Representations in Central- and Eastern Europe and MEA - Austria … · 2010. 5. 17. · GfK Austria March 2010 PL A HR SCG BG RO H SK UA RUS BiH LT KAZ SLOVAKIA 1990 HUNGARY 1989

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The Economic Shock Wave in CEE – Some Consequences By Rudolf Bretschneider Europanel – Berlin, March 2010

Before I start – let me explain what gives me the possibility / chance to speak about this subject.

We – my colleagues from GfK-Austria – set up GfK-Institutes in the region which is nowadays called CEE. We started in 1989 even before the fall of the iron-curtain; you see the dates of foundation on the charts.

March 2010GfK Austria

PL

A

HRSCG

BG

ROH

SKUA

RUS

BiH

LT

KAZ

SLOVAKIA1990

HUNGARY1989

CZECH REPUBLIC1991

CROATIA1999

SLOVENIA2001

BOSNIA2004

AUSTRIA1950

AL

Representations in Central- and Eastern Europe and MEA

POLAND1990

ROMANIA1996

BULGARIA1994

RUSSIA1991

UKRAINE1998

KASAKHSTAN2005

BALTICS2006

MACEDONIA2007

BY

CZ

SERBIA2002

LV

EST

SLO

MK

ALBANIA2008

EGYPT2008

And you may imagine that we made a lot of experiences in these 20+ years. And “experience” is not always the name you give to your mistakes. We saw the “triumph of the unexpected” – the fall of the communist regime; we watched how the transition period started: there was no blueprint for the change from a planned economy to a market economy (the Hungarians compared it with the effort to turn a fish soup into an aquarium or to “unscramble” scrambled eggs. We saw the economic crisis connected to change: high rates of unemployment, in some countries hyperinflation, political turmoil and – the gradual development of a kind of consumer society; and very often this development came in leaps; leaving out certain steps, which were typical for “western” societies. With our GfK-Institutes we had a chance to monitor some of these changes: we had established household panels, retail panels for certain product categories; we did and do a lot of custom research (for automotive, telecom, financial services, and we do some social research which gives some insight concerning the moods and expectations of the population).

So – for my speech I will draw on different kinds of data. And I will add some personal interpretations.

One set of data comes from the so called “Consumer Confidence Barometer” – a monthly study of independent representative samples (done since years in Austria, Poland, Czech Republic, Bulgaria and Romania). We ask – you know this kind of questions – for the development of household budget, expectations concerning household budget, expectations concerning inflation, unemployment, changes in the economy, ability to save money, intention to buy more or less durables, etc.

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Here is a small selection – and even this selection I will present “in a rush”; just as a first introduction to illustrate the shock wave.


Q. 7 - What is your opinion about the situation of the unemployment in your country for the next 12 months?

Bulgaria 1. Qu2008

2. Qu2008

3. Qu2008

4. Qu2008

1. Qu2009

2. Qu2009

3. Qu2009

4. Qu2009 01/10

will be much more 9 9 8 26 40 43 40 45 50

more 16 16 16 26 32 32 33 30 31

the same 33 33 33 21 10 10 11 12 9

somewhat less 14 15 15 5 1 2 2 2 1

much less 1 1 2 1 0 0 0 0 0

no opinion 27 26 27 21 16 12 13 10 9

Expressed in PercentageSource: Consumer Confidence Barometer 2008 and 2009 (N=1000 respondents in each country)

Until the third quarter of 2008 the situation (here the example Bulgaria) was quite normal (of course – what is “normal” differed from country to country). Then the expectation for an increase in unemployment rose sharply; reached an even higher level in the first quarter of 2009 and showed a new high in the wave of January 2010.


Q. 9 - Do you intend to buy more, the same or less durables in the next 12 months (compared to last year)?

Bulgaria 1. Qu2008

2. Qu2008

3. Qu2008

4. Qu2008

1. Qu2009

2. Qu2009

3. Qu2009

4. Qu2009 01/10

much more 10 13 14 11 8 7 5 4 3

more 11 11 13 9 11 10 10 7 8

the same 13 14 13 12 12 13 13 14 15

somewhat less 5 6 4 5 5 7 8 9 7

much less 29 29 27 33 32 33 31 36 37

no opinion 33 29 30 30 31 30 33 30 31


The intention to buy durables did not change so much. But this is partially due to the fact, that the plans to buy more were always rather limited (in Bulgaria). Nevertheless they kept falling.

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A different pattern can be seen in the Czech Republic. A strong increase in the fear of unemployment (which had not happened then), a “high” in the first quarter and then the negative expectations dropped – but not to a “pre-crisis level”.



Czech Republic 1. Qu2008

2. Qu2008

3. Qu2008

4. Qu2008

1. Qu2009

2. Qu2009

3. Qu2009

4. Qu2009 01/10

will be much more 4 3 6 33 48 28 28 21 23

more 18 19 27 37 34 44 41 43 43

the same 42 45 39 17 7 11 14 18 19

somewhat less 22 21 16 7 6 11 11 12 10

much less 3 1 1 1 2 1 1 1 1

no opinion 10 11 11 6 3 6 5 6 5


Intentions to buy durables were affected to a much less degree. But they were.



Czech Republic 1. Qu2008

2. Qu2008

3. Qu2008

4. Qu2008

1. Qu2009

2. Qu2009

3. Qu2009

4. Qu2009 01/10

much more 10 8 9 6 6 6 4 6 6

more 14 15 16 14 10 10 12 8 9

the same 34 35 35 35 35 35 36 39 38

somewhat less 13 18 17 18 20 16 19 18 21

much less 20 18 18 20 24 26 22 21 20

no opinion 8 6 6 6 5 7 38 9 7


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The shock-wave (psychological), arrived in Poland only in the first quarter of 2009. March 2010GfK Austria


Poland 1. Qu2008

2. Qu2008

3. Qu2008

4. Qu2008

1. Qu2009

2. Qu2009

3. Qu2009

4. Qu2009 01/10

will be much more 1 1 2 7 29 19 13 14 12

more 9 9 13 27 47 47 44 45 40

the same 43 45 48 42 17 22 29 27 32

somewhat less 35 35 28 14 4 7 7 8 10

much less 3 3 2 1 0 1 1 0 0

no opinion 8 7 7 9 4 5 7 6 6


Remember: Poland was one of the few EU-countries which had a positive economic growth-rate in 2009. The number of people who expected much higher unemployment is high only for a short period. Nevertheless: the former optimism that the unemployment-rate will fall (still existent until autumn 2008) is gone.


Q. 2 – What are your household’s financial expectations for the upcoming 12 months?

Romania 1. Qu2008

2. Qu2008

3. Qu2008

4. Qu2008

1. Qu2009

2. Qu2009

3. Qu2009

4. Qu2009 01/10

will get muchbetter 3 3 3 2 1 1 1 1 1

get somewhatbetter 27 23 31 25 16 15 15 16 16

stay about thesame 41 40 43 41 37 39 38 36 33

get somewhatworse 15 15 14 18 26 25 23 20 23

get much worse 7 10 5 6 13 14 15 19 20

no opinion 7 8 5 3 7 6 8 8 6


Now a short look at Romania: this country started – due to several reasons (mainly political ones) rather late with reforms. The last years brought high amounts of FDI, high economic growth rates and a wave of optimism (at least within the urban population).

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On balance – until the 3rd quarter 2008 more people had positive expectations for their household finances – only 20-25% were afraid of a negative development. In the first month of 2009 this percentage grew to 40%, and that is where it stayed until now.

March 2010Dr. Rudolf BretschneiderGfK Austria

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Romania 1. Qu2008

2. Qu2008

3. Qu2008

4. Qu2008

1. Qu2009

2. Qu2009

3. Qu2009

4. Qu2009 01/10

will be much more 12 10 10 29 56 57 59 59 64

more 27 22 25 31 30 26 26 23 22

the same 31 33 36 21 7 8 8 8 8

somewhat less 13 17 17 7 2 2 2 3 1

much less 1 1 1 1 0 0 0 0 0

no opinion 17 17 13 11 6 6 5 6 5


A similar pattern can be seen with the expectations for unemployment.


10

Romania 1. Qu2008

2. Qu2008

3. Qu2008

4. Qu2008

1. Qu2009

2. Qu2009

3. Qu2009

4. Qu2009 01/10

much more 6 8 5 4 4 5 5 6 5

more 14 13 17 13 9 9 9 10 6

the same 25 22 29 28 25 24 24 20 23

somewhat less 17 13 18 18 19 19 19 16 17

much less 31 30 26 31 36 36 37 42 39

no opinion 8 13 5 7 6 7 6 6 10



And the intentions to buy durables – which were never very high in Romania – dropped more or less continuously during 2009. People had started to save. If they could save at all. In some countries the population seems to have felt the upcoming crisis earlier than the official economist of the EU-commission.

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Economic Outlook 2009-2011, CEE Economic Growth in % to last year

0,6

4,5

3,6

-1,2

0,7

-2,7

0

3,8

4,7

4,9

2,9

0,2

0,1

Forecast Nov. 2008

1,3

4,7

3,9

2,0

1,8

1,0

-1,1

4,2

5,0

5,5

3,7

1,1

0,9

1,1

-1,1

0,8

-0,1

-0,5

-4,0

-3,9

1,8

0,5

1,9

1,3

0,7

0,7

Forecast Nov. 2009

1,5

3,1

2,3

4,2

3,1

2,0

2,5

3,2

2,6

2,6

2,0

1,6

1,5

AT

BG

CZ

EST

HU

LV

LT

PL

RO

SK

SLO

EU-27

Euro-16

2009 2010 2010 2011

Source: Der Standard, 04.11.2008; Source: Der Standard, 04.11.2009

Here you see two forecasts: one from November (!) 2008 and one from November 2009.

As late as November 2008 growth rates were forecasted for most of the CEE-countries (with exception of the Baltic States). Growth rates well above the EU-average; growth rates similar to those the countries had seen in the past; and the outlook for 2010 was even rosier. Now everyone knows, what came next: before the credit crunch, before foreign direct investment came to an immediate stop, before the local crisis actually set in.

The crisis come to most of us and the people in CEE (remember the forecast!) in the form of a media message. It came as a “black swan” thus calls Nassim Taleb (ex-trader on Wall-Street, statistician and part-time philosopher) unexpected events which change our world profoundly. It was a negative black swan. Immediately the economic forecasts changed – also for the “real economy”; and kept changing – only in one direction: down. Only pessimism had a boom; and some extremely pessimistic prophets (like Nobel-prize winner Paul Krugman who saw even Austria on the edge of bankruptcy). Rating agencies, who had gives triple A’s to toxic financial products, rated whole countries in the region of CEE – negative of course; and their ratings were published in influential media. It took a while until they made some corrections. It was only in January 2010 that the Economist in an article with the title “Wrongly labeled” wrote that solid economies ”were misjudged” (Poland, Czech Republic), “a nonsense based on outsiders-perceptions of other outsiders fears”. But the harm was done. CEE was considered to belong to one basket (which was wrong form the very beginning, because the countries under this label developed in different speed, different ways, and had different strength and weaknesses – and national debt is a minor weakness compared to some “western” countries).

One of the victims of the crisis (remember: at first it was the “worst crisis since 20 years, then the worst crisis since 45 years, then the worst crisis since the Great Depression of the 30thies!”), one of the victims was a rare good: trust & confidence. At first the banks had no trust in each other; the forecasters changed their number (would it have been better to say “we don’t know”?). The real economy especially in automotive and export lost their confidence in “normal business”. Trust was in high demand – but it is hard to produce it.

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Politicians tried hard – on a national and international scale. They came together – comparatively fast (would it have been possible some years ago, when there was “less Europe”, less routine meetings and networks, no Euro-currency?). But not all the CEE-countries have a Euro and some are not in the EU; and some were hit very hard by currency devaluation (Romania, Hungary, Ukraine, and Russia).

Bad mood, rumors, pessimism was contagious. The crisis was in (nearly) all heads, affecting consumers and companies alike. It cannot be explained by the credit crunch and financial losses felt by investors (especially not in CEE – where only a minority has “shares” or similar investments). It must be explained rather by “behavioral economics”, by models of contagion, by behavior of “herds”, taking into account the role of media & communications.

The psychological situation, which existed in some part of CEE before the crisis, is a special one. They had just invented/reinvented a kind of market economy. They had undergone several “transition crisis”. Some have successfully joined the European Union, had struggled to meet the accession criteria. But, big parts of the population started to enjoy the fruits of their efforts – by travelling, by renewing their household equipment, their car; consumption patterns had changed in a hitherto unknown speed.

I will show you some data, which demonstrate how fast the development was, before it came to a preliminary stop.

Take as a first indicator the internet penetration: March 2010GfK Austria

Internet Use in Europe 2005

In 2005 it was lagging behind (exception Estonia) Western Europe.

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Internet Use in Europe 2010

Five years later: internet use in the Baltic States, in Poland, Czech Republic, Slovakia are higher than in Italy, Spain, Portugal or Greece, and growth rates are even more impressive.


How many of us have a mobile phone? 2003 - 2009

Base: total population,%

68 69 67

59 60

23 24

34

23

33

7973

7065

4449

39

57

9286

8379 79

76 7468

6359

93 9487 89

8683 84

8077

8884

76

0

10

20

30

40

50

60

70

80

90

100

Slo

ven

ia

Cze

ch R

epub

lic

Au

stri

a

Slo

vaki

a

Hu

nga

ry

Cro

atia

Ser

bia

an

d M

onte

neg

ro

Ru

ssia

Rom

ania

Bu

lgar

ia

Mac

edon

ia

Pol

and

2003 2005 2007 2009

Mobile phones are another example how fast a “modern tool” made its way also in this part of the world (lock especially what happened within 2 years in Bulgaria and Romania).

9


100 98

8985

8176

73 7369

5450

99 98

8380

64

43 43

5660

4034

0

10

20

30

40

50

60

70

80

90

100

Slov

enia

Aus

tria

Cro

atia

Slov

akia

Ukr

aine

**

Bos

nia

Rus

sia

Serb

ien*

Pol

and

Rom

ania

Bul

gari

a

2009 2005

Share of banked population%

*Serbia Montenegro in 2005 **Base: 16+

Another example is the share of the population using some bank-service (yes, also credits, some of them considered to be “foul” in the meantime; and in some countries foreign-currency credits – a mixed blessing; especially when the local currency is devalued).


16

4349

16 21

6 6

25 2734

17

3020 21 21 22 25

44

11

35

46

3846

13 13

5551

7879

92 9467

74 58

78

6676 79

59

7861

56

75

6658

54

82 86

3 5 2 7 8 5 4 4

2014 14

9 5

09 05 09 05 09 05 09 05 09 05 09 05 09 05 09 05 09 05 09 05 09 05 09 05 09 05 09 05

dk/na

no/uncertain

yes

Possibilities of Saving%

*not asked for in 2005, figures for Slovenia estimated

Aus

tria

Bos

nia

Bu

lgar

ia

Cro

atia

Esto

nia

*

Latv

ia*

Lith

auan

ia*

Pol

and

Rom

ania

Rus

sia

Ser

bia

*

Slo

vaki

a

Slo

ven

ia*

Ukr

ain

e

As you can see: the possibility to save was never very high. Well, in a country like Austria nearly one half of the population has a chance to do so, and during 2009 this number sank by 6% points compared to 2005. It decreased during the first year of the crisis especially in Slovakia, Romania and Slovenia – not in Bulgaria or Ukraine where it was already very low. Very few people had a chance to save – money was used for buying things one has always dreamt of; or it was just enough for survival.

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Not that is enough to show some developments before the crisis: I did not mention the increasing number of people who went for holidays abroad, who bought new cars (you can see them in the traffic jams from Moscow to Bucharest, Budapest or Warsaw). I did not mention the sometimes really overheated house-building economy and the investment into household equipment.

I will switch now to some phenomena which were typical for 2009 – the year when the crisis really started.


3,3% 5,0%0,6%

6,4%

14,6%

-12,6%

-4,0%

-11,2%

-1,0%-3,1%

-20,9%

-11,1%

Source: Estimation ZenithOptimedia, October 2009

Spend on advertising 2009 - 2010

North America Western Europe Asia/Pacific Latin AmericaCEEMiddle

East/Africa

Especially in the countries of CEE the advertising spending fell. Much more than in other regions of the world - according to an estimation of Zenith Optimedia from October 2009. But in contrast to “western” countries they are expected to grow again in 2010. Let us see. It would not be a big surprise if this really will happen, because in some countries the economic climate changed for the better in the final quarter of 2009, and some countries did better/or less worse than expected.

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Household Electronics – CEECountry structure and Growth, Units %, Value %, June-Oct. 2008/2009

Sales Ths. UnitsJ-O 08 J-O 09

Sales Mio. EURJ-O 08 J-O 09

9.676-0

7.508-22

2.48825

1.862-25

Ths.Un./Mio.Va.+/- %

44

16

5

12

14

72

46

17

5

11

12

73

50

16

5

8

11

73

49

18

57

9

93

Sales Ths. UnitsJ-O 08 : J-O 09

-18%

-18%

-27%

-28%

-36%

-20%

-11%

Sales Mio. EURJ-O 08 : J-O 09

-27%

-16%

-28%

-36%

-40%

-1%

-8%

PolandCzechiaSlovakiaHungaryRomaniaBulgariaSlovenia

The economic shock wave hit especially the durable sector; this you may see from our data from some retail panels (data are from June-October; a year-on-year comparison 2008/2009). Even Poland, which is half of the market under comparison, and which was not in a recession (but had suffered from a psychological shock) shows a strong decrease in sales (in units and even more in value). The strongest effects were observed in Hungary (which has not only economic but also political problems) and especially in Romania.


Sales Ths. UnitsJ-O 08 J-O 09

Sales Mio. EURJ-O 08 J-O 09

26.06749

20.835-20

1.39621

1.024-27

Ths.Un./Mio.Va.+/- %

33

11

34

49

29

102

3

56

26

924

58

29

92

3

56

Sales Ths. UnitsJ-O 08 : J-O 09

-31%

-30%

-38%

-24%

-9%

Sales Mio. EURJ-O 08 : J-O 09

-18%

-23%

-35%

-43%

-29%

PolandCzechiaSlovakiaHungaryRussia

Photo Total – CEECountry structure and Growth, Units %, Value %, June-Oct. 2008/2009

A similar picture for the photo-sector) in this case Russia is also included, where the decrease was less strong in units than in value (people going for cheaper equipment).

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-4.4

4.0

5.8

-6.52.3

-4.6

-10.3

-2.9

4.3

-13.6

-7.11.8

-3.6

-28.0

-8.4

-0.5

-20.0

-17.0

-40.8

-32.2

-40.6

-23.2

-5.6

-16.5

-33.8

-39.7

24.3

-5.3

-5.2

-27.2

< -15 ≥ -15< -10

≥ -10< -5

≥ -5< -3

≥ -3< -1

≥ -1< 1

≥ 1< 3

≥ 3< 5

≥ 5< 10

≥ 10< 15 ≥ 15 n.a.

EUROPEJAN09-OCT09

MDA TOTAL 9Sales Value <LC> +/-% PY

Looking on bigger domestic appliances from a European perspective (January – October 2009 you see that in this product category the sales value dropped in CEE nearly everywhere (exception Poland and Serbia), whereas in Western Europe the decrease was less dramatic and in some countries you find even growth. Well, it is explained by the “purchase fever” in the past, when people wanted to renew their equipment, whenever they could afford it. But in case of such durables it is comparatively easy to postpone a purchase, if the outlook is grey or black. People in the East have their experience with different kinds of crisis; and they are reacting very fast, according to their personal history. Trust in a stable environment is less wide-spread there. There are less safety nets – and they know it and are ready to adjust fast.

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Gro

wth

Rat

e PY

2

0

-2

-4

-6

-8

-10

-12

-14

-16

-18

-20

-22

-24

SEP08-OCT08 NOV08-DEC08 JAN09-FEB09 MAR09-APR09 MAY09-JUN09 JUL09-AUG09 SEP09-OCT09

1,4

-11,0 -12,2

-23,8 -23,2-21,2

-16,2

SDA Total – CEEPanelmarket, Sales Units Growth Rate PY , Sept.08-Oct.08 – Sept.09-Oct.09

* 7 CTR EE= CZ, SK, HU, PL, RO, RU, UA

With small domestic appliances (here the total number of percentage of sales units for 7 CEE-countries) you see also strong decrease in sales – the negative peak being in March/April 2009. Toward the end of the year the situation changed for the better – but still… well, in some countries like Russia we got encouraging data at the end of the year already. This is in line with the latest results from GfK for Western Europe (published March 2) which shows growth for technical consumer goods in the last quarter 2009 in major and smaller countries.


UKRAINE

MAT Q3 09 vs. MAT Q3 08

CZECH REPUBLIC

HUNGARY

CROATIA

SERBIABULGARIA

ROMANIA

RUSSIA

SLOVAKIA

POLAND

BOSNIA & HERZEGOVINA

GREECE

9.0

0.3

-1.9

7.9

5.1 4.7

7.78.1

15.3

20.4

5.2

28.9Total FMCG Trends in CEE % value changes

Source: Europanel

In contrast to some durables (including automotives) FMCG markets as measured in our household panels have been largely unaffected in most countries. Up to now. According to our data real growth (not shown here) i.e. growth after deduction of inflation has continued in many categories. Only in Hungary, which has been in bad

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economic shape for the third consecutive year, we see an overall decline of household expenditures for daily commodities.

Only a small part of the CEE population has been forced to reduce expenditures for food – but consumer are more mindful of where and what they buy. What can be clearly stated is a significant shift form out-of-home to in-home consumption (out-of-home consumption being a relatively new habit anyway), but it meant a decline in hotel, restaurant and café business.

There are differences between countries: In Czech Republic household spend for in-home was up 9% in the 12 month (ending September 2009) versus one year ago. Hypermarkets like Tesco, Kaufland and Globus further strengthened theirs dominant position on the market.

In Slovakia the FMCG-expenditures grew only by 0,3%, partly due to decreasing food prices. The heavy promotion and introduction of new loyalty cards by retailers in Slovakia (e.g. Tesco Club Card) has seen consumers reduce shopping trips to neighboring countries (Hungary, Czech Republic, Austria). Hypermarkets have been continued to grow.

Hungary: the total value of FMCG dropped by 2%. In this case supermarkets and street vendors performed much better at the cost of hypermarkets and discounters.

Poland: The FMCG expenditures increase by 5%. One could see the search for lower prices; in case of Poland the private labels played a certain role in this respect.

Russia: the growth of expenditures by 28% was mainly driven by food inflation (some 28%). We will hear about Russia in more detail a little bit later.


Example: Different strategies in 2009

GRP change Category volume changePrice change

Cleaners and detergents

Personal care products

Soft drinks

Confectionery

Data of ConsumerScan and Media Panel. Percentage deviation vs change of total FMCG market, 1HY 2009 vs 1HY 2008

A rough analysis from ConsumerScan and Media Panel shows different strategies of certain categories during the first half of 2009. Whereas cleaners and detergent reacted mainly with price changes and kept advertising comparatively constant, personal care products increased advertising pressure. Soft drinks reduced it slightly and relied on price changes. Of course there is no simple causal relationship with category volume: soft drinks may have suffered also out of other reasons (easy to substitute). But it will beshow a little bit later that brand advertising can be vital even/especially in times of

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crisis.


SLOVAKIAHUNGARYCZECH REP. POLANDAUSTRIA ROMANIA

Strong Growth of Hypermarkets and Discounters (1)

BULGARIA

Monitored FMCG categories, value based Source: GfK Group, Consumer Tracking


UKRAINERUSSIASERBIACROATIA

Strong Growth of Hypermarkets and Discounters (2)

Monitored FMCG categories, value based Source: GfK Group, Consumer Tracking

The strong growth of hypermarkets and discounters is shown in the present graph. At least if you look to the last decade (in the last years there were some country specific differences). The changes are evident. And you will see some of the changes which took place in Czech Republic, in Hungry, Slovakia, Poland, Romania and Croatia – in the last 10 years - in the future in Bulgaria, Serbia, Ukraine and Russia, where the changes set in only in the last years.

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Private LabelsNational Brands

Source: GfK ConsumerScan

18.4

CZECH REP.

28.6

AUSTRIA

26.0

HUNGARY

16.7

CROATIA

2.3

SERBIA

4.1

BULGARIA

3.7

ROMANIA

19.6

POLAND

26.0

SLOVAKIA

0.8

RUSSIA

UKRAINE

1.3

Private Label Shares in CEE (basis: packed FMCG, 1-11/2009)

In contrast to that development – private label shares show a different picture: high (after Austria) in Hungary, Slovakia, Czech Republic and Poland (where they grew during the crisis), but much less important –up to now- in Serbia, Bulgaria, Romania, Ukraine and Russia. But do not wait and see. As I told you… these markets change fast, they are flexible, people learned to shop in few years (after long periods of shortage and empty shops)…


PL growth is systematically related to business cycles

PL increase in recession not compensated by decline afterwards

Market behaviour perpetuates this result:

• Brand manufacturers’ behaviour is cyclical

• Retailers’ behaviour is countercyclical

Source: Lamey, Deleersnyder, Dekimpe, and Steenkamp (2005)

Private Label growth consistent with previous times of uncertaintyNot easy to get back

…and our experience tells us, that the typical private label increase during a recession is usually not compensated by decline afterwards; and at least some retailers push private labels especially in a recession and promote actively (whereas brand manufacturer sometimes behave in a rather cyclical way and cut back on advertising.

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Understandable but not always wise.).

I will focus in the remaining time on two countries in the East which go in a way beyond the usual concept of CEE. This is definitely true for Russia with its nine time zones and it is also true for Ukraine, which is struggling to define its position vis-à-vis EU-Europe and Russia. But here is not the place for political reflections. In terms of culture in a wide sense both countries have an old and very specific European tradition. Let us turn to Russia, during the crisis, first. Of course it is a crazy effort to try to do it in a few minutes. It reminds me on a joke of Woody Alan. He had made a fast reading course and read “War and Peace” by Lev Tolstoy in 20 minutes. Asked about the content he said only: “It was about Russia”!

Now my colleagues from Russia provided me with some material, which they put together regularly: monitoring the consumer behavior and public attitudes in Russia. In the last years these comprehensive reports looked as if the Putin Administration had ordered them: they showed mainly/almost exclusively upward trends.


0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

10.000

11.000

12.000

13.000

14.000

15.000

16.000

17.000

1998 1999 2000 2001 2002 2004 2005 2006 2007 2008 Mar 2009Jun 2009Sep 2009Dec 2009 May 2008 Nominal

Dec 2008 Nominal

Mar 2009 Nominal

Jun 2009 Nominal

Sep 2009 Nominal

Dec 2009 Nominal

Ru

ssai

n R

ubl

es

In the 2001 prices

Nominal

*Nominal income – income in pure money means without taking into account purchasing power, level of prices and inflation.

Source: GfK Rus Omnibus

Monthly income per capita - Russia(in the 2001 prices)

It started in 2001 – three years after the Ruble crisis of 1998 which we did research as well in its behavioral consequences. Income per capita rose continually until 2008 (here in nominal amounts not taking inflation into account). In 2009 it stagnated (but there was about 20% food inflation as you already heard).

18


5648 45 46 45 44 47 47 45

18

18 21 20 20 2323 22 24

1118 19 17 16

18 17 16 17

14 14 13 16 17 14 13 14 14

2 2 2 2 1 1 1 1 1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2005 2007 May 2008 Dec 2008 Mar 2009 Jun 2009 Sep 2009 Dec 2009

Food products Education, healthcare, etc Rent and public services Clothing, footwear, durables Other

Spending Structure - Russia


The spending structure had changed over the years. More than 40% still have to be used for food (Austria 13%) but that is much less than 9 years ago. More is used for education and healthcare. A smaller amount than 2008 for clothing and durables (as you will see in more detail).



7

1418

25 2426

13

6 6 688

15

48 50

55

4953

40 4144

47

83

68

31

23

1821

29

5046

42 41

0

20

40

60

80

100

120

140

160

180

200

0

10

20

30

40

50

60

70

80

90

100

1999 2000 2001 2005 2007 May.08 Dec.08 Mar.09 Jun.09 Sep.09 Dec.09

Cu

rren

t pe

rson

al fi

nan

cial

sit

uat

ion

inde

x

Improved The same Deteriorated Index

Consumers’ Attitudes – RussiaFinancial Situation at the Moment

* Indixes are calculated as the difference between positive and negative answers in percentage with the addition of 100. Range 0-200 indixes, values above 100 - the preponderance of positive answers, below - the negative.

What has changed considerably i the evaluation of one’s own financial situation. In 1999 88% said that it had deteriorated. Within 2 years this number sank to 31% and kept shrinking until 2008. It grew again in December 2008 to 29%, jumped to 50% in March 2009 and fell only slightly to 41% in December 2009 (although continuously). But there is still a high percentage which has the impression that it did not really

19

change but stayed the same.


16 1716 15

11

68

10 12

24

3028

24 23 2325

29 28

48

3736

41

46

52

49

4144

1216

21 21 2018 19 20

16

0

20

40

60

80

100

120

140

160

180

200

0

10

20

30

40

50

60


App

ropr

iate

nes

s of

tim

e fo

r sa

ving

s in

dex

Favorable Neither favorable nor unfavorable Unfavorable No answer Index

Consumers’ Attitudes – RussiaTime for spending

Source: GfK Rus Omnibus* Indixes are calculated as the difference between positive and negative answers in percentage with the addition of 100. Range 0-200 indixes, values above 100 - the preponderance of positive answers, below - the negative.

It is interesting that the mood to spend money –never very high in the whole period-started to decrease even before the crisis became “public”. But after March 2009 there were already some signs for “normalization”.


23

30

3841

19

12

18 19

26

31 32

27 2826

2427

29

34

22 22

14 13

40

51

37

33

28

23

15

2118

1513

18 20

12

0

20

40

60

80

100

120

140

160

180

200

0

10

20

30

40

50

60


Nat

iona

l eco

nom

ic d

evel

opm

ent

expe

ctat

ions

for

the

nex

t 1

2 m

onth

s in

dex


Consumers’ Attitudes – RussiaEconomic Situation in the Country in the Next 12 Months


This might have something to do with the (changing) perception of the economic situation. The outlook on the economic situation for the next 12 month) was very dark

20

in March 2009, but improved during the year. It was not so much that optimism grew (it is still much lower than in May 2008) but pessimism felt sharply. Maybe that people – like in other countries – had expected a much worse scenario and fell a kind of relief, when it turned out (up to now!) to be less dramatic than the media information had “promised” (but it had its impact on buying behaviour for some month).


1720 20

25

15

9

1415

20

29

35 34 33 33 3234

37 37

14 14

97

21

30

1916

15

40

31

38

35

3129

34

32

29

0

20

40

60

80

100

120

140

160

180

200

0

5

10

15

20

25

30

35

40

45


Nat

ion

al e

con

omic

dev

elop

men

t ex

pect

atio

ns f

or

the

next

5 y

ears

inde

x



Consumers’ Attitudes – RussiaEconomic Situation in the Country in the Next 5 Years

A similar picture evolves if you look to mid-term expectations (what will be the economic situation in the next five years). Maybe a lot of people have no clue at all. Is it still the distrust for “plans”, which were always announced but rarely achieved? Or is it the suspicion that such forecasts are only vague guesses – which was lately proved by economists of all kinds? The future is – by definition – not accessible to empirical description. And a quote by Gogol runs: the Russian mind is at its sharpest – afterwards / after the event. But what you see here as well is that the gloomy outlook –very strong in March 2009- is reduced to “normal”.

21


37

33

24

42

22

3533

56

18

42

31

45

15

3836

3

8

0

5

10

15

20

25

30

35

40

45

The crisis is, and will increase

The crisis and the situation has not

changed

The crisis is there, but soon will be on the

decline

The crisis has not yet begun, but will

Crisis not and will not be

Mar 09 Jun 09 Sep 09 Dec 09

Moscow, 2009RUSSIAN CONSUMER PROFILE GfK Rus

37

4

74

18

71

0

10

20

30

40

50

60

70

80

The crisis has already begun Crisis will come in the nextyear

There's no and there w ill be nocrisis

No answer

What do you think of the crisis in Russia?

Crisis behavior

Source: GfK Rus Omnibus, Dec 2008

Crisis AttitudesWhat Do you Think about Crisis in Russia?


Most people “saw” the crisis already in December 2008 – when it was still denied by some officials that it will have a strong influence on Russia (here you see the wisdom of the crowd). But after March the fear that the crisis will increase fell. Big parts of the population think/feel that there is still some threat – but more and more people hope that it is on decline.


28

27

15

9

9

7

2

1

2

26

25

17

13

7

7

2

1

2

24

27

14

12

10

8

2

1

3

23

30

16

13

8

7

1

1

3

Supermarkets

Small shop nearby / on the way to home

Grocery markets

Discounters

Counter grocery stores / department stores

Hypermarkets

Specialized shops

On trays / street trays

Don't know

Mar 2009

Jun 2009

Sep 2009

Dec 2009

Places of Purchase Foodstaff and Convenience Goods in Russia


Supermarkets were less frequented. The traditional shops nearby became (again) a little bit more important. The same is true for discounters. Hypermarkets kept their position. Overall there was not much change in preferences for certain types of outlets

22

in Russia.


Consumers’ Behaviour on Certain Markets, RussiaDeclining Sales of Consumer Electronics and Household Appliances

Jan-Sep 2009 to Jan-Sep 2008

Audio-Video -15,7%

Photo -19,9%

Major Domestic Appliances -16,4%

Small Domestic Appliances -11,6%

Information technology -20,0%

Telecommunication -36,2%

Office Equipment & Consumables -50,4%

GfK TEMAX® Russia -23,8%

Source: GfK Temax, Technical Market Index

What really changed were the sales for consumer electronics and household appliances. Purchases which were not absolutely necessary were obviously postponed. Although toward the end of the year one could observe some upward trend. This is in good accord with the consumer sentiment index which is still below May 2008, but – Moscow being an exception – above December 2008 (the absolute low was again March 2009). Our team in Moscow concluded their latest report on a semi-optimistic tone (pessimistic for the car market, rather positive for goods consumed in-home). Consumption volumes of categories, which are almost completely consumed at home, grew considerably, e.g. meat delicacies grew by almost 1,5 times by the end of the year (the table must break under the load of dishes). But some problems – so the last sentence of the report – will stay: high unemployment, production stagnation and problems with raw material on the world market. “The majority of the population realized, that overcoming a crisis will take not month but years. On the other hand we are facing now less uncertainty than a year before”. To live with uncertainty is an experience Russians have experience with. We will monitor the effects on “preferences”.

23


6,3 6,2 6,4

-8

-20,3-18

-25

-20

-15

-10

-5

0

5

10

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09

Real GDP (comparing with the same period of the previous year)

Unemployment (ILO methodology)

1578

14011354

1425

20977,1%

6,2% 6,0%6,4%

9,5%

1.000

1.200

1.400

1.600

1.800

2.000

2.200

0%

5%

10%

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09

Average number of unemployed during period, '000 people

Average, % of labor force (15-70)

Crisis reflection - Ukraine Real sector

Source: State Statistics Committee Source: State Statistics Committee, ILO methodology

Now let us finally turn to Ukraine – another problem ridden country (not only by the economic problems like currency devaluation) but also by political problems). GDP fell in the first quarter of 2009 by more than 20% - after growth rates of more than 6% in the first three quarters of 2008. Unemployment went up immediately. This came after a period of “overheating”, when a lot of people indulged in buying a lot of things.


At least, one good thing from overheating ☺

To many Ukrainians overheating of the economy increased their quality of life

0

10

20

30

40

50

60

70

2003 2004 2005 2006 2007 2008 (I-X)

Share of HH (%), who possess:

Mobile phone Washing machine

DVD Microwave oven

PC/laptop

Source: GfK Ukraine

We see especially mobile phones, washing machines (more modern ones), DVD-players, but also microwave ovens and personal computers and laptops. A lot of people

24

sincerely believed that time had come when they could live “as civilized people”; not work to much – lifestyles changed accordingly, and the thought they could despise and scold government; you see this is a European county.

But then came… March 2010GfK Austria

October 8, 2008 - Ukraine

That was early!


October 8, 2008 - Ukraine

• Credit activities were frozen, money flowed to «safe harbors»

• Recession in developed countries led to decrease in prices for commodities, including Ukrainian metals

• Cash outflow revealed problems with Ukrainian banks

• Capital outflow and export reduction caused devaluation

• Devaluation, problems with banks and lack of confidence in government created panic

• Business activities stopped for a week

• Adaptation to new economic environment lasted till March 2009

• In 1Q 2009 the bottom of economic downturn was reached

And this is what happened – in a few words.

25


24

36

27

10

2

20

34

31

12

3

17

33

34

14

2

12

32

38

15

3

10

28

40

17

4

9

24

41

22

4

8

22

41

25

4

7

18

38

29

7

5

16

38

32

8

5

15

39

31

9

5

17

40

28

9

8

22

40

24

5

Have to economize on food

Enough to buy food. Have to save or borrow to purchase clothes, footwear

Enough to buy food and clothes. Have to save or borrow to purchase nice suit,

mobile phone, vacuum cleaner

Enough to buy food and clothes and make other purchases. Have to pile up or borrow

to purchase expensive goods (TV, refrigerator)

Enough to buy food and clothes and expensive goods. Have to save or borrow to

purchase a car or apartment

H2'2003

H1'2004

H2'2004

H1'2005

H2'2005

H1'2006

H2'2006

H1'2007

H2'2007

H1'2008

H2'2008

H1'2009

Perception of “what one can afford” turned back to the level

of 2006

Crisis reflection - Ukraine Household income

Source: GfK Ukraine, FMDS, cities 50 th.+

People had not really to economize on food. There is only a small increase of those who had to do it – far from the number who had to save on food 6 years ego. But one had to save for clothes again, and did it less on bigger purchases – which have to be postponed anyway.

What you can see – even from these rough data – is how a population with experience react crisis (PL).


17,514,2

34,2

15,810,6

37,6

17,811,6

4,7

18,2

6,2

-2,0

9,9

-1,4-10

0

10

20

30

40

50

60

70

80

90

100

Nominal change, % Estimation of change in physical, %

The behaviour was predictable… Forecast of changes in FMCG consumption (2009), %, Ukraine

Estimation of changes in physical volumes is calculated via deflation by consumer price index (inflation rate). Data and forecast: GfK Ukraine

2003 2004 2005 2006 2007 2008 2009

Fast moving consumer goods consumption did not really shrink – not nominally anyway. If you take inflation into account our estimate for 2009 was a slight minus of 1,4%.

26


Short-term reaction of consumer is determined by two groups of factors – subjective and objective

OBJECTIVE FACTORS:

•Household incomes

• Price dynamics

• Currency exchange rate

• Interest rates of loans and deposits

SUBJECTIVE FACTORS:

•How consumers perceive the

current situation

• Expectations of future changes

The short term reaction of consumers was –as always- determined by two groups of factors: by objective factors, which are usually in the focus of economists: household incomes, price dynamics, currency exchange rates and interests of loans and deposits: and some of them underwent strong changes (currency in case of Ukraine). Other objective factors played a minor role (like devaluation of shares – only a minority kept some and household income was quite constant for a good while). But subjective factors played immediately a role: how consumers perceive the current situation, what they expect for the future - and that was not good.


FMCG

Before the crisis During the crisis

CONSUMER CONFIDENCE

DYNAMICS Before the crisis

Source: GfK Ukraine, ICPS. Calculations – GfK Ukraine.

Relative strength of impact of subjective factors on development of markets increases significantly during the crisis period – Ukraine

62%

29%

38%

71%

Objective factors Subjective factors

02'2

008

04'2

008

06'2

008

08'2

008

10'2

008

12'2

008

01'2

009

02'2

009

03'2

009

04'2

009

05'2

009

06'2

009

Look how fast consumer confidence fell: the low was in January/February 2009 recovering slightly toward the middle of the year.

And – according to an analysis of GfK Ukraine- subjective factors played a growing role,

27

when it came to purchasing FMCG. The relative importance of objective and subjective factors changed completely.


A roughly 40% decline of the market in 2009 is determined

by the impact of subjective factors (Consumer

Confidence)

Calculations – GfK Ukraine. Quarter 1, 2009 vs Quarter 1, 2008

Impact of subjective factors on automotive market dynamicsUkraine

-75,0%

-32,0%

Actual decline

Simulated decline without impact of subjective factors

This is even more true for expensive goods like cars. The actual decline of sales of 75% was largely due to subjective factors- The money –so to say- would have been still available, but the will to risk it on a car seemed to be high.


Short-term and long-term reactions of consumer Impact power of the main factors on buying intention and “long-term” attractiveness of the brands (Brand Potential Index), Ukraine, %

Short-term reaction Long-term reaction

Based on the case study of soft drinks

12 10 11 10

27 32 35 37

52 4748 46

8 11 6 6

1HY 2008 1HY 2009 1HY 2008 1HY 2009

Price Image Product char. Availability in retail

In a special study of the soft drink market GfK-Ukraine looked for the relative importance of several factor before and during the crisis; and tried to estimate also long term effects (using a brand evaluation model). The results look surprising. In short term perspective the importance of image decreased, that of price and product characteristics rose (slightly): which could mean that consumers shopped more deliberately: but image (the subjective factor) still played the dominant role. And this is

28

even more true when “long-term-attractiveness” was analysed.

To build up a distinctive combination of d value and savvy pricing could lay the foundation for future success. But what could be observed in many advertisements was a price-message only.


The brand is important for the four largest consumer segments which constitute about 70% of the population of Ukraine.

CONSUMPTION:demonstrative

BRAND: novelty, style

CONSUMPTION: demonstrative

BRAND: status

CONSUMPTION: rational

BRAND: usefulness, reliability

CONSUMPTION: rational

BRAND: trust, price

Not by price alone …Ukraine

But why price alone is not the key to success is explained by the fact that the four largest psychological segments (defined via Roper-types) of the population of Ukraine appreciate “brands” (in one or the other way) either because of their demonstrative character (if the brand can be seen by others), or because of their reliability and trust worthiness. This is remarkable – because some 20 years ago the sheer concept of “brand” was practically unknown in this (and other communist) countries.

With respect to durables a lot of people were cutting back their purchases in anticipation of income declines (there was not so much chance so spend less on restaurants and big holidays). But for daily things they shopped only a little bite more frugally, thought twice – but enjoyed the little luxury at home.

29


“Long-term” is coming already… Consumer Confidence Dynamics, Ukraine

Source: GfK Ukraine, ICPS

06'2

008

08'2

008

10'2

008

12'2

008

01'2

009

02'2

009

03'2

009

04'2

009

05'2

009

06'2

009

07'2

009

08'2

009

Confidence is coming back (not due to the recent elections) although it is still far from the level of the middle of 2008.


Phase 1: spending for necessities, no money or savings

Phase 2: growth of savings, including savings in banking systems

Phase 3: partial revival of markets for consumer durables

2008 2009 2010

Dynamics of household deposits

90.000

95.000

100.000

105.000

110.000

115.000

120.000

125.000

130.000

135.000

07/0

8

08/0

8

09/0

8

10/0

8

11/0

8

12/0

8

01/0

9

02/0

9

03/0

9

04/0

9

05/0

9

06/0

9

07/0

9

11.000

12.000

13.000

14.000

15.000

16.000

17.000

UAH (mln)

USD/EUR ($ mln)FMCG

Savings

Durable goods

Trends of physical volumes

Consumers’ response to economic downturn Ukraine

Source: NBU

Saving levels rise slightly, and durables are “less postponed”. FMCG#s had kept relatively stable anyway.

30


Growth of competitiveness

What does it mean?

• Ukrainian economy had “cooled down” to the level of 2006

• By the end of 2010, it will rise to the level of 2007

• Growth of GDP in 2010 will be comparable to GDP growth in 2008

• Meantime, inflation rate will be twice lower

World economy

Ukranian economy

Growth drivers

• Economy competitiveness will improve due to hryvnia devaluation, decrease in real wage and raising productivity

• World economy is recovering

• Revival of credit activities and return of capital

This is the best guess; made by GfK-Ukraine. May be they are a little bit too optimistic about a recovery of the world economy and return of capital (FDI). But remember: these countries have seen darker days, have gone through several crisis and have proven that they have developed talents to handle it.

When CEE-countries were “downgraded” last year by some “super economists” and “instant-rating agencies”, only a few people were confident and optimistic. Most of them were considered to be poor indiots. In the meantime the attitude has changed (at least in some media). They found out that most of these countries have less national debt (than Greece or Spain and some others). That the reasons for the crisis there were different (well, some oligarchs lost a lot of money, but most consumers did not suffer losses because they had not invested into securities).

All of these markets are in many respects “unsatirated markets”, people are eager to attain a standard of living they have before their eyes. The workforce is –in general- good, and motivated. They are still ready to work hard and longer (some were reminded by the crisis that there is no free lunch). They have experience with crisis – and improvisation. There are still a lot of remittances coming from family members working abroad (the amount did not shrink so much as expected). Family networks work – in a high percentage (if you have a family).

As one of our successful bankers in Austria put it: Western Europe needs CEE for staying alive.

That may sound paradox. But look what had happened in the last 20 years. There are good reasons to believe in the potential strength of the wider region. Don’t worry about headlines of media, it is sometimes bad food for thought.

As the famous Georg Christian Lichtenberg put it: “don’t think – look” (especially to market reports close to reality).

Representations in Central- and Eastern Europe and MEA - Austria … · 2010. 5. 17. · GfK Austria March 2010 PL A HR SCG BG RO H SK UA RUS BiH LT KAZ SLOVAKIA 1990 HUNGARY 1989

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