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Facing Challenges, Russian Beauty Maintains Potential

By: Greg Grishchenko
Posted: September 3, 2009, from the September 2009 issue of GCI Magazine.

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Another major Russian company, Novaya Zarya (or “New Dawn”) recently changed its name to Nouvelle Etoile to reflect its partnership with a French company. In the late 1700s, Russian nobility was infatuated by French culture and encouraged a number of skilled French craftsmen to start a new life in Russia. One of these emigres, Henry Brokard, founded the country’s first domestic perfume factory in 1864. After the Socialist Revolution of 1917, when all businesses were nationalized, the Brokard Factory was renamed Novaya Zarya, and its most famous creation, The Empress’ Favorite Bouquet, became the best selling Soviet-era perfume: Krasnaya Moskva (Red Moscow). Now, the company, as Nouvelle Etoile, it is actively introducing and selling perfumes through its own retail outlets in Moscow and other major Russian cities. Again, it is a company that leveraged its long-standing foothold and strengths while making forward-looking business moves to take advantage of current economic potential.

Toll of Global Economic Climate

The ongoing world economic downturn is changing market conditions in Russia. The recent 25–30% devaluation of the ruble has brought price increases and decline in consumer activity. Local retailers stopped following the brand owner list price recommendations, and began widely using discount policies, despite a significant fall in profits. In December 2008, L’Etoile reduced prices 40–50%, starting a price war among its competitors and driving a number of small independent stores into bankruptcy.

With a 10–20% decline in sales volume expected in 2009, the crisis, however, may bring positive changes to the entire beauty market—while profitability declines, the loyalty to products and brands increases, creating smart shoppers who will make targeted purchasing price/value decisions. This process will be a kind of cold shower for Russian consumers—who were, to a degree, confused and spoiled by new brand offers flooding the market throughout years of explosive growth.

Greg Grishchenko is a packaging consultant and independent market and technology specialist based in the U.S. He has carried out extensive research on Eastern Europe and the countries of the former Soviet Union, and is the author of several reports on the Eastern European packaging, converting and printing sectors. E-mail: ggrishchenko@msn.com.