Russian consumers, producers and managers

With the government looking to promote investment in Russian food production Business RT spoke with Stefan de Loeker, CEO at Nestlé Russia, about the upsides for both global companies and Russia.

RT: When a company such as Nestlé – producing a range of consumer food/beverage items – looks at Russia what does it see as the attractions of the market? How much upside is there in gaining access to the Russian consumer market?“First, as a Company we have a global ambition, and it’s logical that we want to be in a country the size of Russia and with the prospects of Russia, and take a strong position in this market. And Nestlé in turn has the competence, the skills, all the ambition, and the strength necessary to face this kind of challenge. Basically there’s self-assurance as well, that we can do it here in Russia having done it elsewhere.The way we’ve set it up is the same from a principle point of view, which is that the only way you can be successful in the market is to be very close to the market. There’s nothing as local as food. The food traditions are different in every country, not only what you eat but also how you eat, what are your feelings about food, how you treat food, etc. So, the only way to be successful in this business is to be very close to your consumer. We just go in, recruit our people here, try to produce as well as in the market itself and then have the innovation done in the market, which is very important.The reason we run an innovation centre as well is because we know that the only way we can be successful here is really to understand what  a Russian consumer wants and how we can identify that. And this is basically the model we started from.”

RT: How is the Russian consumer different from consumers in other large emerging economies, as well as those in developed markets?Are they as sophisticated in their selection processes, do they respond in the same way to marketing? Do they consume the same products?“Like in almost all countries, both the Russian consumer and the shopper are very specific. If you compare a Russian consumer to that from the developed world or to more traditional markets, first of all he’s really enthusiastic, very open to novelty, to value added products. The acceptance of new products is very high. But if you look at other developing markets, the traditional BRIC markets, you’ll see the same phenomenon. Brazilians, Chinese, and Russians are all very interested in novelty. What sets Russia apart is that the income per capita is a lot higher. And due to this, the openness for brands, for more premium products, is much higher. So, Russians love brands much more than other nations, if there’s real value behind. If you’re just going to set high prices in Russia, that’s not going to work. If it’s a real brand with added value, then Russians are much more premium, which is also a challenge for the future, because premium class products are not affordable for everybody. This puts another challenge for years to come: how to make that accessible for everybody? Very enthusiastic, premium – oriented, love brands, openness to innovation – these are the distinguishing features of a Russian consumer.”RT: When Nestle looks at those attractions, what does it see as the downside of trying to setup and maintain an operation in Russia? How difficult is access to the Russian market for a company like Nestle in comparison with other large emerging economies?“I think, the main challenge of working here is more on the operational side. In this respect Russia remains a really expensive country to work in. If you look first at the size of the country, you´ll see that it´s a real challenge that’s difficult to change, which really costs, because the infrastructure and logistics in Russia are poor. If you break down the cost of a product in Russia and compare it to other markets, you’ll see that the logistics cost for supply to be delivered anywhere is much higher than anywhere else. And this all is mostly due to a lack of infrastructure and its low quality. The second challenge is scarcity, the number of imported input costs and the number of input factors we still have. And if we look at the availability of trucks, which is still an issue, the availability of warehouse, we’ll see that all this remains a very dominant factor in the Russian market. This raises your costs and makes operations here really difficult.”RT: Do you believe that Russia has an appropriate number of appropriately skilled managers? How do Russian managers and management approaches differ from those elsewhere?“In Russia you have a lot of talented, educated and really intelligent people. On that side the input is there. The issue here is a lack of experience, and management has a lot to do with the experience. So, you have a lot of young enthusiastic well – educated people, but when the talk of operating with about 10,000 people, it becomes clear that the issue is bigger than a person’s experience.I think, one of the most fascinating things of working in Russia is that it has the youngest management stuff. I came from Germany, where I was regarded as a young manager, and here in Russia I became an old manager overnight. I think, the ability of a Russian manager to adopt and to learn is amazing. Actually, I came to the Company at the beginning of the crisis and now I can see how the things have changed. And I’ve seen how quickly a company would be able to understand the situation and start taking actions. Also, the number of managers we send out to countries around the world within Nestlé group speaks for that. And the feedback from all of those countries is always positive. People want to learn, to understand, to integrate and this ability of a new manager to integrate into a new environment is far better in Russia, then in the West. This also makes a bit difficult to get those people back into the country.”

James Blake, Anastasia Kostomarova, RT