24.11.22 Review

Retail vs. the State Statistics Service: Russians reduce purchases and suffer from the crisis despite the official statistics


While the Federal State Statistics Service reports that the real income of Russians declined by only 1.7% over the first nine months, retail indicators reveal a significant decrease in purchases. Retailers describe the third quarter of 2022 as the worst in the history of the country. Supermarket sales are falling in real terms, and in nominal terms, they are maintained solely by rising prices. In the non-food segment, the drop reached 15%. There are several explanations for this discrepancy. The Russian Central Bank analysts talk about a change in the consumer behavior model linked to a sense of uncertainty. Part of the income (and spending) of Russians has simply left the country as a result of two waves of anti-war emigration. The decline in consumer lending also contributes to the situation. Finally, the methodology of accounting for real income has been questioned by economists for a long time. In any case, the drop in retail sales shows that in reality, Russians are experiencing much more pressure from the economic crisis caused by the war and sanctions than the official income statistics would suggest.
In the first nine months of 2022 sales of X5 Group supermarkets ("Perekrestok", "Pyaterochka", "Karusel", "Chizhik") have grown by 11.9%, and of "Lenta" — only by 3.8%, according to the latest quarterly reports of these companies to the investors (1, 2). Discount retailer Fix Price has added 12.6% to this indicator since the beginning of the year. At the same time, food inflation for this period ranged from 15% (according to official data) to 20% (according to unofficial data). In other words, physical sales have significantly declined, and the nominal growth of revenues came solely from price increases.

Small retail businesses have the same problem and the same way to solve it. According to the data from the "Evator" company (Russia's largest supplier of online cash registers for small and medium businesses), the revenues can be maintained at the last year's level only due to increasing the average bill. Only draft beer stores have convincing dynamics in the number of issued checks: 16% year-on-year. In addition, street food and clothing stores grew by 1-2%. The latter growth was largely contributed by the foreign brands closing their stores and ceasing operations in Russia. In other categories, sales were declining. 

The pharmacy business is not doing so well. According to the research company DSM Group, nominal sales growth in the third quarter was only 3.4%, and in July and October pharmacies went through a period of recession. According to "Romir" estimates, Russians reduced spending on medical products by 11.8% year-over-year in the third quarter. Consumers have already shifted to a "savings model, which can be noticed in a switch to drugs from domestic producers" and "refusal to take the usual vitamin and mineral complexes". According to analysts, only a new outbreak of Covid can boost sales. 

Significant growth in the FMCG segment could be observed only in e-commerce. According to the research company "Infoline", it can reach 60% per year. However, the low-base effect is a contributing factor here, and in general, the share of online sales in the market does not yet exceed 3%. According to the "Infoline" research company, it could reach 60% in a year. But here the low base effect occurs, and the share of online sales does not exceed 3% in the whole market. Therefore, it is impossible to attribute the decline in offline retail to the flow of consumers online. 

As for non-food products, the drop here was predictably dramatic. According to "Infoline"'s estimates, total sales in this segment (online and offline) fell by 15% over the first nine months. Clothing and footwear — by 40%, furniture, home appliances, and electronics — by 30%, and this is in nominal, in other words, in physical terms. Taking into account the increase in prices, sales have fallen much deeper, and for many categories — by half or more. Sales of the refrigerators give a clear picture of the overall situation: in the first nine months of this year, 2.3 million items have been sold against 2.7 million over the same period last year (a decrease of 15%), with nominal sales revenues of 90.6 billion rubles against 86.5 billion for the same period in 2021 (+5%), according to Holodilnik.ru.

For the largest retail chains, the third quarter of 2022 was "the worst in modern history," Ivan Fedyakov, "Infoline" CEO, argues. He names three reasons: "natural demographic losses, geopolitical migration, and consumer austerity." "If the situation does not change for the better in the near future, with the onset of the New Year we risk getting, first, a series of bankruptcies, and second, the departure from the market not only of foreign but also of Russian companies," Fadeev says.

The fact that Russians will begin spending less and saving more, the Central Bank predicted in the spring: "The price increases that have already occurred, economic uncertainty, the growing propensity to save due to the strengthening of the precautionary motive with the growth of deposits attractiveness, tightening conditions for consumer lending — all this will generally restrain demand and affect its structure. Plus, incomes in Russia have been declining since 2014. There was a slight increase in 2017-2019 and in 2021, which has now been replaced by a new contraction. As a result, according to "Romir" estimates, spending on food and daily necessities in the budget of the average Russian household reached a record 47.9% in October, which is 6.5% more than a year ago. This is the level when consumption has to be limited.

As for consumer lending, which could support demand, the slight nominal growth of its overall portfolio (+3.9% in October 2022 vs. the previous October) is still far below inflation. Moreover, part of the income (and spending) simply has left the country due to the two waves of anti-war emigration that have affected (as the polls show) active consumer contingents with above-average incomes. Finally, economists have long had serious questions about the methodology of accounting for real income.

In any case, in the context of specific market segments, the picture of the unfolding crisis looks more dramatic, and the decline in the Russians' standard of living and quality of life is more significant than it follows from the aggregated official statistical data.