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THE METAMORPHOSIS OF THE RUSSIAN LUXURY FOOD CONSUMPTION
IN TIMES OF RECESSION
By Dr. Nikolai Ostapenko, Washington, D.C.
Russians love to eat. Feasting is a beloved practice, an integral component of the
Russian way of daily living, socializing, celebrating occasions, and making a conspicuous
display. Sharing meals has always been both a significant private ritual and a special element
of Russia’s philosophical, literary, and socio-economic traditions. In The Twelve Chairs, a
satirical novel with a comic-grotesque flavor published by Ilya Ilf and Evgeny Petrov in 1929,
one of the central characters famously screamed (fashionably, in French): "Monsieur, je ne
mange pas six jours," expecting to convey a dramatically persuasive, terribly pitiful
impression while begging for survival and blaming Fortune. Russian foodways define the
nation’s citizens as hospitable and generous, never missing an opportunity to enjoy a plentiful
and delicious meal in company while observing life and chatting about the latest episode in
the never-ending political drama. For instance, Moscow’s fanciest restaurant, the Savoy,
offers well-heeled customers an “imperial” menu of dishes such as Duck à la Boyarin, Tsar’s
Veal, Old Monastery Sturgeon, Blinis Stuffed with Beluga Caviar, Cossack Ukha (a
traditional fish soup), and Salmon Rose under gilded ceilings on elegantly set tables around a
marble fountain adorned with the original imperial carvings symbolizing love and fertility.
Wish you were there…
Though the return to wild capitalism has not altered the nature and importance of the
country’s food-related rituals, some manifestations of hospitality have been transformed. The
“haves” at the glamorous dining tables have acquired refined and expensive tastes, while the
“have-nots” are mainly sticking to what the neighborhood Western-style supermarket offers to
perpetually inventive, patient working wives. In most Russian families, food expenses
dominate the family budget, with other routine items representing a far smaller share.
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According to Russian sources, for 41% of Russians, food currently accounts for 25-49% of
the family budget, while 39% spend 50-74% of their income on food. Public utilities take only
25% of the income in 36% of Russia’s households, and 25-49% of the income of 44% of them
(Pravda, March 16, 2010). Let us focus our review on luxury consumption in general, and
then on luxury foods in particular.
As we suggested in our prior work in 2009, an orientation toward luxury and affluent
behavior patterns with regard to home, personal, and experiential luxuries have been evolving
in Russia for a long time. Moscow is frequently referred to as the fifth fashion capital of the
world, following Paris, Milan, London, and New York. In Russia, mainly in Moscow, there
are an estimated 300,000 to 500,000 luxury consumers, including Russian millionaires, the
upper classes, and members of the upper middle class. High-end clothing, footwear, leather
goods, jewelry, and eyewear command an overwhelming 65% of the Russian consumer goods
market value. It is common knowledge that Russians are highly attuned to explicit
manifestations of wealth, and they interpret them as an expression of their newly acquired
freedom from the political restraints and limitations on travel to Western countries that were
so restrictive in the past.
Ekaterina Slavina of the Swiss Business Hub Russia explains this as a “psychological
habit”: “Due to the shaky history in Russia in the XXth century, when the road from fortune
to misery was something very short, putting money aside for the future was not a safe bet”
(Russian Luxury Goods Market Report, 2007, p. 3). Such behavior has been fueled in recent
years by impressive macroeconomic growth and investment activity, low public debt, positive
improvements in the banking and financial systems, the healthy general growth of
consumption, and the unprecedented upward mobility of the elite upper middle class, up until
the recent recession drama.
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Russia is notorious worldwide for its exorbitantly priced restaurants and fancy cars,
and for the general addiction of the affluent elite to the most expensive luxury products
available. Moscow buys more than 80% of Russia’s goods in a luxury clothing and
accessories market estimated at $4.5 to $9 billion. The other two centers of wealth and luxury
consumption in the country are St. Petersburg in northwestern Russia and Yekaterinburg in
the Urals, where Moscow’s successful chains usually proliferate. Finally, Russia is home to
the world’s third-largest concentration of billionaires (after the United States and Germany)
and to more than 100,000 millionaires with a combined $300 billion of cash for discretional
spending. Moscow, with its glamorous daily offerings, is by far the most expensive city in
Europe, and more rich people reside there than in New York, according to an Associated
Press report. To prove it, Moscow’s De Luxe Alliance publishes a catalogue of expensive
gifts with a minimum price-tag of $1 million dollars each, targeting mainly “golden” young
men between 25 and 30 years of age.
The global economic downturn of 2008-2009 presented major challenges to the
commodity- and energy-price-driven Russian economy. Crude-oil prices, within a single year,
declined from $150 a barrel (July 2008) to a miserable low of $40 per barrel (March 2009).
Inflation exceeds 13% annually, and the ruble has lost about 30% of its value (Ernst &
Young, Russian Food and Beverage Industry Survey 2009). The number of Russia’s
billionaires was halved in the past year, and the Russian ruble started to fluctuate sporadically
again. What impact does this have on luxury consumption?
The worsening of the macroeconomic situation in Russia has triggered pessimism and
confusion in the retail industry, even among Moscow’s luxury-store management. Alexander
McQueen, Stella McCartney, and Lanvin closed their stores fewer than 18 months after their
respective grand openings in Moscow. The sole Vivienne Westwood shop had a notice –
“closed for repairs” – taped to the door for some time: less embarrassing than admitting that
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the firm was “pulling out” of the country. All Diesel stores in Moscow were closed when the
company “Vintage Technology” lost interest in maintaining the franchise. Fancy British
stiletto heels, majestic gowns, and Italian-made woolen coats first disappeared and then were
offered at a 70% discount in neighborhood stores last fall. The St. Petersburg Times predicted
that around one-third of the profits normally earned on luxury clothes and accessories
vanished in 2009 (The St. Petersburg Times, March 31, 2010).
One symbol of the times was the recent opening in Moscow of an H&M store in the
former Alexander McQueen space, in a prime location. Some luxury customers were lured
away by this new opportunity. Donatella Versace and Tom Ford have not jetted to Moscow
lately to share their amazing plans for operational expansion with enthusiastic crowds, as they
did in 2008. Moscow’s answer to London’s Bond Street, Stoleshnikov Pereulok, buzzed with
rumors of crisis-spurred shutdowns. The Russian franchiser Aizel, working for Diane von
Furstenberg, Marc Jacobs, and Agent Provocateur, admitted that sales dropped by 10% this
spring.
The truth is that the consumer market is just slowing down and shifting: bigger
discounts for the majority and über-luxury for the exclusive few. It takes time to adjust
psychologically to the idea of bad times that affect even the wealthiest segment of the most
affluent of the non-Western nations. Most of Russia’s traditional luxury consumers are
presently feeling “guilty yet rich.” Things may get worse before they get any better. Finally,
the Russian rich are Veblenian-effect consumers, in the classification of Vigneron and
Johnson (1999). They attach greater importance to price as an indicator of prestige because
their primary objective is to impress others. This attitude endures tenaciously. For instance,
when the annual Millionaire Fair was held in Moscow in 2006, a diamond-studded cell phone
was sold for $1.27 million (Herald Tribune, 2006). Just in case the glitter of the 120 carats of
diamonds encrusting the white-gold phone failed to draw customers, there was a plaque
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declaring, “Certificate of the most expensive mobile phone ever.” The world’s largest
exhibition of luxury goods continued at the Fair in 2007. Customers were eagerly buying $50
million private jets, Bentleys, penthouses, and yachts, without apparent remorse.
Very “serious” luxury brands – Chanel and Louis Vuitton – are expanding rapidly in
Russia. Chanel is opening a new boutique in Yekaterinburg and seeking more sales
opportunities in Moscow, where it already has two stores. Louis Vuitton is also opening a
store in the fast-growing city of Yekaterinburg, and the company’s further plans include new
store openings in the Black Sea resort Sochi, host to the 2014 Winter Olympics, where
Christian Dior and Dolce & Gabbana are already situated. The Economist explains this
counter-phenomenon as follows: “When people have less, they spend what they have on the
best quality. Shoppers are going for fewer, more classic items. Vuitton always gains market
share in crises” (The Economist, September 17, 2009).
Affluent Russian consumers have the greatest top-of-mind awareness of foreign luxury
brands, in comparison with customers in other major emerging markets, China and India. The
Russian luxury market is more developed and more European in nature. The following brands
are recognized by Russians: Chanel – 39%, Giorgio Armani – 37%, Dior – 35%, Dolce &
Gabbana – 29%, and Versace – 27%. The best-known luxury brands in Russia are Versace,
Dior, Chanel, Zaitsev/Russia, Yudashkin/Russia, and Giorgio Armani. When considering
purchases, Russians look above all for high quality (53%), good reputation (53%), and high
fashion (44%).
The most popular luxury items in Russia are watches and jewelry, electronics, art and
antiques, marine products (yachts, speed boats, marinas, and submarines), luxury cars and car
accessories (including amphibious vehicles), private jets and helicopters, high-end real estate
properties, interior design items and luxury furniture, exclusive spirits and gourmet food,
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10th Global Conference on Business & Economics
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luxury cosmetics, beauty and health products, designer clothes, and luxury travel and leisure
opportunities (such as golf). Many well-educated Russians with good management jobs have
sufficient financial security and like to buy beautiful things. The Russian mentality
historically supports a carpe diem attitude, a tendency to spend money madly. Russian Vogue
suggests that it is now “consumerism time” in Russia. According to the Russian Golf
Association, the number of golf courses—20 at present—soon will double. The majority of
them are located on the outskirts of Moscow. The golf market, growing by a remarkable 75%
a year, was estimated at $1 billion at the end of 2008, and that amount was expected to double
by the end of 2009.
The Russian luxury real estate market is growing by a healthy 20% per year. Marketed
homes are designed with private zoos, golf courses, and big aquariums. The most expensive
Russian apartment sold in Moscow thus far was priced at $22 million, and the demand for
luxury apartments exceeds the supply. Plenty of buyers are willing to pay more than $100,000
per square meter. New elite construction in downtown Moscow is expected to raise this price
to $40 million per apartment. Newly erected apartments will have indoor swimming pools,
enclosed gardens, private yacht piers, and up to eight floors per unit, with private elevators for
family members. New infill construction and land development in central Moscow is limited,
and this boosts demand to an even higher level.
Russia has become Europe’s second-largest market for luxury automobiles after
Germany. Most transactions are made in cash and not on credit, as is typical elsewhere. An
imported luxury car is a must-have accessory for any successful Russian businessman.
Daimler-Benz’s latest Mercedes models are the market favorites, and sales jumped 90% in
2008. Russia is the third-largest market for company cars, after the United States and the Arab
Gulf countries. Rolls-Royce has a lengthy waiting list for the first golden-plated models
(some are also encrusted with Swarovski crystals). In 2007, Bentley alone sold 240 cars in the
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country, and the company plans to double this number in the near future by operating five
dealerships in Moscow, Krasnodar, Yekaterinburg, Novosibirsk, and Rostov-on-Don. Bentley
expects to make Russia the third-biggest market for the brand in the world, after China and
Japan.
In the luxury timepiece category, the legendary firm Breguet successfully re-entered
the Russian market after 200 years of absence. Tsar Alexander I of Russia, Napoleon
Bonaparte, and Leo Tolstoy all owned Breguet watches. The new store location is right in Red
Square. The cheapest item in the store costs $14,000, and watches from the Imperial
Collection are priced up to half a million euros. The watch market is moving toward more
distinct, art-oriented, intimate, and expensive pieces in the best traditions of the renowned
jeweler Fabergé.
Luxury food consumption stands alone as an important, distinct segment of luxury
consumption, owing to the nature of the products. There are two ways to analyze the luxury
market. In tangible terms, the perishability of many food products makes it unreasonable for
wealthy individuals to purchase them abroad, as they do many other luxuries, and keep them
in the pantry for an extended period of time. Second, even long-lasting items (such as alcohol,
cigarettes, preserved or canned foods, and chocolates) are relatively heavy and definitely
inconvenient for luxury travelers to carry home. Possible exceptions are goods purchased in
the popular duty-free airport shops. Finally, some products that are “addictive” by nature,
such as branded alcohol, cigarettes, candies, and chocolate, trigger periodic repeat purchases,
which generates a steady demand for them among luxury retailers. Disappointing to those
retailers is the fact that many luxury food products are subject to substitution by low-branded,
local non-branded, or even homemade alternatives.
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Non-tangible luxury food and liquor offerings (more precisely, combining both
tangible and intangible elements) are available at restaurants, bars, hotels, bathhouses, various
private clubs, casinos, and other entertainment establishments characterized by a state-of-theart facility, high-caliber entertainment, and refined service. These outlets offer a mix of
imported and locally prepared food and drink, and they normally are owned or controlled by
the wealthy clan frequently in attendance, with friends and customers of a like kind. Interest
and income-generated attendance are broadly based on the personal interests of the owners
and can be manipulated to suit the market situation and predominant societal sentiment. In
this case, luxury food performs a supplementary function: it enhances the appeal of the entire
service “package.”
In the past five years, retail sales of luxury foods have almost tripled in Russia (from
about $82.5 to $251.2 billion). The market is still in the early stage of formation, owing to the
low per capita annual income (averaging $380 nationwide, $1,163 in Moscow), measured by
the Western standard (must exceed $1,000). Currently, a handful of premium elite-class retail
grocery chains dominate this market in Moscow: Globus Gourmet (with 6 shops and plans for
expansion to 12), Kalinka-Stockmann (4 stores), Azbuka Vkusa (17 branches), and the
Seventh Continent—Five Stars (17 shops). In addition, several foreign (mainly FrenchBelgian) gourmet boutiques have been operating there since 2004: Hédiard, Fauchon, Vatel,
Provence, Baccarat Chocolatier, and Godiva, as well as the Russian Confael and A.
Korkunov. Recent newcomers to Moscow are the Italian company Peck, the Russian premium
caviar boutique Petrossian, and the Austrian gourmet firm Julius Meinl. It is widely expected
that saturation of the luxury food segment is imminent. Within the next two to three years, the
market potential will be largely exhausted, owing to rapid stratification of customers by
income and to overall post-recession uncertainty.
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Another operational limitation on further expansion by premium grocery retailers is
the absence of a well-run corporate-owned logistics network in Russia. Currently, supplies are
being processed by the giant warehouses/importers, which are increasingly displeased by the
low-volume customs clearance (less than 30% of the volume and far greater inconvenience)
and the difficulty of physical distribution. The warehouse profit margin in general is 25%,
while the margin for high-quality unique seafood, fresh goose liver, bison meat, and truffles
could reach 50-70%. That prospect may sound enticing, but the risk involved is much greater,
as demand fluctuates from day to day.
The third problem is the narrow specialization of the suppliers and lack of
communication between them and the gourmet boutique retailers. To survive, they must
juggle multiple sets of relationships with seafood importers, resellers of French delicacies,
suppliers of deep-frozen foods, and others, and also pay ever-changing premium margins to
keep them satisfied. The largest importers with more or less broad specialization are Global
Foods, Dimarko Trade, Marr Russia, Emborg AO, and MBF Products. There is no way for a
small boutique to play by these suppliers’ rules.
Many luxury food sellers feel comfortable with the big-scale store format in the midst
of the recession. The Russian gourmet food market recently welcomed the expansion of the
specialty food chain Globus Gourmet, which operates the first luxury hypermarket in
Moscow, as well as France’s exclusive grocery retailer Hédiard (with 320 stores in more than
30 countries), now owned by Russian billionaire Sergey Pugachev. The average shopper in
these stores spends about $80 per visit. Their entry into the market triggered great interest
among gourmet professionals and investors in the further development of the luxury food
market in the country.
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Another fancy supermarket chain, Azbuka Vkusa (ABC of Taste), modeled on
Harrod’s in London, successfully sells imported and local luxury products at outrageously
inflated prices. An ordinary green tea can cost 700 rubles ($20) per package. A shopping trip
for Australian meat, French croissants (baked and frozen in France and defrosted in Russia),
and raspberries air-freighted from California (500 rubles for a tiny handful) can bring
shoppers amazing pleasure and also break their budgets. This approach to pricing suggests
that Russian shoppers still are frequently driven by the idea of indulging in something very
special, regardless of the value received or the dictates of post-recessional common sense.
Indeed, many families are struggling to stretch the budget by buying vodka at 200
rubles a bottle rather than whisky at a per-bottle cost of 800 rubles. Also noticeable is a new
trend in lifestyle magazines and on the Internet: articles offering American-style advice on
trying to save, but always including a suggestion at the end that you treat yourself by
purchasing small pleasures and modest luxuries from trendy boutiques instead of overpriced
luxury stores. In the restaurants, Moscow’s passion for sushi survives, but affordable chains
like Yaposha, which sells a set of rolls for only 325 rubles ($10), are steadily expanding and
gaining in popularity. Since the salary cuts began to bite, many customers are switching from
fancy restaurants to cheaper ones, or even to creative gourmet cooking at home.
A newly popular trend in Russia is purchase of healthy and organic upscale foodstuffs.
The gourmet grocery Organiclub and sushi market Sushiyobi, associated with Azbuka Vkusa,
are located at Lotte Plaza, a new shopping center in Moscow featuring the first Asian
(Korean) department store (“Lotte Town”) in Europe, with more 60 global luxury retailers
(Prada, YSL, Gucci, D&G, Jimmy Choo, Miu Miu, Mulberry, Balenciaga, Chloe, Baccarat,
Emmanuel Ungaro, Nina Ricci, Sergio Rossi, Les Copains, J Lo). And the line of customers is
always present.
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According to a Nielsen survey, “Shoppers’ Trends 2008,” conducted in Moscow and
St. Petersburg, three major customer concerns exist there: 1) how to get better value for the
money, 2) where to find a better product variety, and 3) which store offers the most pleasant
and tidiest environment. There were no complaints about prices or marketing strategies. Retail
offerings in St. Petersburg are more developed and reminiscent of a Western level of density
with regard to supermarkets and hypermarkets; most purchases are made there rather in
traditional, stand-alone shops and open markets (5%). In Moscow, the situation is worse.
There are only 3 hypermarkets and 78 supermarkets per million people (compare this with
Germany, where the figure is 21 hypermarkets and 236 supermarkets). In Russia’s capital,
about 20% of all grocery purchases are made in traditional Soviet-style food stores and open
markets. The general trend is moving toward a higher concentration of bigger grocery
retailers instead of limited-assortment convenience stores. Gourmet boutiques are still an
exception.
Shopping online for food is becoming more popular among Russians. Four food and
drink e-shops are operating in Moscow: Dostavka7cont.ru, Service 77.ru, Nyam-Nyam.ru,
and Korzinka.com, twice the number of online stores available in 2006. Utkonos.ru has
introduced a new idea for Muscovites and residents of the Moscow region: a limited
assortment is available in the brick-and-mortar stores, while 65,000 products (comparable to
the average inventory of a U.S. grocery store) can be ordered online and picked up and paid
for at a nearby branch store. This trend has a bright future.
Thus the main trends evident since 2006 in the luxury food market are related to both
expansion of stores and selection of premium food products. The assortment of exotic and
expensive products is constantly growing. New super-premium liquor brands, meats of exotic
animals, and rare fruits, herbs, and vegetables are rapidly coming into the Russian market.
Processed food, ready-to-serve deli-style items, and fancy packaged ingredients for home
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cooking are becoming widely popular. In terms of ingredients, food additives, sugar
substitutes, vitamin-enhanced foods, and new organic foods are gaining popularity. Moscow’s
Gruenwald, Globus Gourmet, Fushi, and Grain Open Company cater to the health-oriented
luxury segment. The organic grocery market is at the very early stage of presence in Russia.
Online grocery distribution is still experimental and not truly applicable to the luxury
categories of gourmet merchandise.
All in all, the phenomenon of luxury living is becoming more widespread in Russia,
while the gap between “the super-rich” and “the rest” is widening. To support newly acquired
social status, the rich “spend richly” and revel in doing so. Luxury brands and exotic goods
that are vehicles for self-gratification are seen as a way to entice more and more customers to
enjoy a chic, pas-de-problèmes existence. This concept of living has great appeal and is
positively regarded in the mainstream value system of Russian society. Though the global
financial crisis affected the coffers of the rich in a negative way, it did not significantly deter
luxury consumers from the pursuit of their exclusive lifestyle, especially in the area of
gourmet food consumption. The near-rich had to resort to other available alternatives. Some
of them opted out in favor of discounted consumption; some decided to concentrate more on
intellectual vs. material life; some simply fell too far on the economic scale and were
excluded from the middle-class category for the time being. Meanwhile, the glamorization of
the existence of the privileged few proceeded apace …and in great style. Let’s eat, comrades!
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