The FINANCIAL — As the majority of Georgian wine companies confirmed to The FINANCIAL, the profit margin of wine sold locally is much higher than when exporting it to foreign markets.
The predominant role is played by the tough competition present on foreign markets. In spite of the fact that export of wine is free of VAT, still Georgian producers have to lower their price in order to cover the costs of transportation, distribution costs and advertising which are much less costly when selling the wine locally.
A bottle of wine is Georgia costs 7 USD on average. Although the different markets have their own specifics, still as Georgian companies agree, Western Europe is much more attractive to sell wine to as the profit margin is higher there.
After Ukrainian and Polish markets, Georgian companies are also looking to China as the most attractive market where they plan to double export by the end of the year. In 2010 alone one billion litres of Georgian wine has already been sold on the market and demand is still rising.
According to the National Statistics Department, 1 million more bottles has been exported in the first quarter of this year compared to the same period of the previous year.
“Company Badagoni plans to more than double its sales this year as orders already exist from various countries overseas,” said Liza Bagrationi, PR Manager at Badagoni.
She also adds that despite the fact that the margin of profit is much higher when selling wine locally, they take an interest in larger markets like China as the amount of bottles sold locally is not that much bigger compared to exporting to bigger markets.
“We occupy the large markets of post soviet countries as well as Europe, those of Ukraine, Kazakhstan, Byelorussia, three Baltic countries, Germany, Italy, Britain, Canada, Azerbaijan and China already,” said Bagrationi.
“There is high interest on Asian markets as well. We’ve already sent the fist batch of wine to China. There have already been negotiations with Japan but recent events have infringed our export prospects at this point,” said Bagrationi.
“This season we expect bulk, a two or more times increase in the amount of wine exported as we’ve already got plenty of orders overseas,” added Bagrationi.
As Dennis Zeedyk, Agriculture Sectors Component Leader at USAID EPI project told to The FINANCIAL, there is a huge potential for Georgian wine companies to start selling wine online.
“The selling of wine over the internet is not currently that popular among Georgian companies, whilst in the US for instance there are lots of such kinds of online shops,” he said.
“We, in the EPI project funded by USAID (40 million worth), have a special programme to help Georgian wine producers export wine, the creation of a Georgian wine club as well as many other directions, including wine tourism. The more tourists that come to the country, the more wine will be sold thus they sell more locally hence their profit potential is much higher,” said Zeedyk.
“Another interesting thing about the wine sector is that when a winery is so close to the doors of Georgian producers, their profit per bottle is much higher than if they sell it after export. The reason is that Georgian producers have to lower their price in order to cover the costs of transportation, and distribution costs as the importer takes his cut, and the distributor takes his cut so any winery that sells wine locally has a much larger profit margin,” said Zeedyk.
Giorgi Margvelishvili, General Director of Tbilvino, confirmed that the profit margin is relatively higher in Georgia although as he said it depends on the market and its specifics.
“For instance in Ukraine the situation is tough in terms of competition and the market is already saturated. When talking about other markets the situation is different with higher margins of profit prevailing in Western Europe and some others too.
“It’s true that Georgian companies prefer to sell wine locally with higher profit attained although it’s because VAT (value added tax) and distribution expenses are included in making the final price locally whilst when exporting these factors are excluded,” added Margvelishvili.
“Tbilvino wine is already sold on 25 foreign markets including post soviet countries, Europe, Canada and China. The company’s wine is sold under 60 etiquettes and 4 different trade marks.”
“We’re going to double our export to China this year as in the previous year we exported 40,000 bottles,” concluded Margvelishvili.
“Promoting wine online and involving more tourists in it is crucially important,” noted Zurab Chekurashvili from USAID (Agriculture Sectors Deputy Component Leader).
“The problem is that once a tourist comes to Georgia he/she must know where to taste the wine in addition to getting around touristy areas. One solution is to put signs on the streets, something like that,” noted Chekurashvili.
“The interesting thing is that 80% of wine cellars are located in tourist-visited areas especially in the Kakheti region.”
“Soon we’ll have a forum and wine club dedicated to popularize the traditional Qvevri Wine worldwide as this tradition solely belongs to Georgians. We’ll bring very well-known experts and marketing specialists for that purpose,” said Chekurashvili.
“The wine tourism direction is strategically important for us to promote. Currently the situation is baffling for some tourists. If you ask ten different people (Georgians) about Georgia as a wine country they will tell ten different stories (legends) which need to somehow be agreed upon and translated to the tourists clearly,’’ noted Chekurashvili.
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