1. Future of Russian Middle Class
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2. Contents
Executive Summary .......................................................................................... 3
Background & objectives ................................................................................... 4
Russian middle class today ............................................................................... 5
Middle class definition for the purpose of current project ................................... 5
Characteristics of Middle Class in Russia .......................................................... 9
Middle class lifestyle in Russia and Finland ..................................................... 10
Free time of middle class................................................................................. 13
The future of Russian Middle Class ................................................................. 16
The most pronounced trends in Russian middle class lifestyle ........................ 16
Future changes in the Middle Class structure .................................................. 18
Future opportunities for Finnish companies ..................................................... 20
Concluding Words – Quo Vadis, Middle Class? .............................................. 24
Appendix 1. Middle class education and work ................................................. 26
Appendix 2. Middle class families .................................................................... 28
Appendix 3. LIFE INDEX - List of indicators and definitions............................. 30
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3. Executive Summary
The post-Soviet Russian middle class has become object of wide interest and
international research work due to its sudden and emerging purchasing power,
ambitious travel schemes and passion for luxury brands. This writing has been
composed with purpose to highlight such trends, phenomena and habits of
Russian middle class which should be considered by Finnish industries and
service providers when planning product offering for Russian clients.
Finnode team in Russia has approached the subject based on interviews of
1,300 persons, future sessions, internal workshops and debate. Foresight
work requires imagining possible and likely future but also considering
negative scenarios. The latter is usually more difficult. Also in this case our
assumption remains that the Russian middle class will continue its prosperous
path – provided that no major economic turbulence will hit Russian Federation
and its oil related income. For middle class’ sake, it is important that political
situation within the country remains peaceful and no ethnic conflict arises in
territory of Russia which would trigger chaos or international scandals. Being
already empowered by property and income, the middle class would like to
have impact and saying also in politics – time will tell how vocal it will become.
This study suggests that the current Russian middle class has high ambitions
related to the next generation: families are spending without regrets for
children’s education, additional language courses and hobbies in order to
provide them with opportunities abroad and to secure their access to
universities. Interviewees pointed out lack of free time and high stress level
which is one reason for investing into family holidays with leisure activities and
harmony. Traffic congestion is and will be a burden and time-killer in every
mega-city of Russia and there is not much relief to situation apart from onlineshopping, remote work and home entertainment. Maintenance of income level
requires hard working and employers do not compensate for sick leaves: with
help of medicines and means of phytotherapy, middle class citizens try to get
to work every day. Annual vacation is shorter than in EU countries and
Russians want to get value for the precious days – without traffic jams. If
holiday can be combined with health check and personal training program,
plastic surgery or English course for children, even better.
Russians are integrating with the global middle class community over
cyberspace and becoming more European as time goes. Social media has
suddenly become powerful tool of communication and marketing.
It should be highlighted that the middle class is on the move and emerging
rapidly: ‘new entrants’ explore opportunities that money can buy, are hungry
for luxury and travel. The ‘maturing middle class’ appreciates more
sustainable consumption and maintenance of health and wealth. From Finnish
viewpoint it is important to understand what makes middle class ‘tick’
tomorrow: will it be the flow of new entrants that continue travelling to Finland
for affordable tax-free shopping? Is it reasonable to expect that the maturing
wealthy middle class will appreciate Finnish food products also in the future?
Finnish business community needs to consider its position in relation to middle
class consumers, considering country-competitors across the EU zone and
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4. co-create services for Russians together with Russians. Finland’s export
opportunities of future may appear largely in cyber services, game industry or
leadership consulting. Future can be different than we think, but it might be
even more different if we thought about it in advance.
Background & objectives
The writing illustrates lifestyle of so called Russian middle class with purpose
to assist various Finnish stakeholders to understand needs and ambitions of
this powerful and emerging client segment today and tomorrow. Service
providers and producers from tourist industry to construction corporations and
retail chains will benefit from better understanding of Russian middle class
families’ daily challenges and desires.
The main objectives of the study were as follows:
• To describe and define the so called Russian middle class in general
figures (number of people, average income, age, family status, etc.) and
estimate its growth within next 3-5 years, including demographics.
• To identify existing and forecast most pronounced trends that will be
shaping Russian middle class lifestyle in the future To assess influence and
assumed changes of this life style on consumption behavior and sketch
potential new business opportunities for Finnish companies and industry
clusters.
• To summarize results in a report and disseminate findings via signal
session or seminar.
It was decided to focus at mega cities of St. Petersburg and Moscow which
are trend setting in many ways. The study was conducted using both primary
and secondary methods of research and consisted of following phases: desk
study, expert interviews, focus groups – finally data analysis and reporting.
Following sources of background material were used:
• Russia Mega Trends: Macro to Micro Implications for 2020
http://www.bmstu.ru/content/image/files/GIL%202012_Russia%20Mega%2
0Trends.pdf by Foster and Sullivan, 05/2012
• Levada Center Research: http://www.levada.ru/eng/research
• Consumer Speed Kings. Team Russia Leads the World by
Investment
Research,
http://slon.ru/images/doc/sberbank_consumer_speed_kings.pdf
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Sberbank
02/2013
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5. Russian middle class today
Middle class definition for the purpose of current project
There are numerous approaches and definitions of middle class in Russia
which has no longer than 20 years of Post-Soviet history behind it. Usually
three main items are mentioned as criteria – material status, social and
professional status and self-identification.
Material
status
Social and
professional
status
Selfidentification
In this study we have chosen to highlight material status as criteria and pay
special attention in expenditure of households with purpose to analyze and
forecast purchasing behavior of middle class. The following definition was
used:
Russian middle class are the people who have after Soviet Union managed to
adapt to conditions of modern market economy and provide appropriate
consumption level and lifestyle for their families.
By ‘appropriate consumption level’ we mean the following:
- family lives in an apartment (rented, acquired using mortgage lending or
inherited)
- at least one car in the family
- significant expenses are used for services – education, insurance,
entertainment
- savings exist
- vacation abroad 1-2 times per year
Let us see what this kind of lifestyle means in terms of annual income and
expenses. The estimations were made based on Finpro experts’ knowledge
regarding cost of living in Moscow and St. Petersburg. It was concluded that
the approximate monthly income per adult family member is about 60,000
Rubles in Moscow and about 50,000 Rubles in St. Petersburg (taken into
consideration that there is significant 20-%-difference in cost of living between
the two cities). Converting to Euros, the net income per family member
reaches 17,000 – 25,000 Euros annually. Income tax is not progressive but
uniform 13% in Russia. It is worth mentioning that the average mortgage of
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6. Russian banks had reached 16 - 18% in 2012, yet lending of households is
rapidly increasing.
TABLE. RUSSIAN MIDDLE CLASS FAMILY (2 ADULTS & 1 CHILD) IN MOSCOW
1
AND ST . PETERSBURG. COST OF LIVING
Item of expenditure
Apartment,
mortgage or rent
1 car per family,
insurance, fuel, and
maintenance
Annual cost, Russian
Roubles/Euros
540 000/ 13 500
150 000/ 3 750
300 000/ 7 500
Food
150 000/ 3 750
Vacation
Services,
fitness,
healthcare,
education,
telephone
1 Child – toys,
activities,
education,
babysitter
Entertainment
–
going
out
to
cinema,
theater,
restaurant, cafe
250 000/ 6 250
390 000/ 9 750
150 000/ 3 750
150 000/ 3 750
Savings
Total annual expenditure
Monthly net salary per 1 employed
family member
Income per family member given that
there is 1 child
2 080 000/ 52 000
86 600/ 2 165
57 800/ 1 445
For understanding and clarity, it was necessary to observe differences
between life styles of middle class in Finland and Russia. Based on income
statistics, we tried to identify group which corresponds to the earlier defined
Russian middle class.
We use Better Life Index comparison for comparison. “Better Life Index” is
designed to compare some of the key factors of life including education,
1
Source: Finpro experts’ estimations
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7. housing, environment which contribute to well-being in OECD countries. It’s an
interactive tool that allows to see how countries perform.2
We compared average values of Finland and Russian Federation. According
to Better Life Index in Finland, the average person earns 19 000 Euro,
compared to 10 700 Euro in Russia. The level of social payments and
benefits in Finland enables average Finn to feel secure and support similar
lifestyle (housing, car, vacation, level of service expenditure).
25000
20000
19 198,5
15000
10 700,8
10000
5000
0
Finland
Russian Federation
Households’ income
In terms of employment, 68% of people aged 15 to 64 in Finland have a paid
job, above the OECD employment average of 66%.
68%
68%
68%
68%
67%
67%
67%
67%
67%
66%
68%
67%
Finland
Russian Federation
Employment rate
The number of rooms in a dwelling, divided by the number of persons living
there, indicates whether residents are living in crowded conditions.
Overcrowded housing may have a negative impact on physical and mental
health, relations with others and the development of children. In addition,
dense living conditions are often a sign of inadequate water and sewage
supply. In the OECD, the average home contains 1.6 rooms per person
2
Information souce. OECD report http://www.oecdbetterlifeindex.org/ The full list of index is in the attachment
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8. 2
1,9
1,5
1
0,8
0,5
0
Finland
Russian Federation
Rooms per person
Life expectancy is the most widely used measure of health, although it only
takes into account the length of people’s life and not their quality of life. In
Finland the life expectancy is 80 years compare to 69 years in Russia.
85
80
80
75
69
70
65
60
Finland
Russian Federation
Life expectancy
On average, 85% of people in OECD countries say they are satisfied with
water quality, so Finnish index is on the top (94%) compare to 51% in Russia.
100%
94%
80%
60%
51%
40%
20%
0%
Finland
Russian Federation
Water quality
Concerning the public sphere, there is a strong sense of community and high
levels of civic participation in Finland, where 94% of people believe that they
know someone they could rely on in time of need, higher than the OECD
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9. average of 91%. In Russia 88% of people believe that they know someone
they could rely on in time of need
In general, Finns are more satisfied with their lives than the OECD average,
with 82% of people saying they have more positive experiences in an average
day (feelings of rest, pride in accomplishment, enjoyment, etc) than negative
ones (pain, worry, sadness, boredom, etc). This figure is higher than the
OECD average of 80%. In general, Russians are less satisfied with their lives
than the OECD average, with 74% of people saying they have more positive
experiences in an average day.
Characteristics of Middle Class in Russia
For the quantitative research we selected interviewees according to following
criteria for identification of middle class:
- Living in Moscow and St. Petersburg and age group 18-54 (working
population)
- Moscow – monthly income per family member exceeding 60,000 Roubles.
- St. Petersburg – monthly income per family member exceeding 50,000
Roubles.
The interview research was carried out in spring, 2012. In total 1300 persons
were interviewed: 913 respondents in Moscow and 45 3 in St. Petersburg. Key
characteristics are described in below table.
TABLE. CHARACTERISTICS OF MIDDLE CLASS IN RUSSIA3
Еducation and employment
Family
1. Educated. Overwhelming majority
1. Most representatives of middle class
of middle class representatives
have a family and more and more
has higher education (more than
couples choose not to register their
80%).
relationships
officially
(see
2. Employed by the company or
appendix).
having their own business.
2. Most families (about 70%) have
Practically all representatives of
children (number includes also
middle class work (about 95%).
couples with adult children)
3. Most representatives of middle
3. Above 50% of middle class families
class work under job contract;
have children younger than 11 years
only 20% in Moscow and 24% in
old .
St. Petersburg have their own
4. Most representatives of middle class
businesses.
live in their own apartment, either a
4. As a rule, representatives of
privatized one or financed with
middle class work as specialists
mortgage lending and/or savings.
and department heads.
The findings of interview study seem to match with results of the recent
Sberbank research which is devoted to the consumer market development of
Russia 2013-2020.
3
Information source: Synovate Comcon. Wealthy Consumer Lifestyle
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10. Acording to Sberbank , “the average age at which Russians are marrying is
rising. Marriage is becoming less popular, and the tradition of staying with
one’s parents close to the point of marriage continues to break down.
Multigenerational and other combined living arrangements are leading to
shifting consumption patterns. Russian trends have diverged from the West,
where the ‘floating generation’ is increasingly either staying home or returning
home to save money, while peers and even separated couples are forced to
cohabit”4
Middle class lifestyle in Russia and Finland
Let us look at main differences of middle class in Russia (Moscow, St.
Petersburg) and Finland.
TABLE. DIFFERENCES IN MIDDLE CLASS LIFESTYLE
Finland Helsinki
City population
Helsinki – 1 mln
Working hours
8 a.m. – 4 p.m.
Approximate time
of leaving home
Approximate time
of returning home
Vacation
7 a.m.
Russia Moscow &
St. Petersburg
Moscow – about 10 mln
St. Petersburg – about 5
mln
9 a.m. – 6 p.m. (extra
working
hours
usual,
frequently finish work after
8 p.m.)
6.30 a.m.
About 5 p.m.
After 8 p.m.
30 days of annual leave
converts to 5 working
weeks of vacation.
In average 10 public
holidays annually.
Sick leave
2 months with retention of
salary
Payment
for
pharmaceuticals
80% by insurance (KELA),
20% by patient
28 days of annual leave
converts to 4 working
weeks of vacation (as Sat
& Sun are included).
In average 12 public
holidays per year
First day of sick leave with
retention
of
salary
(thereafter max 800 EUR
monthly
compensation
from public fund)
Usually 100% by patient
Some observations and key differences between life style of Finnish and
Russian middle class people should be considered
Information source: Consumer Speed Kings. Team Russia Leads the World. Sberbak Investment Research.
February 2013
4
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11. - Russians have much less free time during weekdays and parents get home
very late in evenings. Business life ‘wakes up’ typically after 10.00 am.
- To keep fit and retain working condition is extremely important. Unlike Finland,
sick leave days are immediately cut from salary in Russia. It is quite common
for an employee to go to work during sick leave or being ill. As a rule, this is
explained by heavy work load and employee’s fear to lose his job and income.
- Annual vacation is short compared to Finland and many other EU countries
but numerous public holidays allow people to take long weekend breaks in
connection to Women’s Day March 8th, 1st of May, Victory Day May 9th,
National Day and New Year’s celebration.
- Growing share of “virtual” space in middle class’s life: shift of communication
to mobile telephones, social networks. Almost all (more than 90%) middle
class representatives use the Internet. Almost half of middle class
representatives in St. Petersburg and Moscow use mobile Internet. The most
popular social networks VKontakte (eng. ‘in touch’) www.vk.com and
www.mail.ru have applications for mobile phones. VKontakte has layout very
similar to Facebook.
- People use a lot of time in commuting traffic. Mobile working, using tablets and
smart phones is common during subway trip, also during driving. Specifically
in Moscow, road traffic jam may stop anyone even for hours.
Let us look at the differences in the expenses breakdown of middle class in
Russia and Finland.
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12. CHART. MIDDLE CLASS EXPENSES BREAKDOWN 5
100 %
7,2 %
90 %
5,7 %
7,2 %
9,2 %
Savings
5,0 %
80 %
18,8 %
18,7 %
70 %
60 %
12,0 %
50 %
7,2 %
40 %
7,2 %
Child – toys, activities, education,
baby-sitter
14,4 %
30 %
Entertainment – going out to
cinema, theater, restaurant, cafe
6,4 %
17,0 %
11,0 %
Vacation
Food
Transport (1 car per family,
insurance, gas, repairs)
20 %
26,0 %
27,0 %
Russian middle class
10 %
Services, fitness, healthcare,
education, telephone
Average Finn
Flat, mortgage or rent
0%
1. Rather high expenses on children (toys, education, insurance, baby-sitter) are
explained by the low level of state support and high children-centeredness of
middle class families when both working parents try to invest into the child as
much as they can.
2. Rather low expenses on services. It is expected that with development of
middle class in Russia and growth of their income, the share of this type of
expenses will grow.
5
Information source: Statistics Finland. Finpro expert estimation.
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13. CHART. MIDDLE CLASS ONLINE SHOPPING 6
90
80
70
60
50
40
30
20
10
0
73
73
77
78
51
49
32
23
personal computer
laptop
Moscow
tablet
mobile
phone/smart
phone
St. Petersburg
It should be noted that more than 50% of middle class representatives in St.
Petersburg and Moscow already practice online shopping. Hectic lifestyle and
traffic congestion in mega-cities will contribute for growth of cyber shopping
and e-services in the future.
Sberbank report highlights this trend as well – «Internet retailing will be
boosted by growing PC, laptop and tablet ownership. More store based
retailers are launching online offers that are developing extremely rapidly»7
Free time of middle class
According to interview research of Finpro, middle class representatives spend
their free time in a rather traditional and urbanized manner i.e. they are
frequent visitors of theaters, museums, restaurants, bowling centers and
sports events. Families go to parks together or drive to the country-side at
weekends. It is worth mentioning that around 70% of adults in mega-cities go
to cinema every month.
Cultural activities
About 35-40% of middle class representatives visit theaters, museums,
galleries and concerts at least once a month. Approximately 30% of
interviewees informed to visit nightclubs occasionally. The survey shows that
citizens of Moscow and St. Petersburg visit cultural events more often than
Russians in general.
Information source: Synovate Comcon. Wealthy Consumer Lifestyle
Information source: Consumer Speed Kings. Team Russia Leads the World. Sberbak Investment Research.
February 2013
6
7
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14. CHART. FREE TIME. VISITED ONCE A MONTH OR MORE (% FROM POPULATION
8
OF EACH CITY )
80
69 68
70
60
50
40
40
41 40
37
41 40
34
27
30
20
10
0
cinema
theatre
museum
Moscow
concert
night club
St. Petersburg
On average, families spend 10-30% of their total budget on entertainment and
leisure. Several focus groups participants mentioned that they have money to
spend on entertainment but don’t have enough time.
Research participants consider that visiting cafes and restaurants is part of
their everyday lifestyle. Cafes and restaurants are convenient places for all
kinds of meetings (business meetings, meetings with friends or family
members) and popular for quick lunch or snack during the day.
CHART. EATING OUT. VISITED ONCE A MONTH OR MORE (% OF POPULATION )9
100
81 80
80
72
63
61
60
60 58
60 58
54 50
sushi bar
53
bar
restaurant
40
20
0
café
fast food
pizzeria
Moscow
St. Petersburg
77% of middle class representatives in large cities visit cafes as least once a
month; in Moscow with frequency 2.1 times a month. About 64% of middle
class representatives visit fast food restaurants, this share in Moscow is
8
9
Information source: Synovate Comcon. Wealthy Consumer Lifestyle
Information source: Synovate Comcon. Wealthy Consumer Lifestyle
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15. higher. Pizzerias come as number three in ranking. 58% of the population of
mega cities (+ 1mio) visit pizzerias at least once a month. In Moscow the
share of people fond of pizza restaurants is significantly higher than in other
cities. The share of sushi bar visitors coincides with the share of visitors of
pizzerias and bars. The average frequency of visits to pizzerias and bars in
cities 1mln.+ varies from 1.6 to 1.8 times a month.
According to Sberbank findings “Eating habits in Russia are changing: the
speeding pace of lifestyles has led to a desire to reducethe time spent
cooking. This has resulted in greater use of processed and precooked
foodstuffs, as well as a rise in snacking and eating out (including fastfood
restaurants)”10
Physical activities
Most middle class representatives try to lead an active lifestyle by visiting
swimming pools, saunas, fitness clubs and gyms.
CHART. VISITING FITNESS AND SPA CENTERS (% OF POPULATION )11
60
45
52
51 48
48 47
33 32
40
20
0
bath, sauna
swimming pool
Moscow
fitness-club
gym
St. Petersburg
Less than half of middle class representatives visit fitness clubs (in Moscow
the share is - 48%, and in St. Petersburg 47%) once a week. The number of
swimming pools visitors is roughly equal to the number of people visiting
fitness clubs. Muscovites visit swimming pools more frequently than residents
of other cities 1mln.+, about 2.3 times per month on average.
Approximately 50% of middle class representatives visit public baths and
saunas and 35% go to gym once a week. To keep fit and look good, middle
class representatives also visit hairdressers’, beauty parlors and beauticians’.
Russians appreciate sauna but it is not common to have home-sauna in a city
flat.
Younger Russian women already comprise a universe of consumers that
spend more of their disposable income on beauty treatments than most other
comparable nations. The desire for beauty and youthful looks shows little
signs of ending, as anti-aging cosmetics, Botox treatments and plastic surgery
procedures still command growth rates in the range of 15 - 20%12.
Information source: Consumer Speed Kings. Team Russia Leads the World. Sberbak Investment Research.
February 2013
11 Information source: Synovate Comcon. Wealthy Consumer Lifestyle
12 Information source: Consumer Speed Kings. Team Russia Leads the World. Sberbak Investment Research.
February 2013
10
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16. The future of Russian Middle Class
The most pronounced trends in Russian middle class lifestyle
'new entrants'
- middle class
is growing in
absolute
number
hectic pace of
life &
congestion demand for
services
time spent in
cyber space
mistrust in
Russian
service
providers
integration of
middle class
into world
community
New entrants and maturing middle class – middle class is growing in number
Share of middle class is growing in population structure and absolute poverty
is decreasing. According to Levada Center, growth rate of middle class is
about 1.5-2% per year. If rate remains the same, the share of middle class will
reach 16-20% by 2018. In terms of number of people, middle class will amount
to 20-26 million people in 2018 (taking into consideration the forecast of total
population of Russia 131 million). Approximately 50% of middle class will live
in the two Russian capitals – Moscow and St. Petersburg. The share of middle
class representatives in Novosibirsk and Yekaterinburg will increase up to 1015% of the total population by 2018. The layer of middle class will also grow in
other cities with more than 1 million people (Nizhny Novgorod, Rostov-on-Don,
Krasnodar, Samara, Kazan, Chelyabinsk, Ufa, and Volgograd).
It should be considered, whether the ‘new entrants’ of the club require different
service offering hotels and restaurants compared to ‘the maturing’ middle
class members who already have history of travelling and more mileage
behind them. New entrants are probably more interested in catching up living
standard and material than applying ecological way of living? Some say, that
the ecological awareness is hitting middle class of Russia, but those who are
just about to get wealthy, would probably take care of their material ambitions
first.
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17. Hectic pace of life & demand for services
In future, the pace of life of middle class will become even more hectic and
active. We expect that in the future, distant working will increase and middle
class will work at least 20% of total working hours from home. The lack of free
time and its optimization will become even more burning issue for middle
class. Growing population of big cities (Moscow and St. Petersburg) and
growing number of cars will make middle class search for new ways to
optimize working time and weekend-time. People are getting more anxious
about waiting times and traffic jams. We forecast that the value of services in
middle class expenditure pattern will grow approaching the European level
(from 10-12% to 18-20%). This means the market of services for middle class
will grow almost twice.
Mistrust in Russian service providers
Strong trend of mistrust in Russian service providers and products exist
specifically in communal sectors of education and health care. Middle class
consumers seem to trust foreign service providers and appreciate education
opportunities, medical treatment and diagnostics abroad better than home.
This creates a unique and fast-growing market of service industry outside of
Russia.
According Sberbank data “The incidence of adult and private education in
Russia is on the rise, and there are many more private schools and education
possibilities than ever before”13
Time spent in cyber space and virtual experiences
Due to hectic pace of life, middle class even now “lives” more and more in the
virtual space. It includes socializing with friends (social networks), finding
information about products and services, distance working, online shopping. In
the future most purchases will be made online. The Internet will be the main
information source for middle class. Besides, the Internet will expand the
choice for Russian buyers because the number of customers of foreign online
stores will grow very fast. It should be noted that the influence of social
networks as a marketing and sales tool will grow in 5 years.
Integration of Russian middle class into world community
Open borders, lower visa barriers, better knowledge of foreign languages and
increased leisure travelling abroad will make Russian middle class lifestyle
become closer to European one but national specifics will stay – Russian
cultural heritage and pride for should never be underestimated.
Signals of Europeanization came out from interviews:
• Long term love for luxury goods and visible ‘bling-bling’ is going out of fashion.
Maturing middle class Russians are becoming rational with their spending and
Information source: Consumer Speed Kings. Team Russia Leads the World. Sberbak Investment Research.
February 2013
13
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18. many are committed to years of mortgage. Jokes about ‘nouveau riche’
Russians are not that common compared to immediate post-Soviet years.
• Re-vitalizing. Increasing number of middle class professionals becomes food
conscious and sports-oriented. First signs of interest towards biologically pure
(bio) products appear even in big retail chains, where the first shelves with
"bio" goods were opened quite recently.
• Middle class Russians are becoming more ecologically conscious and
responsible. The ecology movement is a hot topic in Russia and its leaders
make up significant share of political opposition. Energy efficiency, renewable
energy and energy independency are fast growing trends among middle class
and upper-middle class Russians that live in their own houses.
Future changes in the Middle Class structure
Considering middle class as a group of people with common social and
economic features (level of income, education and professional status), we
suppose that in the future two subgroups will differentiate:
1. Those that currently belong to the middle class i.e. the maturing middle
class. For this group, investments will become priority rather than
consumption: investing in future, in extra sources of income and
development of next generation. Most desired services will be education
abroad, leisure for teenagers and family entertainment. As soon as the
representatives of this segment have already purchased real estate, they
will be primarily interested in home improvement, furniture, indoor design,
and countryside real estate and apartments for their growing children.
2. The ‘wanna-be’ middle class or new entrants. Those who currently cannot
qualify for the middle class due to early phase of career which is limiting
income today but who have good educational background combined with
ambition. Within soon they would need to solve the same challenges and
tasks as the "current middle class": finding a balance between work and
family leisure, lack of free time, allocating a part of family income for
investing in real estate and future of the family, finding products and
services of best quality for themselves and for children.
Above matches the usual middle class evolution but it seems that in Russia
the cycles are faster than average. Wide range of services will soon need to
be adjusted and focused on different age groups within middle class. In
general, it can be asserted that, despite their unevenness, the new and old
representatives of middle class will have similar problems, and their
expectations related to product and service market will be similar too. The key
thing is that middle class is emerging strongly during future years and new
members have a lot to catch up.
The income level of middle-class people will depend on inflation and can
increase annually by 10-15% at most. This huge consumer segment is by
large debt-free.
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19. The following current trends are assumed to continue or strengthen in the
future:
• rational consumption: gathering information about products and services in
advance, comparing cost with quality and advantages, quality over price
• increased online shopping of products and services and purchases abroad
• investing and purchasing real estate in Russia and abroad
• the desire to choose natural, healthy and clean food in Russia – respect for
best-before-dates
• careful attention to health, sports activities (at home or fitness-centers),
appearance, using services of beauty parlors
• use of private medical services due to mistrust in public health care
• increased attention to education and multi-focused development of
children, wider use of paid educational services and calculating options of
foreign education of children
• quality time with family: home and abroad
• more traveling - 'full-time' vacations and express weekend trips to
European countries, exotic experiences
• emigration is considered as realistic option - part of middle class is packing
• more vocal protests against misbehaviors of public authorities and
politicians; empowered by property, the middle class desires power in
politics, they also demand transparency and fair treatment or alternative
thinking
• middle class wants to interact with middle class: visible trend for separation
between Russians and immigrants from ex-Soviet territory.
Wild Cards - What could stop them?
The middle class will expand, unless some substantial negative changes
happen in the Russian political and economic environment. The growth of the
middle class can be constrained by legislation which prevents free business
development in Russia. The future of these people depends on the state
policy and whether citizens agree to it. International conflict or internal ruling
could prevent middle class from travelling and this would create unrest in
people. Currently the state policy can even provoke emigration and brain-drain
is a real risk for the future.
Anti-corruption measures of Kremlin are loud and visible across the local
national media but Russians are suspicious of any concrete results and doubt
that any significant change would take place in middle class citizens’ favor.
Time will tell.
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20. Future opportunities for Finnish companies
How will changes in the quantity, composition and lifestyle of Russian middle
class influence the opportunities for Finnish companies? In the course of the
project, four key sectors of interest were chosen to be examined more
carefully: well-being and health care, leisure travel, food & diet and education.
It seems that the Finnish offering is particularly strong in mentioned fields.
Some ideas have been listed in below chart and described underneath:
•health resorts and well-being
centers
•check-up and diagnostics
centers
•centers for future mothers
and mothers with babies
•family centers
•Nordic walking - how to do
wellbeing
&
healthcare
food &
diet
•tailor-made tours (hunting,
fishing, golf, tennis, sailing,
skating) for narrow audience
•Green card for new golfers
•honeymooners' weekends
•anniversary travel (photos)
•wine tastings
•mother & baby weekends
leisure &
travel
education
•baby food
•bio-products for children and
for mothers-to-be
•traffic snacks and survival
kits
•quick gourmet
• short-term educational
programmes for children
•further education for adults
•learn English in Finland
(Finglish for Russians!)
•100 words of English during
weekend
Well-being and healthcare
In 5-10 years the Russian middle class will be integrated with the global
middle class and familiar with lifestyle and life quality abroad. They will accept
and adapt some new values such as eco-lifestyle, sustainability and seek
harmony for their life. The lifestyle in big cities will still negatively influence
wellbeing of the middle class: traffic situation, ecology, long working week and
reduced vacation compared to EU countries. Middle class will need products
and services to be able to support or recover their health and well-being
quickly. Following ideas reflect local observations in Russia and interview
results:
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21. - Sanatorium concept could be re-vitalized and developed. This (Lat. sanare
– to heal, to cure) is a medical facility where means of natural healing are
used for treatment and prevention purposes (climate, mineral waters and
springs, etc), as well as physiotherapy, remedial gymnastics, healthy
food/diet therapy, and certain schedule providing full rest. Sanatoriums are
organized both at resorts and outside them – in the countryside, in the area
with favorable natural and sanitary-hygienic environment (local
sanatoriums).
- Health and medical tourism will become very popular. Express check-up
and diagnostics of health will be in high demand. Middle class is very busy
and the Russian health care cannot provide quick service. The trend of
health check-up/diagnostics abroad will be growing further and more
people learn about detox.
- The level of trust in Russian health care is rather low. Consequently foreign
clinics and sanatoriums/spa-centers in the territory of Russia will be popular
in the future. In our opinion, family doctor will become a more common
phenomenon in the middle class segment. Many foreign clinics have
already opened facilities in Moscow and St Petersburg.
- Care for future mothers, treatment of babies and small children are
‘forgotten segments’ when it comes to both medical services and wellbeing. Middle class parents are well aware of negative impact of pollution in
big cities on babies and children (for example, each 5th child in St.
Petersburg is diagnosed with respiratory disease, main cause of it being
environment, apart from heredity).
- Maturing middle class has grandparents and will be ageing: geriatric
treatments or rest and activities for senior citizens might provide
opportunities in Finland
- Short-term rehabilitation programs will be popular. Programs with
components of healthy and eco-friendly food, oxygen cocktails and mineral
waters as an idea.
- Family centers with leisure opportunities will be required. Multi-purpose
centers for weekend stay of families with package of services for all family
members from baby to grandfather.
- Programs for women and men including health and wellness, beauty
treatments will not go away from fashion
- Family leisure programs, entertainment centers for children like HopLop,
family swimming-pools and SPA centers
Leisure and Travel
Although in the future middle class will travel abroad more often, the total
number of vacation days abroad will remain the same but there will be more
business trips. Within 5-10 years Finland will find it hard to compete with such
countries as Italy, Spain and France where middle class representatives go for
beach vacation. Nevertheless, the “Land of a Thousand Lakes” can achieve
success in “niche” products, namely:
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22. - Tours intended for narrow target groups: music tourism and festival visits,
fishing and hunting tours.
- Medical tourism – tours with the purpose of disease diagnostics/check-up
and prevention, tours for after-surgery patients, rehabilitation, tours for
future mothers (preparation for labor and childbirth), tours for mothers with
babies;
- Individual tours with budget exceeding 1000 Euros per person.
- Educational trip packages for children: ‘Learn 100 words of English before
Sunday evening’, ‘Learn camping skills’,
- ‘Wanna-be-golfers’ would benefit from basic skills in order to survive in
‘pay-and-play’ environment to start with. Afterwards they might return to
play and then go for official Green Card.
We would like to emphasize that residents of St. Petersburg and the NorthWest region are well aware of touristic products offered by Finland. There is a
strong need to promote Finland in the Moscow region in the future. Moscow
residents should learn more about touristic offers. Needless to say that all
these services, options and packages, prices and features should be available
online in Russian language and just one click away. Russian tourists are of
interest to all EU countries due to growth.
Food & Diet
Middle class will gradually study international experience and its requirements
to food quality will become higher. Among well-off buyers whom we studied in
this project, the share of those who will fully shift to foreign food products/food
produced by foreign companies in Russia will grow. Middle class families buy
bottled water for drinking and cooking; there are special brands which are
marketed as specifically purified for children.
- The key dietary trend of the future will be ‘fast gourmet’ products, i.e. good,
healthy and easy-to-cook meals. Vacuum packed meat products which are
ready to be roasted in the oven, high quality vegetable mixes for soups and
new kind of instant meals would be of interest by busy but demanding
families with one or two careers.
- Middle class will pay a lot of attention to the country of origin and product
ingredients.
-
We believe that the Finnish food products including dairy products, baby
food, fish and meat (if not super food) will have excellent reputation also in
the future because of the country brand but there will need to be new
products to match interest and curiosity of people who can afford and will
pay premium for quality.
- Functional food products will be in high demand, for example products for
lower cholesterol or products for weight control. There will be more small
shops selling directly from farmers and middle class will appreciate clean
eco-apples, specifically for children.
- Food concept and brand for mothers-to-be which could be connected to
clean berries and eco-ingredients might be an idea. Concept could be
applied to detox-products for weight control or just well-being.
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23. Education
We have identified huge potential for Finnish companies in field of education
during the interviews with experts and middle class representatives. We think
the demand will be concentrated in the following segments:
- Language, sports and summer camps for school-children above 10 year of
age are very interesting for middle class families. Such camps are seen as
a chance to spend the vacation in a comfortable and safe environment, to
improve health and to learn a foreign language (mostly English).
- Short-term educational programs for children who come for vacation with
the family: classes for several hours per day aimed at training language or
sports skills. It is important that programs are adapted for Russian children.
- Higher educational programs in English that enable to get a degree in the
popular field.
- Internships or short-terms courses and programs for students and senior
school children in English.
It is worth mentioning that in the future Russian middle class will pay
increased attention to children-oriented services. The youngest family
members will have a significant influence on decisions regarding free time and
vacationing.
Russians won’t learn English from TV as long as all movies are dubbed into
Russian and language barrier exists between Russians and foreigners. The
maturing middle class will be travelling for many years and they are not going
to study new languages.
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24. Concluding Words – Quo Vadis, Middle
Class?
During this foresight project, it became clear that many challenges of today will
shape daily life of Russian middle class also tomorrow: congestion in traffic,
stress at work and social pressure will not fade away. Motivated Russian
consumers are eager to experiment with innovative services, time-savers and
new smart solutions in order to improve quality of life. Middle class in Moscow
are ‘New Yorkers’ of Russia – they happily pay for fast access to value adding
and smart service. They do and will appreciate good food but they don’t have
time to stop. Finland can be a place to stop – for a short while – but provided
that our country can offer smooth landing by air and smooth border crossing
by car. Shops will need to be open when middle class has time to go and
Russian public holidays will need to be taken into consideration in Finland.
Entire Eurozone is competing for attention of Russian consumers and
travelers which is the fastest growing tourist segment in Europe. Finland’s
opportunity must be easy access and great product offering, including global
luxury brands but also home-deliveries and online shopping. Russians are no
longer travelling in order to get access to the desired goods but rather in order
to experience ease of shopping, relaxation and to have fun or treat their
beauty and health. Easy access and fast track are the keys to success.
Sustainability and eco-life style have not touched many Russian souls yet, but
Russian media is already promoting environment-friendly solutions, idea of
recycling and ‘green city’ concept. The change will start from the current
middle class and their children. Finland is considered a role model in green
thinking and Finnish food products are considered clean and natural. Such
country image should be nursed and kept fresh as future will be greener in
Russia. Green thinking will attract tourists in the future and boost Finland’s
competitiveness. Food products should be modified for Russian consumers
with fresh and rich outlook, considering recyclable packaging – there is space
left for Finland as forerunner of green thinking. First steps of recycling are
taken at the moment and if masses of mega-cities vote for clean environment,
then change will be seen in consumer behavior of middle class.
Middle class parents want to spend quality time with children and invest in
their education. The special status of children in Russian families should not
be overlooked – and there is no place like Heureka in Russia yet. Families
listen to children when planning for holidays and try to make their dreams
come true. Parents spend more time in considering children’s education and
future career than Finnish parents. The mistrust and non-appreciation of
Russian education system will contribute for interest of private education of
adults as well: Finland should offer palette of educational programs in English
which would include both online and residential modules. Lack of sales
management training and customer service education is an opportunity.
Russians want their children to learn English.
Finland’s service offering should be visible and loud across the social media
which has become significant commercial platform for middle class
consumers. At the moment there is no one-stop-channel for virtual booking of
trip and stay, treatment and fun in Finland which could be paid electronically.
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25. Such platform of ‘My Finland Experience’ with link and access to all key
service providers across the country would be an asset and direct response to
the requirement of ‘easy access’ and customized holiday or tailor-made health
booster weekend.
Finland has a unique country brand in the eyes of middle class Russians
which should be developed further: Russian food supermarket with ‘Little
Finland’-corner has not been seen yet. A small country and its business
community would benefit from joint effort and collaboration against competitive
offering of other countries.
Foresight work is a never ending process: this project will be continued by
workshops and active debate in Finland across stakeholders of different
industries. The power question is: which opportunities are open for us in
Finland in any given future scenario of the Russian middle class?
In St Petersburg 15th March, 2013
Finpro Team:
Daria Ivanova
Ekaterina Malevskaya-Malevich
Elisa Karvonen
Kirsi-Maarit Poljatschenko
Ekaterina Reizman
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26. Appendix 1. Middle class education and
work
Table. Middle class education
120
100
80
PhD
60
Higher
83
84
Higher, not finished
40
College
20
0
Moscow
St. Petersburg
Table. Middle class work
120
100
80
Do not work
60
94
94
Moscow
40
Work
St. Petersburg
20
0
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27. Table. Middle class occupation
120
100
20
24
80
Own business
60
Employed
40
80
76
Moscow
St. Petersburg
20
0
Table. Positions held by middle class representatives
120
Other
100
80
Specialist without higher
education
60
Specialist with higher
education
Head of department
40
Deputy Director, key
specialist
20
Head (Director, CEO)
0
Moscow
St. Petersburg
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28. Appendix 2. Middle class families
Diagram. Marital status of middle class
120
100
No answer
80
Widowed
Divorced
60
Single
40
Couple, unmarried
Married
20
0
Moscow
St. Petersburg
Diagram. Children
120
100
80
30
31
No kids
60
Kids in the family
40
70
69
Moscow
St. Petersburg
20
0
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29. Diagram. Children’s age
160
140
120
100
26
15-18 y.o.
15
15
16
80
60
40
20
19 y.o. and older
29
12-14 y.o.
13
14
9-11 y.o.
18
19
6-8 y.o.
16
19
3-5 y.o.
19
30
22
Moscow
under 2 y.o.
St. Petersburg
0
Diagram. Housing of middle class
120
100
80
2
10
7
3
10
5
60
40
Rented appartment
Apartment from
government
74
77
20
Private apartment
Private house
7
5
Moscow
0
Room in the apartment
St. Petersburg
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30. Appendix 3. LIFE INDEX - List of indicators
and definitions
TOPICS
INDICATORS
Rooms per person
Housing expenditure
Housing
Dwelling with basic facilities
Household disposable
income
Income
Household financial wealth
Employment rate
Jobs
Long-term unemployment
rate
Personal earnings
Job security
Community
Quality of support network
Educational attainment
Education
Years in education
DEFINITIONS
SOURCES
It signals whether the persons occupying a
dwelling are living in crowded conditions. It is
measured as the number of rooms in a dwelling
divided by the number of persons living in the
dwelling.
it is calculated by dividing the final consumption
expenditure of households in housing and
maintenance of the house by the net adjusted
disposable income of the households.
It provides an assessment of the potential deficits
and shortcomings of accommodation focusing on
facilities for personal hygiene. One basic facility is
considered here: a lack of indoor flushing toilet
(measured as the percentage of dwellings not
having indoor flushing toilet for the sole use of
their household).
EU-SILC for European
countries and from
comparable national surveys
for non-EU countries
It includes income from work, property, imputed
rents attributed to home owners and social
benefits in cash, net of direct taxes and social
security contributions paid by households; it also
includes the social transfers in kind, such as
education and health care, that households
receive from governments. Income is measured
net of the depreciation of capital goods that
households use in production.
It consists of various financial assets owned by
households (e.g. cash, bonds and shares) net of
all types of financial liabilities.
It is the share of the working age population
(people aged from 15 to 64 in most OECD
countries) who are currently employed in a paid
job. Employed persons are those aged 15 and
over who declare having worked in gainful
employment for at least one hour in the previous
week, following the standard ILO definition.
It is the number of persons who have been
unemployed for one year or more as a share of the
labour force. Unemployed persons are those who
are currently not working but are willing to do so
and actively searching for jobs.
it shows the average annual earnings per full-time
employee
it is the share of dependent employment with job
tenure of less than 6 months.
It shows the proportion of the population reporting
that they have relatives, friends, or neighbours
they can count on to help if they were in trouble.
It profiles the education of the adult population as
captured through formal educational qualifications.
Educational attainment is measured as the
percentage of the adult population (25 to 64 years
of age) holding at least an upper secondary
degree, as defined by the OECD-ISCED
classification.
it measures the average duration of formal
education in which a five-year old child can expect
to enrol during his/her lifetime.
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OECD National Accounts
database
European Union Statistics
on Income and Living
Conditions (EU-SILC) and
national statistical offices of
Brazil, Canada, Chile,
Japan, Korea, Mexico,
Turkey and the United
States.
OECD National Accounts at
a Glance
OECD National Accounts at
a Glance
OECD Employment Outlook
OECD Employment Outlook
OECD Employment Outlook
OECD Factbook
OECD Education at a
Glance
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31. Students skills in maths,
reading and science
Air pollution
Environment
Water quality
Voter turnout
Civic
engagement
Consultation on rule-making
Life expectancy
Health
Self-reported health
Life Satisfaction
Safety
Life Satisfaction
Homicide rate
It measures the capacity of students near the end
of compulsory education. Studentswere tested on
their reading ability, skills in maths and level in
sciences . This indicator comes from the 2009
edition of OECD’s Programme for International
Student Assessment (PISA), which focused on
reading.
It refers to the population-weighted average
concentrations of fine particles (PM10) in the air
we breathe (measured in micro grams per cubic
meter); data refer to residential areas of cities
larger than 100,000 inhabitants. Particulate
matters consist of small liquid and solid particles
floating in the air, and include sulphate, nitrate,
elemental carbon, organic carbon matter, sodium
and ammonium ions in varying concentrations. Of
greatest concern to public health are the particles
small enough to be inhaled into the deepest parts
of the lung: these particles are less than 10
microns in diameter (PM10). PM10 also includes
fine particulate matter known as PM 2.5.
it shows the percentage of people reporting to be
satisfied with the quality of local water
It measures the extent of electoral participation in
major national elections. Only the number of votes
casted over the population registered to vote are
considered. The voting-age population is generally
defined as the population aged 18 or more, while
the registered population refers to the population
listed on the voters' register. The number of votes
casted are gathered from national statistics offices
and national electoral management bodies.
It describes the extent to which formal consultation
processes are built-in at key stages of the design
of regulatory proposals, and whether mechanisms
exist for the outcome of that consultation to
influence the preparation of draft primary laws and
subordinate regulations. This indicator is a
composite index aggregating various information
on the openness and transparency of the
consultation process used when designing
regulations.
It is the standard measure of the length of people’s
life. Life-expectancy measures how long on
average people could expect to live based on the
age specific mortality rates currently prevailing.
Life-expectancy can be computed at birth and at
various ages.
It is based on questions of the type: “How is your
health in general?”. Data are based on general
household surveys or on more detailed Health
Interviews undertaken as part of the official
surveys in various countries.
It measures overall life satisfaction as perceived by
individuals. Life satisfaction measures how people
evaluate their life as a whole rather than their
current feelings. It is measured via the Cantril
Ladder (also referred to as the Self-Anchoring
Striving Scale), which asks people to rate how they
value their life in terms of the best possible life (10)
through to the worst possible life (0). The score for
each country is calculated as the mean value of
responses to the Cantril Ladder for that country.
It measures the number of police-reported
intentional homicides reported each year, per
100,000 people. The data come from the United
Nations Office on Drugs and Crime (UNODC) and
are based on national data collected from law
enforcement, prosecutor offices, and ministries of
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OECD PISA Results
OECD Environmental
Outlook
OECD Society at a Glance
OECD Regulatory
Management Systems’
Indicators Surveys 2005,
2008 and 2009, OECD,
Paris
OECD Health Database
OECD Health Database
OECD Society at a Glance
UNODC
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32. interior and justice, as well as Interpol, Eurostat
and regional crime prevention observatories.
Assault rate
Employees working very long
hours
Work-life balance
Time devoted to leisure and
personal care
It is based on the percentage of people who
declare that they have been victim of an assault
crime in the last 12 months. The data presented
here are drawn from the Gallup World Poll.
It shows the proportion of employees who usually
work for pay for more than 50 hours per week. The
data exclude self-employed workers who are likely
to chose deliberately to work long hours.
It presents data from national time use surveys on
the hours devoted to leisure and personal care in a
typical day.
Tekes – teknologian ja innovaatioiden kehittämiskeskus
Tekes on tutkimus- ja kehitystyön ja innovaatiotoiminnan rahoittaja ja asiantuntija.
OECD Labour Force
Statistics
OECD Time Use Survey
www.tekes.fi