The Russian middle class has doubled in recent years and is expected to keep growing steadily. As a significant percentage of the population now belongs to the middle class, it is one of the biggest target markets for businesses in Russia. Here we look at the current market, its growth potential and what this means for online companies:
Urban Middle Class
The current population of Russia is estimated to be 142 million, with approximately 104 million within the middle class. Russia is mainly an urban country with 74% of the population living in an urban area and this population makes up about 85% of the consumer purchasing power. When people think of urban Russia they often think of its two major cities Moscow and St. Petersburg. However, Russia has ten other cities with a population of over 1 million. With such a high percentage of the population living in urban areas, the sociological aspect of segmenting the market plays a significant role for businesses. Therefore, new entrants and existing ones must start to look at the needs and wants of the urban middle class and how this affects the marketing and development of products.
According to recent data, by 2015, 82% of Russian households will belong to the middle class. Furthermore, the middle class is expected to grow a further 16% from now to 2020. Therefore, the urban middle class in Russia is estimated to amount to $1.3 trillion in spending by 2020, up 40% from 2010. One major reason for the growth in the middle class is due to the decrease in extreme poverty. This is in part based on the increase in pensions which have doubled since 2008. It is also believed that the increase in middle class consumer spending power is for three reasons: record-low employment rates, declining inflation and stable gross domestic product growth.
Offline Success – Groupe Auchan
The potential of the middle class market was noticed back in 2002 by French grocery company Auchan. They captured the target market by offering quality products at cheaper prices. Today they have opened or acquired 78 hypermarkets and 122 supermarkets in Russia alone. Auchan’s model of “modernity, choice and discount” has been successful in targeting middle class Russian shoppers and online marketers should therefore be encouraged to learn from Auchan’s success and apply it to the online community.
Online Growth Potential
With over 50% of the Russian population now using the internet (a figure which is constantly rising), alongside the stable growth of the urban middle class, online businesses should be encouraged to target this large section of the population. The number of Russians making online purchases is already steadily rising, which highlights the potential for online retailers. For new entrants in particular, choosing to target the middle class would be a good place to start. Most importantly for both new and existing businesses, Dr. Bala, the chief economist of The Cambridge Group, believes that a deep understanding of the middle class consumer segment is needed to be able to develop products that will benefit consumers, at the right price.
The online internet population and middle class segment are both predicted to continue growing, highlighting great potential for businesses. If, like Dr. Bala suggests, companies can gain a good understanding of the potential audience and penetrate the market, they have a decent chance of being successful.