Georgia is considered the “cradle of wine” with a rich, 8,000-year history of wine-making and home to over 500 unique grape varieties. Having interrelated production processes, several large wine-making companies also produce brandy. While the history of Georgian brandy only begins in the 19th century, Georgia is already 10th-largest exporter of brandy globally. In 2018, 245,000 tons of grape were processed by over 300 winemaking companies, quite large production for a country with a small domestic consumption base. So it’s not surprising that some 85% of the wine & spirits sector’s revenue stream comes from exports, making it highly dependent on external markets.
Wine & spirits business is one of the most profitable sectors in Georgia. In 2017, the sector’s net profit margin stood at 26.0% far above 8.4% recorded for the total business sector. The sector’s revenue almost doubled over 2013-18 reaching GEL 867.9mn, with external demand being the main driver of revenue growth, as domestic sales stagnated. Wine is Georgia’s 4th-largest export product and brandy is the 8th-largest with 5.9% and 3.2% of total, respectively. Wine and brandy exports from Georgia increased at a CAGR of 6.0% to US$ 305.3mn over 2013-18, or 65mn liters of wine and 32mn liters of brandy exported in 2018. We expect 2019 to be another record-breaking year for the sector, with revenues set to increase up to 10% y/y thanks to an unprecedented grape harvest in 2018 and expected export growth.
2006 Russian embargo improved the quality of Georgian wine and diversified destination markets. Russia was almost sole consumer of Georgian wine before 2006 absorbing 92% of total wine exports. The embargo forced producers to improve wine quality and direct their exports to EU, Asian and other markets. As a result Georgia is exporting wine to 53 different countries now.
Reorientation from Russian market is high on agenda again. Re-opening of Russian market in 2013 quickly made it largest single market again absorbing c.60% of Georgia’s total wine exports in 2018. This is the result of brand awareness and reactivation of old trading networks. While the topic of a possible Russian trade embargo is closed for now, it disturbed winemakers and needs for further diversification dominated recent headlines. Low price per exported liter in Russia is another argument to intensify efforts to reorient from Russian market. On a positive note, number of wineries rejected relatively easy money in Russian market since 2013 and invested heavily in expanding in non-traditional markets.
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. The availability of various grants and subsidized loans from government in recent years considerably increased number of small-scale wineries, with little capability to invest in brand development and distribution networks. Given continued growth in wine consumption in Asian markets, enhanced efforts in brand recognition and distribution networks can generate US$ 120mn in exports in next 5-years, surpassing what Russia absorbs currently.
Wine & spirits sector lacks unified strategy. We interviewed a number of market players with an aim to identify major bottlenecks for export diversification. Absence of an industry collaboration platform or agreement regarding long-term positioning in export markets, weak corporate governance, and little progress in cluster-building were identified as key difficulties by sector players amongst others. Technologically unsophisticated production methods, high production cost of grape, the low yields, a lack of consistency in price and quality and fragmented processing base are other factors dragging consolidation and economies of scale in the industry.
Georgia’s Wine & Spirits Sector – In Vino Veritas (ENG)
Georgia’s Wine & Spirits Sector – In Vino Veritas (GEO) – Executive Summary only
Georgia’s Wine & Spirits Sector – Presentation (GEO)
