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Home Georgia

Different Strategies of Mineral Water Producers

The FINANCIAL by The FINANCIAL
March 30, 2009
in Georgia
Reading Time: 7 mins read
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Borjomi: Focus on existing market

 

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The FINANCIAL — Two leading mineral water producers GG&MW and Nabeghlavi are facing shrinking sales. New realities are set for both companies. GG&MW is concentrating on existing markets and uses market penetration strategy for product growth, during the current crisis. While, Nabeghlavi chose a different approach and turned to the market development.

 

Levan Lomtadze, The FINANCIAL, interviewed CEOs of two competing companies to find out what are the perspectives for Georgian mineral water exports in 2009.

 

Georgian Glass and Mineral Water Company (GG&MW) has retained license for extortion and production of Borjomi mineral water after pledging USD 8 million in an auction held by the Ministry of Economy on March 20. The auction was held on 25-year license.

 

The company has paid USD 1 million in advance and the remaining USD 7.2 million will be paid quarterly by 25th of December of this year.

 

Compared to last two years, in 2008 company’s revenues increased by 20%.  

 

“Our main strategy during the crisis will be concentration on current markets with biggest potential”, says Zaza Kikvadze, CEO of GG&MW.

 

“Market penetration strategy is very flexible in this case. Today we export to 30 countries. Of course, we can start exporting to 70 countries, but the numbers don’t indicate the success of our brands. Instead of exporting one container and claiming that we have entered a new market, we prefer to strive for more customer share in the existing markets.

 

Before entering the market, we usually carry out a detailed research of potential segments, reliable partners and only after that, we make decisions. New markets always need lots of resources. In my opinion, in times of crisis, it’s better to use these resources for expansion in the existing markets. This strategy is fitting our long-term objectives”.

 

According to Georgian and foreign experts 2009 is going to be a hard ride year for the businesses in general, with decreasing sales figures and rising unemployment.

 

“2009 is going to be a difficult year for GG&MW like it will be for many other companies. We have decreased the supply, as demand fell for products. Lower supplies mean lower revenues.

Despite all, we keep being optimistic. I do believe we’ll manage to maintain the figures we’ve had in 2008”, Kikvadze says.  

 

“By the end of 2005, before Russian market was closed we had a 50% growth. We made additional USD 10,000,000 investments in technical and infrastructural development. Then out of the blue, we lost 65% of sales in a day and had approximately USD 25,000,000 loss. So in the second half of 2006, there was actual threat of closing the company”.

 

“After ban in Russia in 2006 our company worked out new strategic plan for business development, accordingly to which, we chose 3 main priorities: 1) diversification of sales; 2) aggressive marketing campaign in existing markets; widening company portfolio.

 

“Today I can assure you, we are doing superbly in these three directions. Since 2006, GG&MW has entered 8 new markets, doubled sales in the existing markets and what’s more, in 2007 we successfully launched a new brand Likani. Today Likani holds 30% shares of the Georgian mineral water market.

 

“In addition, we made maximal optimization of the staff and concentrated on motivation. It was vital for building successful team of employees that today work in GG&MW.

 

Thanks to all of mentioned above financial figures were promising until the crisis began”.

GG&MW had the following sales figures through past 4 years:

2005 – 174,200,000 bottles
2006 – 98,500,000 bottles
2007 – 99,600,000 bottles
2008 – 107,000,000 bottles

 

Kikvadze says there were no staff reductions in GG&MW.

 

“We acknowledge the difficult financial situation company is in, but laying employees is not solution.  If things stay as they are now, we are not going to lay off any employees”.

 

Borjomi in Ukraine

 

Today GG&MW is the leading exporter of Georgian mineral waters. The financial crisis has become a problem for Georgian wine producers. Sales in Ukraine are decreasing and Ukrainian distributors ask for the 2 week postponements of payments to Georgian wine exporters. According to General Director of Tbilvino Zurab Margvelashvili in 2009 companies should expect 47% decrease of sales in Ukraine.

 

“The most painful has been the recession in Ukraine”, says Kikvadze.

 

“The devaluation of local currency influenced the number of imported Borjomi. 35%-40% percent of our total exports are in Ukraine and hence, we’ve had serious losses”. 

 

“2008 was supposed to be the year of success for GG&MW. The tendency was positive, but global financial crisis changed everything. If not for the crisis, our sales would equal the numbers, we had before Russian embargo. Our sales decreased by 40% in Ukraine. Correspondingly, the total sales in 2008 were 30% less then expected”.

 

“As for the distributors, there were no delays in payment. Thanks to our own network of distribution in the Ukraine and reliable partners, we managed to maintain stable operations. Plus, to be on the safer side, we ask for preliminary payment”.
 
“Another factor that played a key role in keeping the brand more or less stabile on all markets is being a part of a huge mineral water holding such as IDS/Borjomi. In the Ukraine we own 5 plants (Mirgorod plant, Morshin plant, Truskavets plant (Aqua-Eco), Acvinia plant (Morshinska large bottles), Golaya Pristan and Home Office Delivery (HOD) plant in South region.

 

“The holding has also intangible assets such as our brands Mirgorodska, Morshinska, Old Mirgorod, Sorochinska, Truskavetska Akva-Eco & Truskavetska Kryshtaleva.

IDS has also HOD business (Alyaska, Old Mirgorod brands) – the national market leader HOD. At the same time, we hold developed distribution channels in Ukraine, employing 2500 people in its bottling plants and a distribution company”.

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Q. How has sales changed in last 5 months for GG&MW in Ukrainian market?

 

A. In September 2008, our company felt the consequences brought by the financial crisis. Although, our partner countries in Eastern Europe and Ukraine promised to support Georgian wine and mineral waters, as soon as the crisis became more severe, sales decreased instead of increasing. From October, situation was intensifying and we’ve seen no growth since then.

 

Q. Who are the main competitors at the moment for Borjomi brands in Ukraine?

 

A. The competitors for Borjomi are local Ukrainian brands. As for French, Italian and other foreign mineral water exporters, they can’t compete with Borjomi. Currently in Ukraine 60% market share of imported mineral water market belongs to Borjomi.

 

Q. Which brand of GG&MW was a bestseller in the Ukraine in 2008 and how many bottles of this brand were sold?

 

A. Borjomi is the only brand of GG&MW that is imported by Ukraine. The most popular products are Borjomi in 0,5 and 0,33 liter glass bottles that constitute to 70% of total sales in Ukraine.

 
Nabeghlavi: Entering Iran and Byelorussia

 

The FINANCIAL — Nabeghlavi, winner of Golden Brand 2008 plans to enter Belorussia and Iran this year. “The strategy that we chose is market development”, Avtandil Svimonishvili, General Director of Nabeghlavi told The FINANCIAL .

 

Company is one of the leading exporters of Georgian mineral waters. In 2008, it had 24% growth in revenues compared to 2007 data.

 

“Mineral waters are for everyday use. Therefore there was no dramatic fall of demand”, Svimonishvili says.

 

“Undoubtedly, the crisis became problematic for Ukrainian mineral water market. If 0,5 liter bottle of Nabeghlavi used to cost  6,5 UAH (Hryvna), after currency devaluation prices rose to 8 UAH. It had major impact on weakening the purchasing ability of Ukrainians.” 

 

“In 2008, we exported about 2,000,000 bottles to the Ukraine. The numbers would be higher if not August war, which became a serious impeding factor. Poti Sea Port was blocked and railway had delays. So over a month our company endured big loss.

 

However it’s unrealistic to say that financial crisis affected all markets at the same level. For instance, our sales in Azerbaijan are the same as they were last year. The same goes for Baltic States. I can surely say that tendencies of sales in following markets are giving hope for positive growth next year”.

 

“Azerbaijan has 35% of total exports, Ukraine 28%, Baltic States 19% and the rest 18% of overall export sales are in USA, Israel, Germany, Greece, Kazakhstan, Turkmenistan, and Tajikistan. We have already sent one additional container to Moldova and demand is on rise there”.

 

Svimonishvili says this year nabeghlavi plans to enter Byelorussia and Iran. “The strategy that we chose is market development”, Svimonishvili told FINANCIAL.

 

“Iran is potentially a very attractive market. There are 70,000,000 people living in Iran and numbers are growing. Another interesting fact is that aerated mineral water is a new product in Iran.

According to the studies conducted in Arabian countries, the use of mineral lacking water has caused hair falling in many people. It was quite unnatural for countries like Iran. Nabeghlavi which is rich in mineralization would be very convenient for these people. More and more citizens are anxious about healthy lifestyle and it works well for us. In addition to this, as you might know Iranians are eating a lot of meat. Nabeghlavi is very good for digestion too. So, I think Naeghlavi is well well-matched for Iran”.

 

The documentation is prepared and from March we will start selling Nabeghlavi to Iranian distributors.

Marketing channels are quite different in Iran from what it is here and for this reason we decided to contact the companies which have years experience of working in Iran. The costs for advertising and product promotion will be divided in half.

 

Overcome the Crisis

 

“In 2005, we produced 18,000,000 bottles from which 4,000,000 were for exports, 2,500,000 were sold in Russia. After losing this share, we entered new markets and today more or less, our sales are back to what they were before the embargo”.

 

Svimonishvili thinks that for at least two years Russian market will be closed for Georgian mineral waters.

 

“I hope that through this period political situation will stabilize and exports will recover. We still have contacts with our partners in Russia who are waiting for improvements. But, the thing is that even if today Russian side allowed Georgian mineral waters, we wouldn’t start exporting. Trust is gone and nobody wants to lose money again, especially in this crisis”.

 

“This year we intend to have positive dynamics in sales. At least it shouldn’t be less then it was in 2008. In 2008, we had a 10%-15% increase in comparison with 2007”.

 

“Over the last two years we had fantastic sales figures. We managed to increase production by 65% due to Nabeghlavi’s commitment to the quality maintenance”. 

 

Investments

 

Company paid GEL 3,000,000 to extend the license terms for Nabeghlavi.

 

“In 2008, we added two more production lines, which were purchased in Germany. The lines cost EUR 5, 000, 000, but we also paid EUR 500,000 for additional equipment”.

 

We also supported Marneuli Food Factory Ltd (MFF) and Marneuli Agro Ltd, which are newly established companies located in Marneuli. MFF produces processed fruit and vegetables cultivated by Marneuli Agro. The overall investments in Marneuli equaled GEL 5,500,000. 
 

‘As we are going to capture new markets in the nearest future we added 6 more people in Marketing Department. Plus additional efforts are needed in product promotion and maybe we’ll add even more employees. There were no employee lay offs in Nabeghlavi”, Svimonishvili said.

 

Written By Levan Lomtadze

 

 

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