises with per capita GDP, it happens earlier, and faster, than Internet adoption. Instead of a $20,000 threshold, in many countries mobile phone penetration exceeds 50% with a per capita GDP as low as $5,000. In middle income countries such as Russia and Saudi Arabia, mobile phone penetration rates are even higher than those of more advanced economies such as the U.S. and Canada because mobile is an affordable, accessible alternative to the Internet. Altogether, the analysis on every dimension suggests that mobile communication is a truly disruptive phenomenon, acting on a global scale.

Uptake Outlook
Over the next 5-10 years, mobile penetration will rise to roughly 140 phones per 100 inhabitants, even in very low per capita GDP countries, and then rise gradually with income. At that point, the gap in mobile communication between developed and emerging economies will have largely disappeared, although some differences in technological sophistication will remain. In fact, within emerging markets, mobile communication may actually foster greater business and GDP growth, creating a feedback loop which will further boost mobile penetration, which is part of the disruption caused by this technology.

What Advertisers Think
Research conducted by The Cambridge Group and the Columbia University Business School on the future of advertising found that different media had different roles in the minds of advertisers. For example, TV was associated with achieving reach and awareness among key audiences, while online/Internet was viewed as better suited for targeting, reaching an engaged audience and the ability to measure ROI.

In developed countries, a combination of TV and Internet can produce effective advertising, enhanced by the addition of the emerging mobile platform. In emerging economies however, Internet penetration will still be low by 2014, and any ad campaign relying on the Internet as an integral component will miss out on a large section of the middle class.

Reverse Innovation
Because the vast majority of world economies can be classified as mobile dominant versus mobile/Internet balanced, a reverse innovation model is evolving, where effective mobile advertising platforms are identified first in emerging markets, then transferred back for further refinement in established markets. The implications of the disruptive growth associated with mobile technology in emerging markets also should readily transfer to other industry sectors.

For example, mobile banking holds much greater potential than online banking, with a high likelihood that it will leapfrog online financial activity in emerging markets. Value-add services ranging from personalized weather reports, to product and price information on-demand, to location-based and remotely-activated services will continue to bolster demand for mobile offerings.

Proof of the middle class appetite for mobile applications and the potential for businesses in developed economies can be found in the success of the iPhone. At last count, the iPhone store offered more than 200,000 individual applications. The mobile application potential is virtually limitless for companies with an innovative bent, quick to move on media trends. In advanced economies, the advent of 4G will blur the distinction between mobile and Internet, as consumers increasingly access the latter through mobile devices.

A vibrant set of mobile advertising solutions will be an essential ingredient for long-term growth in emerging markets to ensure adequate trade-up to higher price points and brands as per capita income rises. The respective importance of different media by market development suggests that mobile serves as a substitute for the Internet among the middle class in emerging markets for the distribution of broad-based marketing messages, and a complementary platform in established economies. Like any good investment, timing is everything, and mobile should be the leading-edge technology deployed by advertisers in developing markets and added to the portfolio in established sectors.

Several Western Europe economies, namely Germany, United Kingdom and France, reported moderate growth in Q1 with consumer spending between 1% and 4%. However, the escalating European debt crisis that has damped confidence in Q2 may impact future growth. In North America, the contrast between increasingly optimistic Canada and cautiously restrained U.S. is being reflected in dollar sales. Across both the U.S. and Canada consumers are cutting back on shopping trips, seeking value and establishing a balance of branded and store brand purchasing.

Advertising spending also improved in Q1 as 25 of the 31 countries reported in Nielsen’s Global Ad Spend Report experienced gains of greater than or equal to 5%. Two globally significant events – Winter Olympics and FIFA World Cup – were driving forces behind this trend. Economically struggling countries Japan, Ireland and Spain were the only countries with flat to declining ad spending in Q1.

What to Watch
In the second half of 2010, against the backdrop of a shaky global economy, consumers in emerging markets will remain more willing to spend on discretionary categories such as apparel, vacation and out-of-home entertainment. In the developed economies where a largely jobless recovery is taking place, the consumer remains very reticent as they are closely monitoring their spending. Value remains the mantra and the new normal is characterized by restraint.

Download the Q2 2010 Nielsen Economic Current.