Issue 6, 2019. December-January



By Sally White

Georgia has 500 registered wine companies, 100,000 home wineries, its wine turnover last year totalled GEL 868 million and 85 percent of that was exported, the Ministry of Environmental Protection and Agriculture's Wine Agency reported recently.

That wine is such big business for Georgia is due to another figure, this time from Georgian investment banker Galt & Taggart - the industry's net profit margin is 26 percent compared to only 8.4 percent for the total business sector.

"The wine production sector is becoming a lucrative part of the Georgian economy", Georgia Capital, owners of major Georgian wine company Teliani Valley, commented in a fund-raising document. It now accounts for six per cent of total exports.

After five years in which the sector's revenue almost doubled, the Wine Agency is forecasting continued strong growth, citing expanding non-traditional markets in Asia, increasing Georgian marketing efforts internationally (especially in the US and Europe) to build brands and improve distribution networks.

Teliani Valley gives a rare insight to the wine business as its London stock-market quoted parent, Georgia Capital, publishes its figures.

These showed a 24 percent revenue jump in 2015-2017 to 22.2 million GEL with profits of 5.7 million GEL, then in 2018 revenue rose to 29.4 million GEL and profits to 7.2 million GEL.

Most Georgians drink their own home-made and village wines, for reasons of price and pride, and these dominate the domestic market. Although exports increased, sales of branded wine in Georgian supermarkets fell by 44 percent in 2015-2017 when its price rose. However, Teliani Valley said, opportunities for Georgian sales were improving as "tourist numbers rise and as the premium wine segment develops."

The latter including "varieties of wine that are unique to Georgia", such as qvevri and semi-sweet red wines.

Wine business may be lucrative, but it is not easy: Georgian wine is little known and overseas markets are extremely competitive.

In Vino Veritas points to risks in such an export-orientated business from currency fluctuations and economic difficulties in major markets such as Russia. Then there are vine diseases, increasing volatile weather and shortages of land. While most wine companies are trying to acquire land to add to their own vineyards, to increase quality control and yields, they still buy much of their grapes from small vineyard owners who use technically unsophisticated methods. Yields in Georgia, according to In Vino Veritas, are 3.8 tonnes a hectare against the more profitable 16.5 in the US, 10.7 in Italy and 5.7 in Spain.

Many of the major companies have boosted revenues and reduced risk by diversifying into parallel businesses - Telavi Wine Cellars into winery machinery, Kakheti Traditional Winemaking, Schuchmann and others into hotels and restaurants. Teliani's parent, Georgia Capital, used its knowledge of the wine market networks, cash flow and group financial strength to diversify into beer (with Black Lion, Kazbegi and Heineken) and now beverage distribution.

It was distribution experience, as well as brand awareness, that helped Georgian companies re-establish themselves so rapidly in Russia after its market re-opened in 2013. However, alerted to the need to diversify, the major wine companies have since been investing heavily to meet quality, regulatory and marketing requirements in Asian, European and North American markets. They now export to 53 countries. As Galt & Taggart comment in their report on the wine and spirit industry "In Vino Veritas", the "low price per exported per liter in Russia is another argument to intensify efforts to re-orientate from the Russian market."

The efforts are showing some success and the pace is escalating. The companies face no technical issues for sales in Europe and Asia as Georgia has free-trade agreements with most target export countries. Wine and spirits exports to non-traditional markets tripled in dollar terms over 2013-18 "which seems a good achievement considering bottlenecks in brand promotion and positioning", states In Vino Veritas.

China's imports rose by 11 per cent in January-September 2019 to 5,334,939 bottles. US growth was particularly good, sales rising 60 percent to 533,206. There were big gains in sales to Israel, up 88 percent to 218,921 bottles and Germany, up 36 percent to 476,125. Smaller markets, but still showing good gains, were the UK, up 40 percent at 93,067, the Netherlands, up 21 percent at 73,078 and Sweden up 397 per cent at 55,506. However, Russia, with sales of 41,112,235 bottles, up 11 percent, still dominates. The heavy-weight companies in the business - Teliani Valley, Telavi Wine Cellars, Kakheti Traditional Winemaking, Badagoni and Tbilvino et al - may dominate export sales, yet it is the small wine-makers that have been catching the headlines, getting business by winning high profile competitions in Europe, Asia and the US with qvevri wines, reviving old wines and bringing in new ones. (Geostat classifies these as having annual revenue below GEL 12 million.) Some 90 percent of companies operating in the Georgian market, says the Wine Agency, are small.

"High profits and the availability of various grants and subsidized loans from the government in recent years are the major reasons for the large number of small-scale wineries in the sector," states In Vino Veritas. Without this help small wineries would have "little capability to invest in brand development and distribution networks."

Lesser feted than Georgian wine are the country's bottled brandy and brandy spirit, although Georgia is the world's 10th largest exporter of brandy, with over 20 percent of the Spanish and French markets. Quality bottled brandy exports increased at a rate of over nine percent a year in 2013-2018, according to Galt & Taggart, coming from Askaneli Brothers, Bolero, Kakhetian Traditional Winemaking, Sarajishvili and others. The low cost of Georgian raw spirit enables it to dominate export sales (59 percent of the total), and Spain and France buy it for making own-label cheaper brandy brands.

A small country like Georgia, states In Vino Veritas, will never have sufficient vineyards to compete in low-cost markets against the likes of Chile or Spain. Yet, wine companies are split in their views on market positioning and strategy, it notes. Some companies "think a winning strategy is to focus on affordable wines, while maintaining better quality than low priced competitors". Others "see opportunities to position in the premium segment, with potential in unique varieties of wines produced in Georgia".

Galt & Taggart believes that Georgia's wine and spirit business would make more impact in export markets if companies marketed together with a unified strategy. They "do not have a collaboration platform or agreement regarding their long-term positioning in their export markets. Corporate governance within the sector is still evolving but cluster-building and greater coordination are needed over the coming years".

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