Sberbank CIB Ivanov Consumer Confidence Tracker. November 2017 - A Cautious Step Forward

We continue to track the Ivanovs' savings and spending patterns, as well as their perceptions, to get an early indication of how entire sectors and individual companies might perform. We also look at the competition among Russia's public retailers. Here are some of our main conclusions:
> The consumer confidence index improved to -12% in 3Q17 after retreating in 2Q17, with Q-o-Q improvements seen in all of the individual components, most notably in perceptions of big-ticket purchase conditions. We think the brighter sentiment is a reflection of a pickup in real incomes in 3Q17 amid record-low inflation (3.4% on average, versus 4.2% in 2Q17 and 7.0% a year ago). In addition, perceptions of personal wealth in the previous 12 months improved 3 pp Q-o-Q to -16% in 3Q17, the best showing since end 2014.
> Business confidence climbed to 11% in 3Q17, the best reading since 3Q14. This corresponds with the improving official hiring and employment statistics. The most optimistic respondents came from the financial and agricultural sectors last quarter, while employees in the transport industry were the most pessimistic. Net hiring decreased slightly but remained close to the level prior to the economic downturn.
> Our survey indicates that wages rose by 5.5% y-o-y in 3Q17, slightly below the 6.1% growth that the State Statistic Service recorded. But as we said in our September 28 report, "Russian Retail: Solving an Economic Puzzle," the official wage statistics do not include information from small companies and those that pay their employees under the table.
> The share of those who sought to save on staples over the past two to three months (i.e. curbing impulse purchases and switching to cheaper food items) was flat y-o-y and down 3 pp Q-o-Q at 68%, marking the lowest point in 2017 and the first sign of an ease in trading down. The share of respondents actively seeking out promotions retreated from a record 62% in 2Q17 to 60% last quarter. We will wait for more signals in subsequent surveys, but our preliminary conclusion is that the population is using deflation to trade up rather than spending less on food, which would be positive for the sector outlook.
> Despite Ivanovs' overall continued caution about food spending, the share of customers (in net terms) trying to save on non-food items decreased across all categories. Moreover, the index dropped to a record low across such categories as eating out, entertainment, vacations and utilities.
> Some 62% were ready to shop more at big boxes once their income recovers. We expect a recovery in nominal incomes, which we believe should be positive for Lenta in particular.
> When it comes to food selection, only 16% of Russians buy specific brands, while others base their purchases more on prices.