Brewers’ woes, vintners delight
For such a small market as Georgia's, a country in the Caucasus, four brewers are actually quite a crowd. This may be one of the reasons why Castel-Sakartvelo, the smallest one, was put up for sale.
From what we have heard, the former Castel business in Georgia, which since 2006 has been owned by BIH, itself majority-owned by Citigroup Venture Capital International (92%) and Jean Paul Lanfranchi (8%), a French lawyer once associated with Mr Pierre Castel, has been sold to the Georgian businessman Temur Chkhonia, who holds both the McDonald's and Coca-Cola licences in Georgia.
Under normal circumstances, this could be interpreted as an exit by the company's private equity owner. After all, they and their ground staff have managed to significantly grow the business in recent years, at least in terms of volumes.
However, what may have hastened the sale is the fact that in April last year a new EUR 30 million (USD 39 million) brewery, Zedazeni, came on stream, whose major owners are a group of businessmen-cum-politicians associated with Georgia's controversial former president Mikheil Saakashvili. The man behind this brewery project happens to be Iago Chocheli, who sold Georgia's Natakhtari brewery to Turkey's brewer Efes in 2008.
When his contract with Efes allowed him to return to the beer business, Mr Chocheli could not think of anything better to do than to start a new brewery. But lo and behold, Zedazeni last year already managed to sell an estimated 250,000 hl of beer and 100,000 hl of soft drinks. This makes the start-up Zedazeni brewery Georgia's number two brewery behind Efes' Natakhtari brewery (perhaps 600.000 hl beer) and locally-owned Kazbegi brewery (about 150,000 hl beer).
Again according to rumour, Mr Chkhonia is prepared to buy Castel-Sakartvelo for USD 15 million, which we think is adequate for a beer and beverage business that represented less than 250,000 hl of sales volume in 2012 including soft drinks and which had been achieved largely with the help of promotions. During the summer of 2012 buyers of 2-litre beer bottles received a 0.5 litre bottle of beer free. What is more, all this volume came out of a Russian identikit brewery which by all accounts has seriously been underinvested in for years now.
No doubt, Efes will be watching these developments in the Georgian beer market with great interest, as we don't think that they have reached their self-set targets there yet.
Georgia's per capita beer consumption was 22 litres in 2012. Which isn't all that bad for a country which is predominantly a wine drinking one with per capita wine consumption ranging between 15 and 20 litres.
Wine exports, especially to Russia, contributed significantly to Georgia's economy until Russia banned imports of Georgian wines and two popular brands of mineral water in 2006, citing the poor quality of the products, in a move widely condemned in Georgia as politically motivated.
Georgian wines and mineral waters were very popular in the Soviet Union and retained much of that appeal after the Soviet Union broke up. Before the ban, Russia was the largest market for Georgian wines, accounting for nearly 90 percent of Georgia's annual 60 million litre wine production. Cut off from their major market, Georgia's vintners tried to boost exports to other countries, but despite their efforts, wine exports in 2011 - the latest available figure - only stood at 16.9 million litres with the Ukraine, Belarus and Kazakhstan topping the list of customers, it was reported.
Russian-Georgian relations entered a new ice age after President Saakashvili in August 2008 waged war on Russia, which caused Georgia to lose parts of her territory. However, relations seem to have thawed in recent months following Bidzina Ivanishvili's surprise election victory in October 2012 over the party of President Mikhail Saakashvili.
The new Georgian Prime Minister Ivanishvili, a Russian- trained economist and engineer, has promised to improve political and economic ties with Russia.
Take it as a sign of relations improving that on 6 March 2013 it was reported that Russia will allow 36 Georgian wineries and four makers of mineral water to register their products, effectively lifting a seven-year ban. The decision was made after Russian inspectors carried out the first round of sanitation checks in Georgia. According to media reports, a total of 93 Georgian companies have sought to resume shipments to Russia, and 40 more firms may be inspected as part of a second round of health checks, but it's too early to say how much increase Georgian vintners can expect in sales as in the meantime, Georgia's international competitors have not been tardy in filling Russian supermarket shelves left empty by Georgian wines after their involuntary retreat.
