Apple Curbs Russia Sales as McDonald’s Increases Prices

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Renault SA
Workers make final inspections of Lada Granta automobiles at the end of the assembly line at the OAO AvtoVAZ plant, controlled by Renault SA and Nissan Motor Co., in Togliatti, Russia. Since mid-November, Renault and partner Nissan Motor Co. have lifted prices by 8 percent on cars made by their AvtoVAZ operation in Russia. Photographer: Andrey Rudakov/Bloomberg

As one of 144 million Russian consumers that companies from Apple Inc. to Renault SA are trying to reach, university professor Elena Grekhnyova is feeling the pinch of a currency in crisis. She’s now spending 1,200 rubles every few days for eggs, dairy products, poultry and vegetables to feed her family, up 20 percent from just weeks ago.

“It’s getting surreal -- will it ever stop falling?” Grekhnyova, who teaches chemistry in the central Russian city of Kursk, said of the ruble. “It may turn out that I won’t be able to buy a new coat, a $50 smartphone or jewelry.”

Grekhnyova’s frustration shows the challenge facing foreign companies doing business in Russia after a financial panic sent the currency to a record low and fanned concerns its leaders might limit the flow of capital out of the country. The meltdown follows a collapse in oil prices and U.S. and European sanctions against President Vladimir Putin’s regime.

Companies are raising prices seeking to offset the drop in the value of the sales they make in rubles. While no companies are showing signs of pulling out of Russia, Apple on Dec. 16 halted online sales there -- just three weeks after boosting the price of an iPhone 6 by about 25 percent to 39,990 rubles. The value of that iPhone sale when converted into dollars already has plummeted to about $585 from $847.

The same has happened to other companies trying to keep pace. On Dec. 3, McDonald’s Corp. raised the price of a Big Mac by 2.2 percent to about 94 rubles -- only to see the value of that sale plunge to about $1.35 from $1.77 in the intervening days. Since mid-November, Renault has lifted prices by 8 percent on Renault-brand cars in Russia.

Postponing Plans

Now, some Russians are rushing out to snap up consumer goods before prices rise further.

“There is a feeling that we are falling into an abyss,” said Elena Novgorodova, a 36-year-old manager at a chemical-trading firm in Moscow. “It would’ve been easier if the ruble fell quickly as it did in 1998. I am trying to spend the money before it loses value.”

Over a recent week, she bought about 30 kilograms of poultry, beef and pork, 10 packs of buckwheat and rice, clothes and 3,500-ruble Ecco shoes for her daughter. She also stockpiled cosmetics including two flasks of Chanel perfume for 5,000 rubles each and Yves Rocher lipsticks for 700 rubles.

The situation is likely to worsen before improving, said Sarah Boumphrey, head of strategic, economic and consumer insight for research firm Euromonitor International in London.

Consumers will be “forced to make tough purchasing choices as the prices of many products continue to rise steeply,” Boumphrey said. “Russia is too big a market to be ignored, but plans for increasing investment must surely be on hold.”

Germany’s largest retailer is doing just that. Metro AG has indefinitely suspended the initial public offering of a Russian chain, Chief Executive Officer Olaf Koch told reporters Dec. 16. Listing the unit now makes “little sense,” he said. “We haven’t canceled it, but we’re not working on it.”

The ruble yesterday sank beyond 80 per dollar, a record low, before rebounding after Economy Minister Alexei Ulyukayev denied the government would turn to impose restrictions to stop Russians from converting money into dollars.

Apple yesterday said it was halting online sales in Russia due to “extreme” ruble fluctuations.

Boosting Prices

Other companies are joining Cupertino, California-based Apple and Oak Brook, Illinois-based McDonald’s in adjusting their prices. Oriflame Cosmetics SA, the Luxembourg-based beauty-products company, said yesterday it will “substantially speed up the pace and level of price increases” in the country next year.

Chinese automaker Geely Automobile Holdings Ltd. has started to increase the retail prices of vehicles in Russia, it said today. Profit this year will fall about 50 percent this year because of the slumping ruble and declining sales, the company said, sending its stock plunging the most since July 2002 in Hong Kong trading.

PepsiCo Inc. also has bumped prices in Russia, where CEO Indra Nooyi last week said the Purchase, New York-based soft drink maker is in a “sweet spot” selling basic beverages to Russian consumers who favor milk, juices and similar products.

Grekhnyova, the Kursk professor, said she and her friends have developed a kind of fatalism about the ruble’s plight.

“When I heard that the ruble has fallen again, my colleagues and I started laughing out loud,” she said. “I still don’t know what happens next year to my salary and prices.”

Store Locations

In some cases, there will be fewer stores, or at least smaller ones, to serve her and other consumers in Russia.

Inditex SA, the world’s largest clothing retailer, this month closed its flagship Zara store in Moscow’s Tverskaya street retail district. German retailer MediaMarkt, whose warehouse-sized electronics stores were a novelty and a competitive advantage when it entered Russia in 2006, now finds that size has become a problem.

“We are reducing selling space at a number of stores,” Anna Trofimova, a Moscow-based MediaMarkt spokeswoman, said by e-mail on Dec. 11. The retailer, which has 68 stores in Russia, will focus on online expansion, she said.

With the Russian economy teetering, companies doing business there are at risk of losing their assets if Putin responds by lashing out at Western businesses, said Rebel Cole, a finance professor at DePaul University’s Driehaus College of Business in Chicago.

“You really have no guarantee you’re going to be in business tomorrow,” Cole said. “That’s a pretty hefty risk for these companies to face.”

Keeping Commitments

For now, even companies taking big hits on their sales or profits in Russia say they are committed to the market.

Gedeon Richter Nyrt, Hungary’s biggest drugmaker, said the ruble’s plunge will hurt sales in the fourth quarter and will lead to “a substantial one-off financial loss” this year when the company reassesses the value of money it’s owed in rubles. Russia accounted for 24 percent of sales for the Budapest-based company in the first nine months of the year.

“Richter is not considering at all leaving the Russian market,” said Zsuzsa Beke, a spokeswoman for the company.

Renault and its partner Nissan Motor Co. are more exposed to Russia than any other carmaker after gaining control in June of OAO AvtoVAZ, the maker of Lada cars.

Sales for the Renault, Nissan and Lada brands fell 8.4 percent through the first 11 months of 2014, beating the market’s 12 percent drop. Renault says it remains committed to the market.

“There’s no change in our strategy,” Oxana Nazarova, a Renault spokeswoman in Moscow, said by phone. “We look at the situation every day to see how we can react.”

(An earlier version of this story corrected the brand of cars that Renault has increased prices on.)

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