Putting all apprehensions to rest, Procter & Gamble (P&G), the US consumer goods manufacturing group, recently reassured that they will continue investing in their Russian operation in 2018 and beyond. Even though the political scenario presents many risks to the consumer goods giant, they will stay true to the commitment made to the Russian consumers.

The relationship between the White House and the Kremlin has deteriorated fast in the past few years and is at its worst since the Cold War. The alleged involvement of Russia in the 2016 US election process, as well as the four-year-old annexation of Crimea by the Russian Federation, are the major reasons behind the increasing tension between the two countries.

However, P&G has reassured that they are not going to back out of Russia fearing rough waters ahead due to the growing political tension. While talking with the press, Sotirios Marinidis, head of P&G’s Eastern Europe and Central Asia operations, clearly mentioned that they are planning on investing about $50 Mn in the two plants they have in Russia. P&G has already invested roughly around $800 Mn till date in the Russian market. Marinidis mentioned that they will keep their commitment to the Russian consumers.

Speaking of the continuing political tension between the US and Russia, he commented that it will be in the best interest of both the nations to work on their differences and make things better to allow better business relationships.

US – Russia tussle continues as bilateral trade relationships face further risk

In the meantime, responding to a new round of sanctions by the US, the lower House of Parliament in Russia passed a bill that will grant the Russian government the power to deny trade of specific items with countries that are not deemed friendly to Moscow.

Moreover, there are talks about bringing in a law that will make it illegal for citizens of Russia to comply with the US measures.

Quite clearly, the tension is pretty high between the two countries and is on the verge of severely disrupting business and trade between the two.

Growing challenges of the consumer market in Russia

Consumer market segment was hit hard back in 2014 when the drop in oil prices and sanctions resulted in the rouble tumbling down. This has resulted in the increasing import cost of goods into Russia ever since and made the consumers constantly looking out for the best bargain available.

Marinidis gave the complete picture in a recent interview. As of now, about 60 to 80 percent of whatever P&G is selling in Russia is being sold with promotional deals providing up to 40 percent discount on the products. To keep the cost low and not to make the end-users pay for the increased material cost P&G is producing the majority of the products locally.

The 2018 investment of 3 Bn rouble will majorly go into a new distribution point located at the Novomoskovsk plant to improve the supply chain. The company is also planning on the modernization of the Gillette plant in St Petersburg so as to increase its capacity by 25 percent.

Even in FY 2017-2017 P&G had invested 6 Bn roubles in these two plants in Russia. Today P&G is locally manufacturing almost all of what it sells in Russia. However, the volatility of the currency keeps eating into the company’s profit.

Marinidis hopes of better future. We also look out for the changes and developments in the Russian consumer goods market.

© Sheer Analytics and Insights Pvt. Ltd., 2018