Russian consumers hit as rouble slumps

'SURREAL' SITUATION: Boards showing currency exchange rates in Moscow yesterday. The rouble has fallen 50 per cent against the US dollar this year.


    Dec 18, 2014

    Russian consumers hit as rouble slumps


    AS ONE of 144 million Russian consumers that companies from Apple to Renault are trying to reach, university professor Elena Grekhnyova is feeling the pinch of a currency in crisis. She's now spending 1,200 roubles (S$24) every few days on eggs, dairy products, poultry and vegetables to feed her family, up 20 per cent from just weeks ago.

    "It's getting surreal - will it ever stop falling?" Prof Grekhnyova, who teaches in the central Russian city of Kursk, said of the rouble. "It may turn out that I won't be able to buy a new coat, a US$50 (S$65) smartphone or jewellery."

    Her frustration shows the challenge facing foreign companies doing business in Russia, after a financial panic sent the currency to a record low and fanned concerns that its leaders might limit the flow of capital out of the country. The meltdown follows a collapse in oil prices, and United States and European sanctions against Russian President Vladimir Putin's regime.

    Companies are raising prices, seeking to offset the drop in the value of the sales they make in roubles. While no companies are showing signs of pulling out of Russia, Apple on Tuesday halted online sales there - just three weeks after boosting the price of an iPhone 6 by about 25 per cent to 39,990 roubles. The value of that iPhone sale when converted into dollars already has plummeted to about US$585 from US$847.

    The same has happened to other companies trying to keep pace. On Dec 3, McDonald's raised the price of a Big Mac by 2.2 per cent to about 94 roubles - only to see the value of that sale plunge to about US$1.35 from US$1.77 in the intervening days. Since the middle of last month, Renault has raised by 8 per cent prices on Renault-brand cars it sells in Russia.

    The situation is likely to worsen before improving, said Sarah Boumphrey, head of strategic, economic and consumer insight for research firm Euromonitor International in London.

    Consumers will be "forced to make tough purchasing choices as the prices of many products continue to rise steeply", Ms Boumphrey said.

    "Russia is too big a market to be ignored, but plans for increasing investment must surely be on hold."

    Germany's largest retailer is doing just that. Metro has indefinitely suspended the initial public offering of a Russian chain, chief executive Olaf Koch told reporters on Tuesday. Listing the unit now makes "little sense", he said. "We haven't cancelled it, but we're not working on it."

    The rouble on Tuesday sank beyond 80 per dollar, a record low, before rebounding after Economy Minister Alexei Ulyukayev denied the government would turn to imposing restrictions to stop Russians from converting money into dollars.

    Apple on Tuesday said it was halting online sales in Russia due to "extreme" rouble fluctuations.

    With the Russian economy teetering, companies doing business there are at risk of losing their assets if Mr Putin responds by lashing out at Western businesses, said Rebel Cole, a finance professor at DePaul University's Driehaus College of Business in Chicago.

    "You really have no guarantee you're going to be in business tomorrow. That's a pretty hefty risk for these companies to face."

    But the slumping rouble has also one somewhat paradoxical result - unleashing a spending spree as consumers snap up electronics, furniture and cars before prices soar.

    For instance, in an Ikea shop on a weekday afternoon, the section selling fitted kitchens - the highest-priced items in the store - was packed with customers.

    At a peak time for shopping ahead of the new year, the country's main holiday, "the number of people in the stores has gone up also because of prices going up", the Swedish chain, which has annual turnover in Russia of more than 1 billion euros (S$1.6 billion) said in a statement.

    Household electronics chain M.Video confirmed that it had seen footfall rise early this month, partly because of a trend to start shopping earlier for New Year gifts, but also due to the rouble's plunge. "Customers are trying to lock in the value of their rouble savings and invest them in electronics," said spokesman Anton Panteleyev.

    The tactic of going shopping when the economic situation gets tough may distinguish Russia from the West, analysts said.

    "In this way, Russia is different from developed countries...There, when a crisis begins, people immediately start saving," said Igor Nikolayev, head of the FBK Strategic Analysis Institute.

    "In our country, when a crisis comes, it is accompanied by a steep loss of value of the national currency and people abruptly start spending and, for a time, this softens the situation somewhat."