PEST Analysis

PEST

As a new market for Club Mate we choose Saint Petersburg, Russia. In order to substantiate the choice of market, we made PEST analysis and identified the main tendencies in Russian, particularly Saint Petersburg, market: 

Political factors	Economic factors
Political instability Prospective changes of the customs code Prohibition of selling alcoholic products after 23 pm and prohibition of drinking in public places (Anti-alcohol legal regulations)	Recovery of consumer confidence General level of economic development of the region High level of importing goods
Social factors	Technological factors
Changing lifestyles – copying of the European tendencies (westernization) High urbanization level Emerging middle class Healthy eating Improvement of a life standards	Developing of the Internet Low level of R&D investments in beverage production sector

Political factors

1. Political stability

Political power in Russia is highly centralized in the President and the Presidential Administration within the Kremlin which exert their influence over all aspects of domestic and foreign policy. Following the election of former President Vladimir Putin in early 2000, political stability and policy predictability gradually increased. Under Putin's leadership the Russian economy had boasted an annual growth rate of almost 7%.

2. Prospective changes of the customs code

The system of customs clearance of goods in the Russian Federation is oriented on the realization of most custom operations by custom authorities situated as a rule in the cities that are transport nodal points. Year by year the growth of foreign trade turnover of the Russian Federation intensifies the irregularity of infrastructural development between inner and frontier country’s subjects, emphasizes the problem of excessive transport load on large Russian cities. The flows of conveyed and discharged goods put into free circulation are often directed towards each other.

3. Prohibition of selling alcoholic products after 23 pm and prohibition of drinking in pub- lic places (Anti-alcohol legal regulations)

On 20 July 2011, President Dmitri Medvedev signed an amendment to the law on state regulation of the production and distribution of alcohol, introducing restrictions on its consumption, sale and advertising; and on 21 July, he signed another law providing for criminal liability for the sale of alcoholic beverages to minors . The act prohibits the sale of alcohol in places of mass gatherings, including sports facilities, railway stations, bus stops, petrol stations, airports and transport systems. It also prohibits the advertising of alcohol on radio, television and billboards. As of 1 January 2012 the drinking of alcohol in public places was banned. From 2013, night-time prohibition came into effect, banning the sale of alcohol from 11pm to 8am, with the exception of bars and restaurants.

Economic factors

1. Real income growth and recovery of consumer confidence and spending

The average Russian consumer is largely debt-free and has a larger discretionary income as a percentage of pay than his or her counterparts in the West.

2. General level of economic development of the region

St. Petersburg is a major trade gateway, financial and industrial center of Russia specializing in oil and gas trade, shipbuilding yards, aerospace industry, radio and electronics, software and computers; machine building, heavy machinery and transport, including tanks and other military equipment, mining, instrument manufacture, ferrous and nonferrous metallurgy (production of aluminium alloys), chemicals, pharmaceuticals, medical equipment, publishing and printing, food and catering, wholesale and retail, textile and apparel industries, and many other businesses. 

3. High level of importing goods

Due to a lack of local supply, Russia imports around 40 percent of its food consumption, particularly meat and milk products. Historically, from 1994 until 2013, Russia Imports averaged 11392.06 USD Million reaching an all-time high of 31553 USD Million in October of 2012 and a record low of 2691 USD Million in January of 1999. Russia main imports are food (13 percent of total imports) and ground transports (12 percent). Others include: pharmaceuticals, textile and footwear, plastics and optical instruments. Main import partners are China (10 percent of total imports) and Germany (8 percent). Others include: Italy, France, Japan and United States. This page includes a chart with historical data for Russia Imports.

Social factors

1. Changing lifestyles – copying of the European tendencies

Saint Petersburg is often described as the most Western city of Russia. More and more Europe- an trends are held among young people influenced by tourism and developing of the city. Young people’s interests are shifted more to foreign music, type of clothing, culture and food, even language of youngters has become overwhelmed with international slang. 

2. High urbanization level

Around 73% of Russians live in cities and towns, while the remaining 27% live in rural areas. The biggest part of population is concentrated in Moscow (11,5 million) and Saint-Petersburg (4,8 million), however, there’re 10 more cities with population over 1 million people.

3. Emerging middle class

In Russia the middle class is estimated to comprise 30% of the country’s population. Russia’s middle class doesn’t just wield political influence, however – this new generation of increasingly wealthy young people is seen as the driving force behind the country’s push for prosperity. Reuters recently reported that Russia is expected to become Europe’s top retail market by 2013/14, with retail sales rising 9.5% year-on-year in December, compared to 2.6% growth in the UK. While the top 20 percent of income earners in Russia represent 47 percent of the country’s total income, the middle 60 percent accounts for 48 percent, according to federal statistics from the Bank of Russia (2012). The bottom 20 percent comprise the remaining five percent of income. 

4. Healthy eating

Saint Petersburg is under the influence of western trends: the residents of the megalopolis are preoccupied with their lifestyle like never before. This is, first and foremost, manifested through the growth of health-related industries such as fitness or healthy food. Rising rates of overweight and obese people in Russia and the increasing numbers of Russian people suffering from cardiovascular disease, diabetes and digestive disorders are forcing Russian consumers to pay more attention to the healthiness of their everyday soft drinks purchases. Russia’s healthcare authorities understand the importance of these issues and have devised a state pro- gramme aimed at improving the health of the Russian people which focuses on preventative healthcare. Many Russian people suffer various diseases which are caused by preventable health problems.

5. Improvement of a life standards

Stable gross domestic product growth, declining inflation and a record-low unemployment rate are pointing to positive consumer purchasing power in Russia.

Technological factors

1. Developing of the Internet

Internet infrastructure in Russia is developing now very rapidly. In 2009 the Internet penetration in Russia increased more than 20% . According to the Public Opinion Foundation in 2009, home internet is 79% of all users (previous year - 74%). However, significantly increased the speed of the connection.

According to Yandex Internet Report, The most expensive internet in the Far East – average about 1465 rubles for 1 Mbit /s per month. The cheapest - in the Volga region and the Ural - about 320 rubles. In St. Petersburg, the average price for 1 Mbit / s - less than 135 rubles

In 2009, all indicators of development of the Internet in Moscow and St. Petersburg continued to grow, Internet market in the two capitals already formed.

2. Low level of R&D investments in beverage production sector

Market of beverages in Saint Petersburg is constantly growing and has increased by 30% in four last years. The industry is about 50 large and 40 medium-sized producers of carbonated soft drinks. In spite of the fact, that prospects of this industry in Russia are quite promising, the main players in the market are international companies, like PepsiCo, Coca-Cola and Red Bull. Russian beverage companies with a very limited range of flavors – such as kvas, duchess pear and Buratino – have not change it for since a very long time and new products are quite unpopular. The main reason is that investments in R&D in this sector are relatively low and process of product development is suffering.