In the Western European white goods business, the focus is often on Germany and Italy, the traditional production powerhouses, and the emerging Central European manufacturing centers, such as Poland and the Czech Republic. But further east, in Russia, the market developments are just as interesting.
Russia has a population of about 145 million people in a territory that stretches from Europe to Asia. Geographically, it is the largest country in the world, spanning eleven time zones. Average national income per capita is about $12,000 (compared with roughly $40,000 in the United States, $30,000 in Western Europe, and $20,000 in Central Europe).
Around the booming cities of Moscow and St. Petersburg, you’ll see people living Western life-styles and using Western-style products, but in much of the countryside, not much seems to have changed since the demise of communism. Wealth is spread quite unevenly in much of Russia.
Russia’s economy recovered fairly well from the ruble crisis a decade ago. In 1998, the Asian currency crisis, then-low oil prices, and pyramid-game-style government financing contributed to the fall, with the ruble losing more than 80% of its value. Since then, many reforms have taken place and the country has started building a Western-style financial system. Of course, government finances now benefit enormously from high oil prices. Still, Russian exports are primary resources for the most part, while a large share of consumer products are imported.
When communism fell (formally in 1991, but symbolically in 1989 when the Berlin Wall came down), Western and Asian companies began to enter the Russian market. This happened slowly at first, but sped up after reforms were put in place. In white goods, the Italians and the Turkish were first, joined by the Koreans and the Chinese (mainly in small appliances).
Of course, cooking and refrigeration appliances were widespread, but washing machines, dryers, and dishwashers were not. This pattern is mirrored in the current market: in the first two segments, many Russian manufacturers are still active, but the other types of appliances are mainly sold by international brands through imports or new factories. The prices per segment are not much different from the rest of Europe, but most products would be considered entry-level appliances. Premium brands such as Miele and Asko are difficult to find.
The Appliances Used in Russia
Products are configured much the same in Russia as in Western Europe—except for washers. Many Russian homes are small and have no room for a full-depth, horizontal-axis front loader. Russian washers are mostly top-loaders and come in several depths, 30 cm and up. These models are also popular in Central Europe.
In small appliances, the teakettle is the most important product: The Russians drink a lot of tea.
Market data provided by BSH shows the 2006 market for large appliances (including laundry, cooking, refrigerators/freezers, and dishwashers) was 11.7 million units, with a value of €3.95 billion. There were approximately 28.8 million small appliances sold in 2006, at a value of €1.2 billion.
The number of appliances sold in 2006 (according to GfK and BSH Russia) includes:
- Automatic washers: 3.2 million units.
- Refrigerators: 3.4 million units.
- Vacuum cleaners: 4 million units.
- Irons: 2.4 million units.
Comparing Russia with Italy, which has a population of about 60 million people and annual sales of about 7 million large appliances (according to APPLIANCE magazine’s Portrait of the European Appliance Industry, November 2007), it is easy to see that there is much room for industry growth.
In 2007, Russia’s growth of 1.8% is expected in large appliances, and 6.2% in small. BSH is leading in dishwashing with a 60% share of the market, as well as in built-in cooking, with 26% of the market. BSH is second in large appliances overall, with 15% of the market. (Market shares are for the January–August 2007 time period.)
The Market Leader
The market leader in Russia is Indesit Co., and the company was one of the first Western appliance OEMs to start operations in Russia. Neil Tunstall, who was recently promoted to region director–Russian Federation, Asian Republics and Baltics, describes Indesit’s status in Russia.
“We have been present here since 1974. An important milestone was the year 2000, when we acquired Stinol, the leading Russian brand in cooling, with manufacturing in Lipetzk, roughly halfway between Moscow and the Black Sea,” Tunstall explains. “Then, in 2004, we opened a washer plant, accompanied by a logistics pole in 2005, the first in Russia and the biggest in Europe. Other products are provided by our existing European plants [in Poland, Italy, and Turkey]. We have about 5000 staff in these two plants, which is more than the European average. It is a verticalized production. Estimated Indesit sales for 2007 are 3.3 million units, of which 2 million are locally produced, resulting in a market share above 25% in a market growing at 6% per year.”
The company is putting its resources behind its Indesit and Hotpoint-Ariston brands.
“Initially we invested in the Stinol brand also, but it is not efficient to work with three brands here,” Tunstall explains. “And we are confident that the consumer can recognize our commitment to the country because of our local production. Our strategy is to move up the value chain with Hotpoint-Ariston. We are confident that we can convince consumers of the extra features and benefits; in fact, every year we invest in research and development of new materials and technologies to give all our products new functions, shapes, and aesthetics. The example is cooling: we are now working on expanding sales of large, fully no-frost refrigerators and freezers.”
Multinational retailers are showing great interest in the expanding market for consumer products in Russia. The recent Retail Trade International study from market research firm Euromonitor International predicts more of these companies will enter Russia through acquisitions. Bosco di Ciliegi, for example, became the main shareholder of TD Evroset and Kesko Corp., acquiring the Stroymaster chain of do-it-yourself (DIY) and hardware megastores in St. Petersburg.
“Acquisitions are attractive to multinational retailers because they provide them with the opportunity to leverage the brand strength, distribution network, and outlets of existing national or local retailers, rather than starting from scratch,” said Magdalena Kondej, retailing analyst at Euromonitor. “This model brings together local ownership and international marketing expertise in order to cater for specific local needs. It is particularly useful for retailers looking to expand beyond Russia’s major cities, where modern retail formats and distribution networks will be considerably less developed.”