Page 39 - RusRPTNov18

consumers to update their smartphones. Another trend of the third quarter of 2018 was that Russian consumers spent less on travel this summer and preferred to make expensive purchases, including devices. According to VCIOM (Russia Public Opinion Research centre), 78% of respondents took summer leave, but only 31% of them travelled to another city or country, while the rest went to the countryside or stayed home. Instead, Russian consumers prefer spending their saved money on new smartphones in order to enjoy digital entertainment such as Youtube, online gaming, social networks and messengers which often replace offline entertainment. Due to changes in consumer behavior, there was no traditional decline in sales this summer. On the contrary, sales within the MTS Retail showed record numbers in the reporting period. Cashback became the most efficient tool to attract customers and replace traditional discounts and bonuses. In the third quarter of 2018, 52% of smartphones within MTS Retail were bought via the cashback program. The share of such smartphones almost doubled compared to the second quarter of 2018. These numbers show that customers prefer immediate cashback to discount option and bonuses that often related to certain retail chain.
Non-food sales feeds growth in retail sales turnover. In September, retail turnover growth slowed to 2.2% y/y, from 2.8% y/y in August. And while the rally in non-food consumption is still intact, food sales dropped to 0.0% y/y, the weakest print since April 2017.
September to end moderation in food consumption. In our Output & Demand – August; rally in non-food sales goes on, of 20 September, we noted that the deceleration in food sales most likely stemmed from the shifted seasonality in fruit & vegetables. While, in July, the slowdown was driven by vegetables, in August, it was mainly the fruit story (-7.7% MoM vs. -2.0% MoM in 2017). We think the same reason lies behind the current reduction, as in September households normally cut fruit purchases about 9% MoM, while September 2017 saw a drop of only 2% MoM. In October, food sales are likely to see a rebound, as households normally increase the consumption of fruits and vegetables 20% MoM and 10% MoM, respectively, while in 2017 we saw a more moderate 16.5% MoM and 3.0% MoM.
Non-food growth stable at 4.1% y/y (4.2% y/y before). The product breakdown supports our hypothesis of households increasing non-food consumption in the run up to VAT and an FX-driven increase in prices. In August, the most sizable gains were seen in the purchases of TVs (31.1% MoM in 2018 vs. 2.0% MoM in 2017), computers (28.7% MoM vs. 11.1% MoM), washing machines (13.3% MoM vs. -4.1% MoM) and refrigerators (9.6% MoM vs. -1.5% MoM).
Real wage growth is still robust... According to the flash estimate for September, nominal wage growth remained in two-digit territory, with wages still printing at 7.0-7.5% y/y, in real terms.
39 RUSSIA Country Report November 2018 www.intellinews.com