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Wednesday, May 29, 2013

Tbilvino: Russian consumers awaiting Georgian wine

29.05.2013. Products of the leading Georgian wine exporter Tbilvino should be available to Russian consumers by the end of summer 2013. “We have already signed several contracts and hope that by the end of the summer our wine will once again be available to our Northern neighbors,” Giorgi Margvelashvili, President at JSC Tbilvino, told The Financial.

Tbilvino became the leading Georgian exporter for the fourth time in 2012. The company had 10% sales increase in comparison with the previous year. Slightly more than 3 million bottles were produced last year. Until 2006 the Russian market was the dominant one for Georgian wine exporters, but will now become the next “new” market that Tbilvino will enter.

In his exclusive interview Margvelashvili talked about the effect the government changes have had on his business.

Q. Mr. Zura Margvelashvili was one of the first representatives of Georgian business to complain about the previous government to the newly-elected PM Ivanishvili. Have you felt a sense of relief under the new government administration?

A. We have always spoken out about the problems with the previous government. We failed to reach unanimity on some issues. These problems were mostly related to wine factories owned by the state; they got supported by the state budget. Accordingly that endangered the vitality and development of private wine companies. The process and methods of vintage were also quite critical. We hope that the current regulatory bodies in this field will consider our recommendations, which we try to share based on healthy dialogue with the help of our wine association

Q. Grape prices sharply increased in 2012. By what percentage did that reduce your profit?

A. Grape prices were unrealistically high in 2012. The cost of Rkatsiteli increased by 89% and Saperavi by 53% compared with the previous year. The most disappointing thing was that these prices were not based on the principle of a market economy. The price growth was mainly due to the wrong policies of the state. Such a sharp increase in the raw material price causes either an increase in price of the final product or a reduction of profit. That ultimately decreases the competitiveness of Georgian wine. Despite all of this though we managed to continue to grow and maintain profitability.

Q. China, Korea and the USA were your target markets for 2012. How successful was your entrance to those markets?

A. In Year 2012 was a success in terms of increasing the geography of our exports. At the moment Tbilvino wines are available in more than 30 countries. Last year we successfully expanded our distribution in China. We gained two new importers in Ukraine . Our wines won in state monopoly tenders in Finland and Ontario (Canada). We also exported products to Armenia and Moldova for the first time.

Q. After the Russian embargo in 2006 Tbilvino was the only company that doubled its realization. Can it be said that the embargo had a positive outcome for your company?

A. The Georgian wine export market as a whole has still not achieved the quantitative indicators that it had before the embargo. Therefore we cannot regard the embargo as a positive thing. Tbilvino is an exceptional company which not only managed to replace the Russian market entirely but also increased its revenue by almost two and a half times. If the Russian market had remained open all of this time, however, the growth rate would have been even higher.

Q. Georgian wine is more popular in post Soviet markets. Please tell us of your company’s experience - how has the popularity of Tbilvino been increasing every year on European and Asian markets?

A. Awareness of our wines is increasing on Asian as well as Eastern and West European markets. The growth rate of awareness varies, however. The tasting preferences of European wine consumers have been developing for decades. Accordingly, the trends of wine consumption are quite conservative. The situation is different on Asian markets. The culture of wine consumption in Asian markets is developing now and therefore they are more open to  novelties. This explains our success in China and Hong Kong.

Q. What are the risks that Georgian wine exporters face on the Russian market?

A. Every market is characterized by political as well as economic risks. Russia is no exception. In Russia’s case the size of the country does matter. The bigger the market is the bigger the probability of becoming dependent on it. Accordingly the risk rates are also higher.

Our aim will be to reach reasonable balance between Russian and any existing or new market in order to maintain diversified and balanced revenues.

Q. The selection of possible export markets for businesses is determined by political events within the country. Russia is a good example of that. How far should politics be involved in business do you think?

A. I will answer that half jokingly: with the exact same dose as the business’s involvement in politics.

A reasonable equilibrium should be maintained in this case.

Q. How many bottles do you plan to produce in 2013?

A. Without the Russian market we will maintain a minimum 10% increase. It is difficult to make predictions in advance though, as if the Russian market opens then demand will be extremely high.

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