Nearly 5,000 miles from Procter & Gamble’s Cincinnati headquarters is the company’s fastest growing market – Russia. Moscow residents are snapping up Tide, Pampers and other P&G products, and sales are growing 50 percent a year.
The average Russian has only about $100 a month in disposable income and fewer than one-third of households have a washing machine. But personal income is rising more than 20 percent a year and P&G is gambling that increasingly affluent Russian consumers will turn to its products.
“I like these products,” 43-year-old Olga Kashenkova told The Cincinnati Enquirer through an interpreter, gesturing at the Fairy dishwashing liquid, Tide detergent and Always feminine pads. “I feel at home with them.”
Although it has 145 million residents, Russia’s economy is only about 15 percent as large as the United States.
P&G expects Russian market sales of about $500 million this year compared with $20 billion in North America.
Yet the 50 percent annual sales growth is unmatched in the West and the pool of potential customers such as Kashenkova is growing quickly, said Natasha Zagvozdina, an analyst in Moscow for Renaissance Capital, an international research and financial services company. “The more wealthy consumers become, of course they will move to higher-priced products. The brands that P&G is pushing in Russia are so well known, and the consumer acceptance is already there.”
Still, P&G is remaining mindful of what Russians can afford right now.
A box of Tide that might cost $5 or $6 in the United States, for example, costs 35 rubles in Moscow, slightly more than $1.
To reach, P&G must alter marketing strategies that have worked for decades in the United States.
Alex Nasard of Procter’s Moscow marketing office said the company uses straightforward pitches rather than the entertaining, nuanced ads aired in the United States. Nasard said Russians are more immune to propaganda because of years of communism.
P&G also has left English labels on most products, to maintain the company’s global branding as well as appealing to Russian customers’ desire for anything American.
Former Procter & Gamble chairman and chief executive John Pepper said he remembers well his first trip to Russia in February 1990 when a trade official at the Kremlin asked him to consider taking over the state-run detergent industry. P&G ultimately acquired the huge plant it now operates in Novomoskovsk.
“I had this vision that I hoped Russia could become a business like the United States,” Pepper said. “I was thinking this was the final frontier.”
But there are challenges associated with working on the frontier. On Aug. 18, 1998, the ruble crashed, slashing the value of the currency in half. P&G’s revenue dropped by more than half to about $300 million, Pepper said.
The company cut costs, laying off hundreds of workers. But it also raised the salaries of those remaining in the Novomoskovsk plant.
“That was the defining moment,” said Giancarlo Iannelli, an Italian native and the plant manager. “That’s when people understood that P&G, yes, it’s here to make a profit. But it’s going to be here not only when things are going well, but also when they are not going so well.”
Five years later, the ruble and P&G appear to have recovered. Profits have returned to pre-crisis levels. Riccardi said sales are expected to top $1 billion in the next two years and $3 billion – six times the current level – in a decade.
Patience, however, will be key.
“In the U.S., it took us 40 years for the transition from cloth to (disposable) diapers,” said P&G associate marketing director Alena Kudryashova says. “Here, we are in our 10th year.”
>From The Miami Herald