St Petersburg Travel Notes – Part III
In my first installment of Travel Notes, I focused on supermarkets and food products on offer to see how Russian shoppers are faring 15 months into the Special Military Operation and imposition of Western sanctions. I reported on how Russian growers and food processors are constantly expanding their presence in product categories which were typically imported in the past, how imported non-seasonal produce is now coming from new suppliers like India and Iran, how prices generally appeared to me to be stable and are often many times cheaper than in the West, depending on the specific items under review.
Now that I am back in Brussels and have made a couple of trips to nearby supermarkets, I must admit that I am shocked by what I see here, not by what I saw there. BBC yesterday reported on the unprecedented rise in food prices in Britain over the past year. It is the same here in Belgium, though no one seems to be reporting it in mainstream media. Most everything in my neighborhood Delhaize is 25% to 100% more expensive than a year ago. Moreover, it is clear that consumption levels have gone down: product assortment is steadily being reduced, and I fear now for freshness.
In my second installment of Travel Notes, I directed attention to High Culture, to the performing arts in Petersburg in particular, and reported that they continue to function at a very attractive level notwithstanding the loss of some funding due to the withdrawal of Western corporate sponsors, denial of foreign tours in Europe and absence of the well-heeled business and diplomatic contingents that in the past bought the highest price tickets in Petersburg theaters.
In this final installment, I start out with remarks about another side of retailing, white goods and home electronics, where, unlike food products, domestic Russian production was always lagging and foreign imports were dominant. Then I will add for good measure some comments on a couple of other subjects which point to the evolution of the Russian economy and to the evolution of environmental consciousness in Russia.
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Electrical goods, white goods, computers and mobile phones
I freely admit that my survey is based on just a few store visits, but the stores I visited were entirely representative of two segments of the retail market in the above-mentioned products. One is a store chain selling to the mass market and offering predominantly middle range products in terms of quality and price. The other is a stand-alone store offering top of the range and very expensive products to consumers who will pay whatever it takes to get the prestige brands they want.
The store chain DNS is the largest distributor of the products under review in St Petersburg. It is the distributor which emerged from a consolidation of the branch through mergers and acquisitions about two years ago. When I visited one of their stores in a shopping center that is a fifteen minute walk from my apartment in the outlying Petersburg borough of Pushkin, it was immediately clear to me that their product offering has undergone substantial change from what it was before the start of the Special Military Operation and Western sanctions. A lot of new, till now unknown brands have appeared on their shelves. I assume that the manufacturers of these are smaller companies in China (though still quite large by global standards) that have negligible export sales to the United States or Europe and so have little to lose if secondary sanctions are imposed on them by the West. The disappearance of best known global producers is most pronounced in telephones and notebook computers. Xiaomi is in, Huawei has disappeared. There are still some Samsung models. In notebooks Hewlett Packard has disappeared. Asus and Acer (Taiwan) still have a few models as does Lenovo (PRC). But otherwise it is all brand X.
In washing machines, European producers are still on sale in DNS: Italian Candy and Indesit, Slovenian Gorenje. Bosch (one model only) are on display. Add to that Samsung in white goods, The new brands are unknown names. In televisions, large screens, the entire product range is dominated by South Korea’s Samsung. When you look at small appliances like hair dryers, there are still some models from Phillips, but mostly brand X products fill the shelves.
For the second type of retailing in this sector, selling only premium products, I use my visit to the TekhnoPark store on the fourth floor of the Nevsky Center shopping center at the start of the city’s main thoroughfare, Nevsky Prospekt. TekhnoPark is itself a newcomer, replacing what had been a less posh retailer before Covid hit the retailing sector and it folded its tent.
As regards product assortment, in TekhnoPark it is like the good old days. All the Western and other global brands are still available. If you have the cash to buy a stove from SMEG at the price of a small automobile, then TekhnoPark is the place for you. Less pricey but still premium stoves from Hotpoint, Bosch and Electrolux are alternative options. In washing machines, you can choose from among Gorenje, Koerting, Toshiba, Samsung, Grundig and LG. For refrigerators the outstanding models are from LG and Liebher. In notebook and laptop computers you will find Acer, Asus, Samsung and Lenovo at many price points. They carry two models of Hewlett Packard laptops at knock-down prices; I imagine these are remainders of old stock.
Since I have mentioned the shopping center Nevsky Center, I am obliged to say that for more than a decade this was known by the name of its anchor tenant, the Finnish retailer Stockmann. Stockmann is still present there, occupying several floors. However, its once famous supermarket in the basement was shut down during Covid. Its place in the basement was subsequently taken by the Moscow-based food emporium Azbuka Vkusa, about which I commented most favorably in my first Notes. In general one might be surprised that Stockmann remains at all in Petersburg given the hostile policies to Russia of the Finnish government. But then the Finnish gas station chain Neste is still operating in the city and along the highways leading out of Petersburg. If Stockmann abandons the Russian market, they might as well shut down in Helsinki because their satellite stores in the Baltic states in no way can compensate for the Eldorado the company once found for itself in Russia.
Finally, while on the subject of this shopping center, I add that all available rental space is taken and functioning. Yes, a number of Western companies closed shop in the month or two following the start of the Special Military Operation. One highly visible operation was Starbucks on the ground floor just near the main entrance to the complex. But their places were very quickly taken by Russian newcomers. More generally, in High Street retailing, as the British say, I saw no empty storefronts on this visit. By contrast, there are many empty storefronts of retailers that went bust on Avenue Louise, a major commercial boulevard near me in downtown Brussels.
While I was taking my notes on the product assortment in TekhnoPark, a salesman came up to me to enquire what I was doing, thinking perhaps I was engaged in commercial espionage for the competition. However, when I explained my intentions to publish my findings on product availability for readers in the West, he relaxed and explained the plot, why his firm has so many products that are not available, say, in DNS. It is all quite simple: a store like TekhnoPark is selling almost exclusively products that arrive in Russia via parallel trading, meaning via neighboring countries which re-export to Russia for a profit. Such imports, he said, are done piece by piece, not in large orders. The mass distributors like DNS cannot operate that way and fill their stores across the country, and so they only deal with manufacturers directly and that means a big shift in sourcing away from Europe and other ‘unfriendly countries.’
I believe something similar is going on in the automobile industry. Direct sales from Germany, France, Italy, Spain and Japan have collapsed because of the withdrawal of their manufacturers from the Russian market. All together these traditional suppliers now account for only 20% of the Russian market for new cars, while Lada enjoys 35%. Part of the success of Russia’s Lada is improved design. Part is price: their base price per vehicle is about 13,000 euros.
That even 20% market share is held by foreign brands that have stopped direct sales in Russia is due precisely to parallel trading via many exotic channels, for example, via Dubai. This pertains particularly to the highest priced automobiles, for which the profit to be made by a middleman in Dubai on each vehicle will be several thousand dollars. My source of information for this observation is the radio station Business FM.
Meanwhile, the whole auto market is feeling the growing presence of the Chinese makers. Latest figures show them close to Lada in market share, but they will probably control more than 50% of the new car market in coming months. Their only competitor from among new entries on the market is Iran.
I asked taxi drivers what they think about the new Chinese models now on sale and the reaction was not particularly enthusiastic. One quote: “They have to improve by 35% to reach global levels of quality and attractiveness.” Be that as it may, the market trends favor the Chinese.
Banking Wars
As I mentioned in the first installment of my Travel Notes, there is a big competitive war for customers among Russia’s banks that is being played out in “cashback” offers measured in discounts of 5-15% at the cash register of supermarkets when you use a credit card to pay for your purchases. This plays to a tendency in the entire economy to move away from physical cash that began when the government encouraged distribution of the domestic Mir bank cards onto which it pays pensioners their monthly allowances. Formerly, pensioners received their money in cash at the postal bank or Sberbank.
The fight to put credit cards in the hands of consumers is matched by a fight among Russia’s banks to receive new deposits from the general public. For current accounts, the banks are offering roughly 5% per annum. For time deposits of one year, you can get 8% or more.
The high interest rates were introduced to compensate savers for the high inflation that accompanied the start of the Special Military Operation. But the sharp drop in inflation this year, to just 2% in the month of April, has not had an impact on the bank wars over interest paid. The prime rate is still 7.5% as the government thereby indirectly protects the exchange rate against excessive falls reflecting lower revenues from oil and gas exports.
Nonetheless, even with these measures, there has been a significant drop in the exchange rate this year. The ruble is now about 18% weaker than it was when my last visit ended in the first week of December. Meanwhile another significant development is that major banks are taking deposit accounts in Chinese Yuan. The Chinese currency has largely replaced euros and dollars as a hedge against depreciation of the national currency.
Petersburg goes green
From local news, I had heard that that Petersburg has ordered a large number of electric buses. Frankly, I did not yet see them on the streets. But there are newly built electric trolley buses everywhere. Their design is very contemporary and a nice change from the stodgy 1950s look of the old fleet. In principle, electric buses should make trolleys obsolete, however, manufacturing costs of the trolleys are surely far lower at present than electric buses with their expensive batteries. Meanwhile, the city fathers have also bought new fleets of latest design Russian built buses that run on diesel or propane. These are more comfortable, more pleasing aesthetically and more efficient insofar as the fares are paid using contactless bank cards rather than in cash to conductors or drivers.
Lastly, I note a change in the way household waste is handled. The change is long overdue but now seems to be taking hold very quickly. What I am talking about is the introduction of mandatory sorting of waste into separate bins for bottles, bins for plastic and metal and bins for general kitchen waste.
When I arrived in Pushkin a month ago, this new regime had obviously only just been introduced. The separate bins were there but no one paid attention and the actual sort was being done by maintenance people. However, in a matter of a week or two all the tenants got the message and the bins filled without any intervention of staff. For Russia this is a tidal wave of change in mentality.
©Gilbert Doctorow, 2023