For fear or money, consumer giants are staying in Russia

Speaking to the added expense of leaving, Peskov said “the market is what it is,” and added, “companies are exiting in line with the particular market conditions.”

Another factor is that, because Russia’s economy didn’t perform as badly as expected last year – only shrinking 2.5 per cent — there still is money to be made, at least in the long term. On Thursday, Unilever warned investors of the financial risk attached to leaving the Russian market. Separately, British American Tobacco increased its projections for potential losses should it make an exit.

Evasive manoeuvres

To stay and take advantage of what could still prove to be a profitable market, companies have performed ring-fencing manoeuvres, handed power over to local executives, stopped advertising and investment, and conducted sanctions audits to avoid doing business with blacklisted banks and individuals.

While Unilever, Colgate and P&G have defended their decision to provide only “basic” or “essential” goods to the Russian market, they have yet to detail how their range has narrowed. To avoid the headache of dealing with sanctions, for instance, Unilever has committed to not taking any profits out of Russia. Matt Close, head of the ice cream unit that sells Cornettos in Russia, said the strategy is under review. “The business is effectively a closed loop business,” he said.

Company bosses are also pleading posterity. “I just want to give my successor’s successor’s successor the opportunity of making that choice one day if the situation in Russia changes dramatically and becomes stable,” said Carlsberg chief Cees ‘t Hart in an email.

‘We sell chocolate and biscuits. [In] many countries, biscuits are a breakfast item. And so, we do feel that we supply products to the normal consumer in Russia.’

Mondelez CEO Dirk Van De Put

Some outfits have slowly begun to scale back their holdings. P&G, which has two plants in Russia, has handed decision-making powers to local staff, who report directly to the chief operating officer. As Russian sales have slowed, it cut headcount in the country from 2,500 to 1,800 between March 31 and the end of 2022. L’Oréal, which still has 2,500 employees in Russia, has shuttered stores and scaled back supply, but it continues to sell Russians beauty products.

Other chief executives have been creative in justifying continued operations in Russia. Confectionery group Mondelez has described its locally made Alpen Gold and Milka chocolates as everyday products that Russians can’t do without.

“We sell chocolate and biscuits,” said CEO Dirk Van de Put. “[In] many countries, biscuits are a breakfast item. And so, we do feel that we supply products to the normal consumer in Russia.”

Tough exit

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However complicated it is to leave, staying does carry risks. French peas and corn producer Bonduelle denied claims in December that it had supplied the Russian military with tinned food after photos of a soldier holding its products were posted on social media. The incident served as a warning for other Western companies still in Russia.

Companies selling food or personal care products also run a high risk of being inadvertently pulled into the war effort, especially if Russia switches to a “wartime economy.”

Peskov, the Kremlin spokesperson, denied that companies would be forced to take part. Still, draft notices were sent to people’s places of work during the fall mobilisation of 300,000 additional troops, and multinationals have lost workers to conscription and immigration.

The expected ramp-up of fighting this spring will likely add to corporate anxieties — both on the ground in Russia, and in businesses’ home countries.

The reputational risk for operating in Russia faded after the first two months of the war, said Mark McNamee, director for Europe at research company FrontierView. But with things going the way they are, he added, he suspects this won’t last.

“Every quarter we see companies get more realistic and say, ‘screw it.’”

Bloomberg

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