Issue 3, 2019. June-July

   

GEORGIAN WINE EXPANDS INTERNATIONAL REACH

Georgian wine brands are increasingly targeting new markets, leading to higher exports.

Sally White


Georgian wine is on a roll. Georgia is exporting the highest volume of wine it has in the past 30 years with well over 100 companies now active in overseas markets. And its qvevri wines have become a darling with the trendy international "orange" wine crowd.

In addition, Georgia was invited by France to launch its €80 million iconic Bordeaux world wine exhibition halls, then Japan followed suit with another major exhibition to showcase Georgian historic wine culture.

Small artisan wine makers are winning almost as many international prizes as Georgian films, Georgian wine tours are offered by off-beat holiday travel companies worldwide and the National Museum is working with the US National Aeronautics and Space Administration (NASA) to put Georgians vines on Mars.(In response to a call from NASA in the US to help facilitate human life in space, Georgia's Business and Technology University initiated a project with a start-up called Space Farms.)

Yet, pride could come before a fall, as Georgia's wine companies know only too well after the switchback ride their businesses have had since the 1990s, with Russian embargos, lack of capital, climate change, and so on. Perils could lie ahead for both exports and domestic production. To secure its future, Georgia, as leading wine writer Decanter Magazine wine writer Andrew Jefford has written, needs to find the resources and markets to secure the cushion of higher profits with "more high quality, higher-priced wine".

A major shadow, and one the Ministry of Agriculture has been trying to tackle, is that Georgian wine exports are still heavily dependent on low-priced former Soviet Union markets: the $203 million-worth of exports made in 2018 went principally to Russia , with 54 million bottles out of a total of 86 million. Another traditional market, Ukraine (11 million bottles) followed in size. Although Chinese demand has grown rapidly, coming next at seven million bottles, that is a long way behind (though the Chinese Association for Exports and Imports predicts it will become the world largest importer by 2020.) Next in size are Kazakhstan and Poland, both with around 5.6 million bottles, and then Latvia with 1.7 million.

While head-line catching wine fairs, prizes and high prices are mainly on offer in Europe and the US, Georgia is doing much less business in Western markets compared to its traditional partners, albeit the percentage increases being achieved are great. Exports to the US have expanded well in the first four months of 2019, up 108%, but were still just 219,713 bottles. Canadian exports rose 70% to just 66,960 bottles. Exports to the next most important destination, France, were 43,938 bottles, though up 81% and then came Netherlands, with 40,930 bottles, up 37%.

The missing driver, accounting for lagging Western interest, is lack of familiarity. Western customers find new wine countries mainly through holiday travel. Tourists in Georgia have been largely from neighbouring, mostly former Soviet, countries-Russia, Azerbaijan, Turkey, Armenia and Iran-and this is continuing. Russian tourist numbers were up 6 percent in April at 113,138. While visitors from the EU were up 28.7 percent, in numbers that was only 33,000 visitors and Germany and Poland were driving growth.

"The problem for Georgia's wine producers is that traditional markets like Russia and Ukraine remain preponderantly low-value, and the China trade could easily slide in the same direction," commented Andrew Jefford. And he quoted one of the largest Georgian wine companies, Tbilvino: "Most of Georgia's existing external wine trade is below $2 a bottle. That is not good for Georgia."

The domestic production problem is that Georgia has far from recovered from the ravages of the Soviet and immediately post-Soviet years on its agricultural land. For a start, thousands of hectares of vineyards were ploughed up for wheat and potato production and, as Olaf Malver at Danieli Winery said from his Kakheti marani "Georgia has limited good terroirs." Then, he adds, much of the land is "overworked, eroded, polluted and unnurtured." Plus, the majority of the grape production in the major vineyard area, Kakheti, is "in the hands of small farmers whose resources are limited."

That causes quality issues. Major companies such as Tbilvino and Telavi Wine Cellars may be adding hundreds of hectares to their vineyards to meet soaring Russian and Chinese demand, but still rely on a network of small growers to supply a large percentage of their needs. As Zurab Ramazashvili, co-owner of Telavi Wine Cellars told The Morning Claret blog slot: "We cannot really control farmers' grape growing techniques."

Accumulating are the threats created by climate change, as the weather becomes more volatile and temperatures slowly rise, exposing the weaker vines to disease and insect infestations.

In the first two months of 2019, official statistics show that Georgia earned $30 million by exporting 12 million bottle of wine. However, an accurate read of the financial strength or weakness of this sector in the Georgian economy is almost impossible as just about all of the vineyards are privately owned. The many tiny companies, particularly the kvevri ones run by young Georgian winemakers, are too new to show much, if any, profit. It is also worth nothing that a lot of them also have guesthouses to provide family revenue. While there are a number of large and highly commercial companies servicing the Russian, Ukrainian and Chinese markets, these are investing heavily to increase their hectares (available either only in tiny parcels from villagers or from the state) and to update their technology. Plus, many have loans and the marketing costs in the major export markets are rising.

Having spent most of his career in the wine industry (Mildiani, Schuchmann and the Agriculture Ministry's Wine Agency) Minister of Agriculture Levan Davitashvili is only too aware of the problems. The ministry has been spending heavily to tackle them compared to a few years ago, stepping up international marketing, hiring PR firms, inviting wine and tourism journalists and bloggers, educating the farmers, fighting bugs, lifting the tax burdens, making loans available and so on.

"To give you an idea of how big this change is, the total budget for agriculture was ten times less in 2012," he said at a press conference last year.

Globally, however, all wine markets are becoming more difficult and competitive, as economic insecurity is forcing consumers to cut back everywhere, switching to drinking less often even if choosing better quality wines. Purchases are increasingly being made online and the markets are rationalising, with large and powerful distribution companies dominating. The same trends can be seen from the US, through Europe to the Ukraine, and are making trade more challenging even in Russia and China.

Alcohol is a major driver for one of Russia's newest billionaires, Sergei Studennikov. He earned his fortune by building his booming Krasnoe & Beloe chain into the fastest growing major retailer in the country, with around 7,000 outlets in nearly 60 regions. His strategy is to tack a small array of food items onto a large assortment of beverages, giving space to whichever supplier has the cheapest price. Plus, he likes increasing the competition by selling international wine. All that, news agency Infoline commented, "is disrupting the Russian market." (Although Georgia wine producers have a little protection via their strength in Russia's ubiquitous Georgian restaurants.)

In both the Russian and Chinese markets the good news is that urban, well-off millennials are anxious to try new and fashionable "quirky" wines, such as kvevri wine. In this spending category in Russia, another new element is that women are boosting the numbers of wine consumers. "The Russian wine market created in the '90s by and for men is changing. While serious wine buyers still tend to be male, women are now making many more wine purchasing decisions," wine importer and distributor Classica, told Bloomberg.

In China, around 20 percent of wine is sold via e-commerce sites, and this proportion is expected to rise to 50 percent within a decade, again according to Bloomberg. Tmall.com (part of the Alibaba internet empire) is No.1 with 50 percent of the alcohol trade, it says. Chinese retailers such as Tmall have been spreading their net to pull in imports from all over the world, keeping the level of competition high. While the more adventurous young drinkers go on line and are open to new wines, wining on the highly digitally literate Chinese market needs "a high level of internet marketing and social media skills! "

Yet, never let it be said that Georgians cannot rise to a challenge. Historically, as long ago as the third millennium BC Georgians opened up new areas for Georgian grapes by immigrating, and taking their vines with them.

In a 21st century take on this, Kakheti-based Badagoni has set up a joint project in China to develop its brand. Badagoni's founder Giorgi Salakaia is teaming with a Chinese partner who is spending $30 million.

He already opened five Georgian culture centres in various cities, including Beijing, Taijiu, Tianjin, Datong and others. Salakaia commented: "We believe that this will dramatically increase the popularity and sales of both Badagoni and Georgian wine on the huge Chinese market."