Russia has always been considered one of the most promising of the new emerging markets. However, in view of the latest wave of political tensions and sanctions imposed by the E.U. and the U.S., the future of Russia may not be as rosy as predicted. What are the current consumer trends in Russia?

Spending less overseas

Consumers have tightened their travel budgets in the face of the falling Russian rouble. “We’re feeling the impact,” said Pierre Viarnaud, head of Russian operations at the Hamburg-based Gebr. Heinemann SE & Co, which operates 230 stores at 61 airports. “In Moscow, we have a significant drop in spending per passenger. In Kiev, it’s even more dramatic, almost 50 percent lower than last year,” he added. According to The Wall Street Journal, Russians are staying at home or limiting spending when they do travel after the rouble hit a record low. Russian travelers, who also flew less during the Winter Olympics in Sochi, normally have “voracious appetites for European luxury goods,” said HSBC aviation analyst Andrew Lobbengerg. However, Russians are “very reluctant to shop now,” pointed out Zurich airport operator Flughafen Zuerich AG’s spokesperson Sonja Zoechling.

Dairy and vegetable products from neighbor not accepted

Russian authorities have banned imports of all dairy products and milk from Ukraine as of late July 2014. Alexei Alexeyenko, deputy director of the federal agricultural watchdog Rosselkhoznadzor, claimed that Ukrainian cheeses might be hazardous due to the use of palm oil of unknown quality and origin. In addition, there is also a ban on individuals bringing in vegetable products from Ukraine. Lyudmila Manitskaya, executive director of the Russian Union of Dairy Enterprises, offered Russian news agency Itar-Tass an interesting perspective, “Russian consumers will hardly notice the absence of Ukrainian goods, as products from Lithuania and Belarus will arrive in abundance.”

American fast food becoming rarer

American fast food chain McDonald’s may have become one of the victims of the worsening ties between Moscow and the U.S. Russian consumer watchdog agency Rospotrebnadzor claimed that the chain violated sanitary regulations. Rospotrebnadzor has previously been accused of getting involved in political issues, banning Georgian wine – as Tbilisi strengthened ties with Washington – and spirits from Moldova after that country’s decision to partner with the European Union. A Moscow court told Reuters a regional branch of Rospotrebnadzor had asked it to declare production and sales of some McDonald’s products illegal after an inspection in June 2014. McDonald’s operates about 400 restaurants in Russia and counts the country as one of its top seven major markets outside North America, according to its 2013 annual report. Meanwhile, another American burger chain, Wendy’s, will shut down its eight locations in Russia, a major deviation from its initial plan of opening 180 outlets by 2020, Bloomberg reported.

Consumers hit by souring international relations

The escalating political tension between Russia and the United States has led the Polish government to cancel plans for celebrating the Poland Year in Russia and the Russia Year in Poland, a cultural project planned for 2015. Poland’s government spokesperson Malgorzata Kidawa-Blonska told Xinhua News Agency, “There must be a good atmosphere that can build unity. In light of the current political situation, it would be impossible to hold the event.” The cultural exchange project was meant to be a showcase where Poles and Russians could present their biggest economic, scientific, and cultural achievements. Meanwhile, Christopher Rodrigues, Chairman of VisitBritain expressed the “hope to welcome 370,000 Russian visitors a year to Britain by 2020.” Instead, the year 2014, which was supposed to be the U.K.-Russia Year of Culture, has seen a four-percent drop in Russian arrivals, as more and more visa applicants complain about processing delays. Maya Lomidze, Executive Director of the Association of Tour Operators in Russia, said to The Telegraph newspaper, “It seems that the U.K.’s Foreign and Commonwealth Office changed its visa processing partner shortly before the traditional annual upsurge in visa applications by Russians. Hundreds of Russians were unable to travel to the U.K. because of visa problems.”

World Cup to bring new hope and tourists

Russians can anticipate “a World Cup in 2018 to rival the Brazil games,” promised Russia’s President Vladimir Putin. “Russians should understand that the World Cup is a major event, and that hundreds of thousands of foreigners will be coming here. You need to be ready for them,” Roman Guttsait, a well-known sportscaster with Russia’s NTV plus network said. Eleven Russian cities will host World Cup matches, including regional towns like Saransk and Syktyvkar in the Komi republic, where foreign tourism is uncommon. Igor Pomoshnikov, a soccer fan in Russia, told Public Radio International, “The Sochi Games allowed Russians to believe in themselves. I think our President will give us a big push toward developing soccer in Russia, beginning right now.”

Travelers prefer Southern to Western Europe

As a result of the E.U. sanctions imposed on Russia in the recent months, demand for tours to Europe has decreased significantly, according to Alla Manilova, Russia’s Deputy Culture Minister. “The decline can reach from 15 to 30 percent in some countries,” Manilova told the Rossiyskaya Gazeta daily newspaper. “On the contrary, we forecast that outbound tourism will actually increase in some regions of Southern Europe,” she added. Russia’s Federal Agency for Tourism recorded that in the first quarter of 2014, the number of Russians travelling abroad had fallen year on year by four percent to 3.2 million.

Higher education overhaul

On the heels of President Vladimir Putin’s aim to have five Russian universities ranking among the world’s top 100 by 2020, the government has embarked on a large-scale initiative to improve the quality of higher education. At least 77 universities have been stripped of their licenses in 2014 alone. Education Minister Dmitry Livanov stated that about 1.7 million Russians study in “low quality” educational institutions, representing 30 percent of the overall student body. The number of students enrolled in higher education fell 13.6 percent between 2008 and 2013 to 8.16 million. In 2013, there were 1.55 million people with a higher education who were unemployed, accounting for 37.3 percent of the total unemployed population in Russia.

Consumers to bear the brunt of economic sanctions

In 2013, Sberbank, one of Russia’s major financial institutions, made a forecast that the local consumer market will be the largest in Europe by 2020 and the fourth largest in the world. However, that prediction is unlikely to materialize now that the E.U. and the United States announced the prolongation of sanctions imposed on Russia. U.S. President Barack Obama said the new moves will make Russia’s “weak economy even weaker.” Sanctions cut off state-owned Russian banks’ access to European capital markets, which resulted in higher borrowing costs inside the country, hitting both consumers and Russian companies, according to Fredrik Erixon, director of the European Center for International Political Economy, a Brussels-based policy think tank. Financing has never been cheap in Russia, with interest rates rising steadily to curb inflation. For individuals, lending rates start on average at 14 percent and can go as high as 22 percent and above.

A new face of the Russian family

The Russian government presented a report entitled “Conception of State Family Policy for the Period up to 2025” in early June 2014, which highlighted the effects of low fertility rates, the prevalence of divorce, and the weakness of family ties. Of the almost 43 percent of Russians who viewed the ideal family as requiring formal lifelong marriage, just 11 percent believe that their own families live up to these standards, according to a study conducted by the Zircon Research Group in July and August 2013. Tatyana Gurko, a doctor of social sciences at the Russian Academy of Sciences’ Institute of Sociology, said that during the past decade, young people, including those with children, “developed loyalties that lie with successive marriages, children out of wedlock, cohabitation with unmarried partners, and even infidelity.” She added that today’s Russian youth does not believe that “every woman should become a mother” and also welcomes equality in relations between the partners.

Oil industry may save the day

The Russian government is planning to invest RUB320 billion (USD4.98 billion) in oil exploration through 2020, which may spell more job opportunities and improvement to the economy. “The geological exploration will be concentrated in promising regions where the chances of discovering large oilfields are higher,” Prime Minister Dmitry Medvedev said. Russia’s 2020 unemployment rate is likely to hover around the current figure of six percent. As for the real GDP growth, however, it will likely improve significantly up to 2.5 percent, according to market analysts.