The Moscow Times: Crisis Taught Firms About Consumers

The Moscow Times: Crisis Taught Firms About Consumers

By Alex Anishyuk

Executives at some of the country's top consumer goods companies said Wednesday that while the crisis took a toll on their business, it also provided a number of valuable lessons about Russian consumers.

But a panel at Troika Dialog's annual Russia Forum found that the lessons learned were as varied as the goods they sell.

The recession taught businesses to look at their products more precisely, said Stefan de Loecker, CEO of Nestle for Russia and the Eurasia region.

“Many businessmen blamed the crisis for the sales drops, but it was not always the case,” he said. “The crisis showed weakness of some brands and products. It revealed that some goods don’t offer enough value for money to the consumer and made businessmen improve their assortment.”

Consumers here are quite quality-dependent and will not switch to cheap brands so easily, said Mikhail Kusnirovich, chairman of the board at Bosco di Ciliegi, a major sports clothing manufacturer and retailer.

“In this country, people have a sane consumer mentality, and their consumption depends on the overall mood,” he said. “As you can see, people have not switched from toothpaste to dental powder.”

The key for building a successful business, then, while demand is floating near bottom is to enhance your offer, Kusnirovich said.

“Imagine that you are a restaurateur and you have fewer clients, and all of a sudden you decide to cut 70 percent of the items on your menu. You may well guess what business results you'll achieve,” he said. “You need to dance before your consumer. You should make the consumer fall in love with you. Only then will you be a success!"

Others on the panel said they learned that even emerging markets could some day retreat.

“I remember sitting in my office 18 months ago, with oil prices at $150 per barrel and the ruble feeling historically strong against the dollar,” said Richard Smyth, president of Mars for Europe and the CIS. “We had a ninth year of consecutive growth, and I could never believe things would go as wrong as they did.”

The recession made plenty of businessmen think of closing up shop, said Rostislav Ordovsky-Tanayevsky Blanco, president of Rostik Group, which owns and operates a number of restaurant chains.

“In March [2009], we all thought we're going to die,” he said. “The crises in Russia have a national peculiarity: They are much stronger and much shorter, and on top of that we all have a short memory.”

Alcohol — and especially the vodka market — fell amid the recession as the share of counterfeit trade increased, said Alexander Mechetin, chairman of Synergy, a major vodka producer.

“Sales of cheaper vodka brands fell most significantly, as more low-income consumers preferred to buy counterfeit vodka and save money,” he said. “As for premium-priced vodkas, our company had a surprise sales upturn of 20 percent for our Beluga premium brand.”

He attributed the growth to middle-class consumers who used to drink imported whisky or cognac before the crisis but switched to high-end domestic brands. The swap allowed them to feel like they were maintaining their quality of life while saving money, especially as import prices rose because of the ruble devaluation, he said.

But cutting prices, a tactic used by many Russian clothing retailers in 2008 and 2009, drastically decreases the goods' perceived value for consumers and the image of retailers, said Kusnirovich, of Bosco.

“Those who could buy a jacket for full price want to feel they can afford it at 100 percent and not at a 70 percent discount,” he said. “Consumers who only can afford quality clothes at 70 to 80 percent discounts, will think: Look how much these retailers overpriced their stuff during good times — even with these discounts they make fair margins!”

On the whole, retailers are optimistic about the Russian market, said Synergy's Mechetin.

“A man stays a man, and a consumer stays a consumer. People will keep on buying premium-priced goods and going to restaurants,” he said. “And as long as they do so, we will have high margins.”

Activity in the Oil and Gas sector (including regulatory)

RIA: Oil leaks from recently launched Pacific oil pipeline

An unknown amount of oil leaked from the East-Siberia - Pacific Ocean (ESPO) oil pipeline, launched about a month ago, a source in the regional emergencies service said on Thursday.

The leak occurred late on Wednesday, near the final point of the pipeline, the town of Skovorodino in the Amur Region.

"The amount of leaked oil and the area of pollution are being established," the source said.

He added that the leak poses no serious threat to the environment as snow and temperatures below -30 degrees Celsius (-22 degrees Fahrenheit) prevent soil pollution.

Works to clean contaminated snow are already underway.

The pipeline was apparently damaged during construction works.

Transneft, the pipeline's operator, was not immediately available for comment.

The ESPO project is designed to pump up to 1.6 million barrels (220,000 tons) of crude per day from Siberia to Russia's Far East and then on to China and the Asia-Pacific region. The first leg of the pipeline was launched by the Russian Prime Minister Vladimir Putin on December 28, 2009.

On January 20, about 450 cubic meters of oil leaked from the pipeline in Sibria's Yakutia during maintenance works, polluting the area of over 20,000 square meters (over 215,000 square feet).

VLADIVOSTOK, February 4 (RIA Novosti)

The Moscow Times: State to Give Rosneft New Sakhalin Fields

Combined Reports

The Natural Resources and Environment Ministry said Wednesday that it may extend several no-bid licenses to Rosneft for development on the Sakhalin shelf, where Rosneft has tried to build a presence for years.

"The ministry is preparing such a decision. It's possible that it will happen in the first half of 2010," said Denis Khramov, a department head at the ministry, Interfax reported.

In order to approve no-bid licenses, the government must first include them on a no-bid list and then approve the transfer of the licenses. Khramov said the government had not yet finalized which licenses the oil major would receive. Rosneft vice president Peter O'Brien expressed interest last year in the Nekrasovsky-Astrakhanovskoye More field and the northern part of the Chaivo More field.

Rosneft hasn't had much luck with Sakhalin developments. In 2007, Rosneft and partner British Petroleum gave up drilling on the Sakhalin-4 development when it came up empty.

In 2008, the government rejected Rosneft and Korea National Oil’s request to extend their rights to offshore resources in West Kamchatka, later transferring the license to Gazprom.

The government also granted Gazprom the Kirinsky block, which is part of the Sakhalin-3 project, and the Chayanda field in eastern Siberia without competitive tenders, among at least 10 licenses that the gas export monopoly gained in 2008.

Rosneft spokesman Nikolai Manvelov declined to comment on licenses Wednesday.

The government now only allows Rosneft and Gazprom to develop marine fields. Under current legislation, the license holder must be state-controlled and have experience working offshore.

The Natural Resources Ministry has proposed changes in the laws to stimulate investments in offshore fields, such as expanding the list of eligible companies and granting separate licenses for wildcat drilling, Khramov said. Russia now issues joint licenses for exploration and production on offshore blocks.

The ministry also wants the state to play a larger role in shaping groups that operate offshore projects, to increase financing and ensure compliance with license terms, he said.

The changes would help Russia retain its “advantage” in the Arctic and other offshore areas, currently jeopardized by lack of investment and slow pace of work, Khramov said.

Last year’s budget investments in offshore fields were cut to 24.6 billion rubles ($823 million) from 29.9 billion rubles in 2008, Khramov said. License holders invested 800 million rubles, down from 1.2 billion rubles.

Producing offshore fields in the Far East yielded 11.8 million tons of crude, 1.6 million tons of condensate and 10.3 billion cubic meters of gas last year, Khramov said.

(MT, Bloomberg)

February 04, 2010 02:46 AM Eastern Time