The FINANCIAL — Competition is rising among restaurants in Tbilisi as less people have money to spend on them. The leading Georgian restaurants are claiming that demand has slightly decreased but that their prices have remained the same.
The Credit Suisse Study on Retail Trade Developments in Switzerland revealed that over the last decade consumer’s response to price changes is inelastic. For example, if food prices rise by 1%, consumer demand drops by only 0.05%. When prices increase, the first response is to cut back on other budget items such as vacations or restaurant meals (price elasticity: -0.27).
Foreign expert’s price and income elasticity calculations suggest that the retail sector cannot expect any major movement for growth from developments in prices or incomes. This is because consumers are saturated, have largely fixed budget positions, and in relative terms spend less on retail goods.
In Georgia going to a restaurant is a different tradition. Even during the war in August restaurants still had clients being served. Another interesting thing is that there might be a little bit of a food comfort effect. As the locals here in Tbilisi say, “people won’t buy a car or build a new home, but they'll probably still get Khachapuri or Khinkali”.
Director of a Sami Saukune restaurant which opened in the middle of the financial crisis, Nino Mjavanadze talked with Levan Lomtadze, reporter of The FINANCIAL, about tips for attracting more customers during the crisis.
“The two main directions in developing a restaurant management strategy should be highlighted. First of all it’s about making an offer that corresponds to market prices and the quality of service. It entails building and fostering long-term relationships with the suppliers.”
“Second is directly connected with the quality of service. I think that a restaurant shouldn’t be a place where people can just eat and then leave, especially when every tetri is important. A restaurant should organize and offer different thematic events. Adding corporate discounts is also very important. Of course the interior is another significant indicator, but I think that the way you treat your staff is as important as the things mentioned above,” states Mjavanadze.
Sami Saukune (Three Centuries) opened on 25 December, 2008. The interior was decided to be designed according to three different styles and centuries (19th, 20th and 21st) of Tbilisi.
Competition is rising as more and more people decide not to go to restaurants. The restaurants that make the best offer for the best price will be the winners. The restaurant business is a war, especially during an economic downturn. It’s a bitter, hard fought war and being on the frontline is a difficult time especially if you’re losing the battle.
“Our main challenge in 2009 will be overcoming the crisis that is present in Georgia and foreign markets. It’s hard to define now how long it will take to get back the money invested. Nobody knows how long the crisis will last and how difficult the economic situation may become. We’ve been building this restaurant for 8 years. Unfortunately I can’t name the amount of money invested,” Nino Mjavanadze told The FINANCIAL
“In 2009 we may even need to put additional funds in to business development. This is the first year of our operations and it will be crucial for creating the high class image of the restaurant. So in 2009 we won’t be oriented on profit maximization,” adds Mjavanadze.
As the General Director of Mgroup, Zurab Tsintsabadze, told The FINANCIAL, “The company has not closed any of the restaurants in the last 3 months”.
“Our analyses of the market have shown that the revenues in 2009 will be nearly the same as in 2008. The thing is that due to the crisis revenues are lower for the beginning of the year, but we hope the situation will improve by the end of 2009 and that revenues will rise,” says Tsintsabadze.
Mgroup is the leading HoReCa (hotel/restaurant/cafe) management company. It manages 11 restaurants in Tbilisi and Batumi. The restaurant portfolio of Mgroup includes Meidan, Metekhis Chrdilshi, Two Side, Puris Saxli and the net of Maspindzelo restaurants. Mgroup manages two hotels in the ski resort of Bakuriani and Hotel Crown in Signagi.
In 2008 Galt & Taggart Capital acquired 50% equity interest in Mgroup.
Still rising unemployment is having an impact on the amount of money that people spend at restaurants. Since people are more cautious nowadays they’re looking more at what they need to have, not what they want to have. Popular restaurants usually overfilled with customers are today facing new challenges.
“Because of the lack of money the amount of cash that clients pay has decreased, but not dramatically. Our revenues have decreased by approximately 20%. I think that the restaurant business in Georgia is the business that was least influenced by the financial crisis. There is no tendency for significant fall of demand. The situation is under control and no reorganizations in marketing strategies have been made,” claims Zurab Tsintsabadze.
As the General Director of Mgroup explains, there have been no reconsiderations of interests and the marketing budget hasn’t been reduced.
“Our advertising budget won’t be as big as we intended it to be, but it’ll be nearly the same as last year. This year we started actively making many new offers to our corporate clients and tourist agencies. This will more or less increase the sales.”
“The pricing strategies at restaurants in Georgia are quite different from what they are abroad. I think that decreasing prices is not wise. This stimulus wouldn’t work well for restaurant goers in Georgia. Currently prices do not need any adjustments,” he adds.
“The restaurant business was much less affected by the economic crisis than the other industries such as Banking, Construction and Auto Sales. The reason is the Georgian mentality and tradition for dining. No matter how difficult a financial situation a Georgian has, he will go to a restaurant with his guests or friends,” says Nino Mjavanadze, Director of Sami Saukune.
“Now that people have less money we should be expecting that the number of visitors will decrease if the recession continues. However I think that demand for delicious food and high class service will not fall. The most important thing will be keeping the same level of standards as before,” she concludes.
As Aurika Kroiter, Deputy Director of Zegafredo in Tbilisi, says, “The impact of the economic slump on the restaurant business in Tbilisi is difficult to evaluate at this stage, as December and January are traditionally low sales months for this type of business. The impact of the crisis will become more evident in the upcoming months, in spring, when sales should usually be up from the seasonal slump down in winter.”
Zegafredo Zanetti is the leading Espresso producer in Italy and throughout the world. It is the sixth largest coffee retailer in the world with more than 70,000 clients and 50 million cups of espresso drunk each day.
It’s been a year and a half since Zegafredo opened its café-restaurant in Tbilisi. During that time it has become one of the most popular places to go to, especially for foreigners.
“The number of customers has decreased this winter time, however it is difficult to evaluate what part of that is a result of the economic slump and what part due to the seasonal downturn. Our research has shown that customer loyalty of the Segafredo brand is quite high and they consider our products to be of top quality,” Aurika Kroiter told Levan Lomtadze.
“We have widened the range of our products and have introduced lunch and breakfast menus which are somewhat in the best traditions of Italian/European cuisine, in order to attract more customers during the morning and daytime. Offering lunch and breakfast menus works well in hard times. Prices in the menu have not been changed. We are keeping up with Segafredo worldwide standards and our prices are moderate compared to the quality of products and service offered to our customers.”
For Zegafredo Friday and Saturday are usually the most active days. Sunday is usually a low activity day.
“The sales revenue will most likely remain close to what it was last year. Today Zegafredo operates one café on Chachavadze Avenue. In late 2009, with the opening of a new outlet; we hope to increase sales substantially. However the percentage rate depends on the time of opening,” Kroiter said.
The closing of the coffee house next to Zegafredo can be attributed to the pro-activeness of the Italian brand café.
Travel guides are used quite often by many people. Restaurants can offer all sorts of coupons and special offers in travel guides. The books have to be paid for and people want their money’s worth. The restaurants being listed between the covers increase the chance of getting a bunch more customers. But this is not the case for Georgian restaurants.
“In Georgia these kinds of discounts and coupons in travel guides do not work well. Partnering with tourist agencies is more profitable. Tourist agencies can be another source for attracting foreign customers. At our restaurant this has special emphasis because here foreigners can sit in three different interiors depicting 3 centuries, 19th,20th and 21st, of Tbilisi, hear different stories, eat different traditional dishes, listen to Georgian folk and other modern music,” Nino Mjavanadze mentioned.
General Director of Mgroup says that corporate discount cards are working well in Tbilisi.
Mgroup has special 10-15% discounts for its corporate clients. Golden cards are also given to loyal customers chosen by restaurant managers.
More or less it appears that Georgians and foreigners in Georgia are not betraying the tradition of going to restaurants. And so it would seem that “Gaumarjos” and “Tamada” traditions are handling the crisis.
Written By Levan Lomtadze