Average profit margins in 2007-09 ranged from 10% to 20%. Some companies had focused on growth in market share rather than profit margin.A manager working for a European pharmaceuticals company has noted: "We have had great growth recently but now my aim is to get the profits up." Large consumer goods companies often report profit levels three times higher than in western Europe and 50-80% higher than in central Europe. For many consumer goods, food and beverages, packaging, chemicals and machinery companies, Russia is their most profitable market. According to a manager of a big international consumer goodscompany:
We aim for and achieve profit margins of 8-12% in the West,12-15% in central and eastern Europe and 17-21 % in Russia.
Tetra Pak, a packaging company, notes that Russia is its second most profitable market in the world after Brazil.
Why is the market profitable? Several companies have found that they can still charge premium prices for products in Russia, whereas this is no longer the case in larger eastern European markets such as Poland, Hungary and the Czech Republic (although pricing pressure is increasing in Russia). Many Russian customers - both individuals and businesses -are willing to pay premium prices for quality products. They are not stupid and will rarely be taken in by glib marketing: if a product can differentiate itself on quality, there is a better chance in this market that the customer will pay more. This has been a trend since soon after the collapse of the rouble in 1998 and was underlined in a telling way by the regional manager of a western food company:
The Russians really do look for quality - obviously those who have discretionary purchasing power. They want quality and will pay for it. In the food sector especially, they won't buy the rubbish that the average German consumer will eat.
This may have implications as the retail sector takes off in Russia.Going for the discount market may not - at least initially - be the key to success for retailers as they engage in price wars. Nevertheless, the pressure of market forces will surely drive the market downwards eventually, if with a little more resistance than in other markets. In the short to medium term, western consumer goods, food and beverages companies in Russia can tell western retailers that "you don't have to impose your global strategies and price structures here because it's a different and more discerning market". And they may be right.