Russia's retail revolution - capitalism brings on market changes

A couple of Russian entrepreneurs were in my office recently, complaining about the sales of their food products. Just two years ago, their company could fly in a planeload of goods and they would sell out almost as quickly as Russian stores could be stocked. Those were the days of barren shelves and very little choice. Now, shelves are full, competition has heated up and they realize they need to spend more time establishing their brand. Their experience is a good indication of how quickly things are changing on the retail scene in capitalist Russia.

Surprises lurk around every corner in this unstructured, evolving market. Upon first look, one would find only a handful of what Americans consider supermarkets, as retail goods are sold mostly in the tens of thousands of small city kiosks and open markets. But then you stumble across the GUM, an organized retail outlet near Red Square that is now dominated by upscale retailers, including Nike, Reebok and other Western brands. These extremes illustrate both the contrasts in the Russian marketplace and the speed at which it is evolving' making the tasks of identifying consumer needs and building brand awareness far different--and more difficult--than in the United States.

In this newly thriving marketplace, brands can suffer an identity crisis. Partly to blame, and indicative of the accelerated pace of growth, is an underdeveloped distribution infrastructure for domestic companies. This has led to problems in establishing brand recognition because of inconsistencies in manufacturing, distribution, store presence and even the actual product itself. U.S. consumer product companies are accustomed to Keeping brands true to their promises--whether Americans buy their Kool-Aid in Boston or Texas, it is a given that it will taste virtually the same in each locale. This is not the case throughout Russia, where it is far more difficult to retain a sense of consistency. Mix water with Brand X in one part of the country and compare to another region and you'll see what I mean: different water, a different product.

The in-store environment is chaotic, especially for American brand marketers used to maintaining a uniform shelf presence across stores. While Russian retailers seem to have great respect for brands (when a Coke cooler goes in a store, it is stocked only with Coca-Cola products), maintaining a semblance of consistent shelf placement is a challenge for any brand or category. Baked goods ca n be found next to cosmetics in one store and bubble gum in another. Weak distribution systems are partly to blame. When a brand sells out, it may be weeks or months before that store can get it again, so shelves are rearranged around merchandise that's in stock

Point-of-purchase advertising is not terribly sophisticated either; it often consists of taping labels to the windows of a Moscow kiosk. And to compound these issues, Russian product cycles are shorter. Categories are just being built, and they become obsolete more quickly than in the United States.

Those interested in tracking a brand's sates will find the methods archaic. There may be bar codes on some packages, but Russian retail does not use scanning equipment yet (see "Downloads, " page 24).

The future of Russian retail is hazy, with continuing change the only certainty. Right now, it is easiest to identify consumer needs and trends by looking at the cosmopolitan inhabitants of Moscow and St. Petersburg, but the urban population is beginning to move outside the city into suburbs growing on the outskirts, and brand awareness is even slowly creeping into rural areas. This will cause a natural evolution--or revolution--in the way people make purchases, and the retail scene will need to adjust. Expect to see consolidation as kiosks and open markets merge into larger stores.

As these changes take place, sooner rather than later, brand identity will become more important. But what will the Russian consumer consider the highest priority? Will it be value? Prestige? Imports? Domestic brands? It will be difficult to predict, but worth finding out.

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Similar to Tang in the 1960s, Russian company C-PRO distributes powdered soft drinks positioned on convenience and nutritional value. Offerings under its brand, Invite, have now expanded to other powered foods, such as oatmeal and soup.

To complete more effectively for the attentions of Russian consumers, C-PRO and others have turned to American companies to learn how to create brand awareness and package products. There is also a strong movement toward setting up manufacturing infrastructures, starting with building factories and creating domestically produced items.

Traditionally, C-PRO's products have been co-packed outside the country, but its entrepreneurs see tremendous opportunity in production at home. The company is currently in the process of building a factory to begin domestic manufacturing, yet it will also try to retrain images of quality that Russians associate with prestigious imported products.

Christopher Bailey is president of Bailey Design Croup, Plymouth Meeting, Pa., a graphic design firm specializing in packaging design, and brand and corporate identity.

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