Saturday, May 19, 2012

Russian analyst: young generation knows nothing about Georgian brands. Georgian winemakers have no comment

18.05.2012  (Hvino News) According to Russian business analyst interviewed by Georgian radio "Commersant", as Georgian wine has been out of Russian market for several years it became unknown to the young generation of consumers.  Once Russian market opens the Georgian wine companies will need a heavy advertising campaign to get back the popularity of Georgian brands. "Commersant" asked Georgian winemakers for opinion, but most of the company representatives abstained from comments.According to insiders, the companies prefer to keep silent on the sensitive issue because of negotiations regarding the opening of Russian market, which are currently underway.

Fedor Zherdev, head of the Department of Industrial Policy of Russian rating agency "Expert RA" pointed out in his interview: "In the post-Soviet period the number of Russian consumers accustomed to traditional Georgian goods (mineral water and wine) is inevitably and steadily declining. New generations are growing up, and for them brand names like "Borjomi" or "Khvanchkara" are saying nothing. And even in case lifting the ban people will choose Georgian brands not out of habit or by nostalgia, but for other reasons: efficient advertising, "price-quality" ratio,

willingness of  supplier to pay retailers for favorable merchandising". See below the full text of Mr. Zherdev's interview.

"Georgian products are not represented on the Russian market at all"
An interview with the Head of the Department of Industrial Policy of Rating Agency "Expert RA" Fedor Zherdev

- The Russian market is certainly important for the post-Soviet countries, but it is closed for Georgia and the symptoms of its opening are just emerging. During a 6-year embargo many Georgian companies shifted to other markets, including the Ukraine. In your opinion, how important is Russian market for the Georgian business? Is it safe to return to the market that can suddenly close again?

It would be legitimately to ask entrepreneurs from Georgia how important is the Russian market for Georgian businesses. I can only discuss this issue.

Let's take a look at the structure of foreign trade turnover of Georgia (Georgian Statistics Service data for 2011). First, it is highly dangerous dependent on imports (exports - 2.19 billion USD, import - 7.05 billion USD, thus the import exceeds the export more than three times). Second, the delivery of such traditional good of Georgian export as wine amounted to 54.1 million USD in the past year. In 2005, the last year before Russia imposed an embargo, this figure was 81.3 million USD. That is, wine export has barely reached the pre-crisis figure of 2/3 since the ban was imposed. If you take in the natural calculus (i.e., deka-liters, not money), the ratio will be even worse.

Given these two complex of figures (many others can be also taken) return to the Russian market would be an absolute blessing for Georgian business and whole economy.

However, as you rightly notice in your question, there is possibility that the efforts made for the return to the Russian market may not be justified. But, in my opinion, it is still needed for Georgia to try to increase export to Russia. Why? Because export is already growing. But it is not goods, but migrant workers - usually young, energetic people, without which the chances of recovery of Georgian economy is definitely getting smaller.

Only in January of this year and only by official channels in total 41 million 675 thousand USD were transferred from Russia to Georgia, which is by 5 million 138 thousand USD more than in the same period last year. If the money came to Georgia by export of goods, it would give your economy new jobs, additional revenues to the budget, infrastructure development, etc. In the meantime, most part of money earned by the citizens of Georgia in Russia remains in our country in the form of payment for housing, food, medical services, etc. So, I will repeat, your country should take attempts to restore the lost positions on the Russian market.

-What Georgian products are presented on the Russian market and whether they are popular?

My own personal observations and the data of official statistics will help me to answer this question. According to my personal observations, as an ordinary customer, the products from Georgia are not presented in the Russian market at all, or they are presented by such products which origin is difficult to determine for the consumer. For example, I can suppose that some of the walnuts sold in our shops or markets came from Georgia, but it is hardly to reliably determine this. In other words, I have not seen goods which uniquely Georgian brand the last few years. To get a more objective picture, I asked around my colleagues and friends - they have the same impression. It is possible that in the border regions with Georgia the situation is different - but I can only assume this.

Now, as for the official statistics. After spending an hour, I could not find anything distinct about the structure of Georgian exports to Russia. Apparently, the case is in extremely low turnover between our countries - according to the National Statistics Service of Georgia (Sakstat), in 2011 it amounted to 426.3 million USD (exports to Russia - 36.6 million USD, while imports from Russia - 389,7 million USD). This figure is too small to be interesting for wide circles, therefore, to be publicly available.

- How attractive is Georgia in terms of starting and doing business, and how is it interesting for Russian businessmen? It is believed that after Russia's accession to the WTO there will be a boom of Russian investments in Georgia. Is this scenario realistic?

Business, by definition, is out of politics, and if it sees the possibility of expansion to the attractive market, it is sure to do it - the prohibitions just makes this way a bit longer. One example of this - a significant, if not defining, impact of capital from Russia in the Georgian energetics, mobile communications, cereal supplies etc. No political obstacles could prevent it. The absence of further expansion of Russian capital to Georgia obviously says that all attractive places for this time have been already occupied by forerunners from Russia or other countries. Russia's accession to the WTO is unable to change anything, because the WTO rules are designed only to facilitate access to markets, but they cannot create them.

- Probably, you know that "Zedazeni" and "Natakhtari" soft drinks has returned to the Russian market. Does this mean that Russia takes embargo off and whether it is due to Russia's entry into the WTO?

Thanks for the information; I did not know about the import of these brands. With regard to the embargo, it has been introduced for specific groups of commodities (wine) and specific brands ("Borjomi"), but it was not inclusive. Еven after the ban of "Borjomi” IDS Borjomi Holding freely supplied other mineral waters to Russia (for example, "Edelweiss", "Mirgorodskaya", "Morshinskaya", "Truskavetskaya"). So, the matter is not only in embargo. Here, another trend is observed: in the post-Soviet period the number of Russian consumers accustomed to traditional Georgian goods (mineral water and wine) is inevitably and steadily declining. New generations are growing up, and for them names like "Borjomi" or "Khvanchkara" are nothing saying. And even in the case of the ban’s removal people will buy or not buy Georgian brands out of habit or by nostalgia, but for other reasons: the activity of the advertising, "price-quality" relationship, willingness of supplier to pay retailers for the placing the products at favorable locations, etc. As for the possibility of increasing the trade turnover between our countries due to the entry of Russia into the WTO, I expressed my point of view while replying to your previous question.

Source and Hvino News

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