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Tuesday, April 30, 2013

Georgian winemakers look to Russian drinkers

by Manana Vardiashvili

30.04.2013. Six years on from blanket ban, Moscow is wondering whether wine from its southern neighbour might not be so bad after all.

In what could be a major boost for Georgia’s struggling economy, its famous wines may soon be on sale in Russia again after a six-year ban.

Moscow banned all imports of Georgian wine and mineral water in 2006, saying they were a health hazard and contained dangerous substances. Most analysts interpreted this as a form of punishment for the increasingly confrontational relationship between Russia and the administration of President Mikheil Saakashvili.

Things only began changing after Saakashvili’s party lost its hold on power in the October 2012 parliamentary election.

Another factor that smoothed the way was Russia’s entry into the World Trade Organisation in August, helped by a Georgian decision not to continue blocking its accession.

Georgia’s National Wine Agency has sent Russia a list of 80 companies that want to export there. Four mineral water companies including the iconic Borjomi and Nabeglavi brands have also expressed an interest.

Russia’s consumer rights agency Rospotrebnadzor has given preliminary approval to 36 of the wine firms, turning 12 others down. Agency chief Gennady Onishchenko says two companies – Kindzmarauli Marani and the Dugladze Wine Company, have cleared all the hurdles, while the others are still being processed.

Prior to 2006, wine was the country’s main export, with 80 per cent of it heading north to Russia, where Georgian wines have long been known and appreciated.

The ban hit Georgia’s ancient wine industry hard. It scrambled to find new markets, and the main export destinations are now Ukraine, Kazakstan and Belarus. But that was not enough to compensate – wine generated 65 million US dollars in export revenues last year, 20 per cent down on the 81 million it earned in 2005.

Regaining access to a market of 140 million people where wine sales are flourishing is thus a huge prize for Georgian vintners.

In Russia, Onishchenko downplayed the significance of the deal for the domestic drinks market.

“It may well be important for them [Georgians], but it isn’t the most important thing in life for us,” he said in an interview for Interfax news agency. “It will be up to four per cent of the market. The most they ever had was four per cent of the wine market. And what’s four per cent to us?”

Levan Davitashvili, who heads Georgia’s head of the National Wine Agency, acknowledged that winning back market share would be no easy task.

He noted that French wines now accounted for 22 per cent of sales in Russia, followed by Italian and Spanish products. Even Abkhazia, a breakaway territory claimed by Georgia but recognised as independent by Russia, has a 1.4 per cent share in wine sales.

“It’s taken us seven years to get back into the Russian market,” Davitashvili said, suggesting that the “formerly banned” status of Georgian wine could actually be used as a marketing device.

“Recent research shows that 45 per cent of the [Russian] population is prepared to give Georgian wine a try. That’s a really good starting point,” he said.

Davitashvili said Russian distributors were already interested in selling Georgian wine, which was likely to retail at a moderate 300 rubles a bottle, about six dollars.

While welcoming the sales opportunities, wine companies in Georgia seem likely to strive to keep a wider portfolio of customers than before, instead of relying wholly on Russia. Rospotrebnadzor often appears to act as an arm of Russian foreign policy, and regularly blocks imports of foodstuffs ranging from America meat to Ukrainian cheese.

Zurab Ramazashvili, board chairman of the Telavis Gvinis Marani firm, said producers would proceed very cautiously because of the continuing risks involved in dealing with Russia.

His company lost around 70 per cent of its sales when the 2006 ban was imposed, he said, and although it would go back into Russia, it would try to ensure sales held up in the 20 other countries to which it now exports.

“Let’s wait and see what terms they offer us. If the terms and payment methods are acceptable, we’ll send one million bottles of wine to Russian this year,” Ramazashvili said.

Tea Kikvadze, marketing director at another firm called Teliani Veli, agreed that Russia would no longer be viewed as the main market.

“Our products are sold in 25 different markets. Entering a new market doesn’t mean we’re going to abandon our position in the others,” she said. “Russia is a new market for us…and we’re aware that building up a strong presence will take a lot of work.”

As for mineral water, Borjomi’s director Zaza Kikvadze says his company plans to corner 25 per cent of the premium end of the Russian market. It may be helped by the fact that Russia’s Alfa Group bought a controlling share in it at the end of last year, which could ease its return.

Georgia’s agriculture ministry says that wine and mineral water could be followed by other consumables including vegetables and citrus fruits, which are also subject to Russian bans.

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