![Russia: adapting to change](https://globalpetindustry.com/wp-content/cache/thumb/stub_5a8f404ac4b405c_960x540.jpg)
In recent years Russia experienced serious domestic and international political and economic upheavals. However, the pet industry proved well able to withstand these adverse effects.
A changing business climate
The business environment in Russia is changing. The pet industry is meeting the challenges and changing conditions and is adapting to them. Progressive, future-oriented companies are facing the challenge and using it as a trigger to change and develop. For many weaker companies it is the last straw, and many of them go out of business. The result is a fundamental market adjustment.
New realities
Historically, many Russian pet companies have been engaged in multiple fields at the same time: manufacturing, distribution and/or wholesale, and retail. The reasoning was multi-layered profitability. Over the years, business has tended to grow in general, expanding its reach and scale. Organic growth has resulted in the need to diversify business, to separate activities into separate companies. Since 2015, under changing economic conditions, it has become vitally important to identify priorities and to develop companies according to the changing times. The result is that the survivors are becoming increasingly more professional and performance-focused.
One of the results of these changes was the beginning of mergers and acquisitions (M&A), which had practically not occurred up to 2015. Today M&A driven by strong players is not unusual. It applies to all branches in the pet world – manufacturing, distribution, wholesale, and retail. A decisive point is that M&A in the Russian pet business is sale-driven rather than purchase-driven even though there are sufficient buyers in the market.
Attractive industry
Basically resistant to the economic crisis, the pet business is attractive to companies that have cash and are looking for new directions for development. Thus, new players with strong ambitions and professional capabilities are appearing in the Russian pet market. A good example are meat processing plants that build factories to produce pet food and major online business players, for which pet products have been in the top three sales categories in recent years.
Major grocery chains are also increasingly focussing on the pet industry. They are expanding the assortments of pet food and care products, establishing private labels and even opening store-in-store pet shops with a full range of pet products usually only found in pet specialty retail.
Today it is the grocery chains and e-com operators that threaten specialized pet retailers. Only professionally developed and managed pet retailers are able to establish successfully and grow while others who are not able to adapt are going out of business.
Consumer demand shift
A significant decrease in the purchasing power of Russian consumers caused the down-turn in the Russian economy. That, together with a serious currency devaluation, despite the inflation officially communicated in 2017 amounting to a record low of only 2.5%. With the depreciation of the national currency exchange rate, prices for imported and local products increased by 15-60% (according to the surveys by the All-Russian Public Opinion Foundation), while salaries remained largely the same, reducing real incomes by 11% since 2013.
This could not but lead to a shift in consumer demand. According to representatives of regional retail stores, pet owners are not yet refusing to buy foods, treats, and medicines for pets. However, they are actively looking for cheaper products, at the same time not having any desire to compromise on quality. However, as consumers are effectively forced to prune their budgets – in Russian regions this is more tangible than in Moscow and other major cities – consumers will also compromise on quality. We are also seeing a reduction in consumption of more luxurious goods, such as accessories and aquariums; in the last years their sales volumes have significantly declined.
Retail
Decreasing sales and the changing business environment have caused qualitative changes in the retail market of Russia, as well. Pet stores are being forced to change to new formats. A large number of retail stores that operated well in times of high demand, failed to adjust to the new conditions and were forced to close. However, this did not reduce the number of pet stores in general, as retail chains began to gain strength and started to quickly displace individual old-fashioned stores from the market.
These dominant chains like Four Paws, Bethoven, and Le’Murrr are however in no hurry to expand to other Russian regions, but are gradually appearing in more and more major cities, which have strong regional players as well.
Russian retail is experiencing a growing number of private label goods currently. These are to the advantage of large chains, as smaller regional retailers often cannot afford to carry private labels. To avoid competition with neighbouring pet stores and supermarkets, these chains try to find exclusive products, to obtain better loyalty and a higher margin. Most of them directly buy such supplies from European and Asian countries.
One further important factor of change is that dominant retail players are developing their e-com platforms. This is not an option that small chains or single store operations have. This will lead to further market concentration in the Russian pet retail market.
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