Caspian Business Journal

An Emerging Market Re-emerges: Entrepreneurs Help Return Georgian Wine to Former Glory

The “emerging market” trend in wines shows no sign of waning, and Georgian wine is a re-emerging market as its vineyards have been prized for centuries. Today, the small Caucasian republic’s dry red and white varietals can be found across Europe and up and down the United States’ East Coast.  So, what can one expect for Georgian wines in the future? It is time for a sober assessment.

Many a visitor to Georgia comes away with not only a great appreciation for legendary Georgian hospitality, but a wonderfully unique wine culture. Georgia is considered one of the birthplaces of  wine with more than 7,000 years of wine culture history. Today, Georgia possesses dozens of local native grape varieties, including Saperavi, Rkatsiteli, Tsolikouri and others, some of which have already made to the United States.

Following a series of diplomatic spats with Russia in 2006 that included Russia embargoing Georgians wines and mineral water (two of Georgia’s chief exports), Georgian wine makers needed to find a new market for their product.  According to GeoWel Research, “Following the Georgian wine ban in March 2006, exports dropped to around 15% its pre-ban level in volume terms.”

Later, the 2008 war with Russia and the near simultaneous start to the global economic crisis combined to hinder Georgia’s wine sector growth.  GeoWel lists two specific ways this is affecting the Georgian wine industry: First, the higher end wine market has been hit hard by the global recession with significant decreases in sale volume, and therefore Georgian wine exports for 2009 are significantly lower than those in 2008. Second, it appears that high-end niche marketing seems unlikely to create the dramatic volume increases in sales that would be necessary to help small Georgian wine producers. (www.geowel.org)

Unsurprisingly, those wineries best able to cope with the current set of challenges are the larger wineries with greater access to capital.  These producers are also best able to explore lucrative alternative markets to Russia.

For larger Georgian wine producers that have the necessary capital to invest in expensive expansion into Western markets, the combined Russian wine embargo and global recession may be an additional advantage over their smaller domestic producers.  “For them the wine ban may have been something of a blessing since it has allowed them to focus on the far more profitable end of their market” which includes exports to the U.S. market.

GeoWel Research group’s conclusions are worth quoting in full:

Part of the reason why Georgian wine has been hit by the recession is almost certainly price. The average liter of wine sold before the Russian wine ban was exported at $1.95 per liter ($1.46 per bottle). The average liter sold in 2006 after the wine ban exported at $3.61 per liter ($2.70 per bottle). The overall price has dropped a little since that time, but not much, with average price for exporting ranging between $3.10-$3.40 per liter in 2007-2009 (deduced from same source as the chart above).

This is the equivalent of $2.30 to $2.50 per bottle and translates into a retail price in Europe or the US of $10 per bottle or more and puts Georgian wine as a relatively highly priced developing world wine. This probably explains why the recession has hurt Georgian exports of wine since while wine exports have gone up globally, more expensive wine sales have gone down

Department of Statistics Food Security Situation (Issue 39 p13 and issue 40 p14), via GeoWel Research

The challenges that Georgian wine producers face are in educating these new markets on not only Georgia’s history of wine-making but on Georgia itself.  A small group of Georgian entrepreneurs have the goal of positioning Georgian wines alongside other up and coming “New World” wine growers.  Together with the help of the U.S. Agency for International Development (USAID), those Georgian wine producers have also been able to update equipment, improve transportation methods and embark on the long road towards educating new generations of wine drinkers on the many varietals and tastes Georgia has on offer.

During the Soviet period, state planning forced local wine growers to abandon centuries-old traditional wine making practices. Traditional Georgian wine was for centuries fermented  in underground stills, known locally as qvevri.  This process is not only organic but results in lower sulfates (and, accordingly, less of a potential hangover). The Soviet state planners, however, wanted modern metal fermentation tanks introduced to produce wine cheaply and in quantity for mass consumption.  Gone were the days of slow crafted varietals; the time of standardized cheap swill had arrived.

Today Georgian wine makers are returning to their roots with traditional, natural wine-making using these ancient techniques, and Western entrepreneurs are finally discovering this ancient and organic fermentation process.

And, despite the immense challenges both locally and globally, however, Georgia is beginning to find success exporting to markets in the continental United States.  Georgian wine products first reached the U.S. in the late 1990’s.  The first large quantities of Georgian wine, however, began arriving in 2005.  Prior to that,  “most of the ‘Georgian’ wines present on the U.S. market had been produced elsewhere and the only thing Georgian about them were the names on the labels. They were mostly sold in ethnic stores, and didn’t really represent the best in Georgian wines. “We wanted to have the best Georgian wine to be present on U.S. market” according to Mamuka Tsereteli, President of the America – Georgia Business Council. [link to www.agbdc.org].

Along with the first serious efforts at importing Georgian wines in 2005, so too arrived a strategy of introducing quality Georgian wines to a broader U.S. public and potential market, not just the various urban ethnic communities from former Soviet countries. Another major challenge for entrepreneurs and Georgian wine makers has been in removing much of the non-authentic Georgian wine from the market.

“I can proudly say now that we have largely eradicated faked Georgian wines from Greater Washington area and only quality wines are now available in the best DC area stores and restaurants,”  says Tsereteli.  In addition, “we have strong presence on DC market, but we also have wines in NY, California, and most recently we started sales in Pennsylvannia. I think we are at the stage when the foundation is built for growth of sales in several states and we will try to use this opportunity for advancement of Georgian wines”

When asked how he came about bringing the new quality Georgian wine to the U.S. market, Tsereteli recounted:

We started our business by importing wines from the leading Georgian producer Teliani Valley. The wine maker at Teliani is Gogi Daqishvili, one of the leading Georgian wine makers. We found quality and price match the best suitable for US market. We started with the sales of 20-30 cases per month and now we are over 300 cases a month. It is only a tiny fraction that exist on US market, so we try to extend our presence. We have also gradually expanded our portfolio and in addition to Teliani, our dominant product, we also carry wines from Eniseli Wines, made by another famous Georgian wine maker David Maisuradze. Also last year, we’ve started sales of artisan Georgian wines called Pheasent’s Tears. Wines are made in so called qvevri, clay amphora, based on ancient Georgian tradition of wine making. We also have now Georgian sparkling wines from Bagrationi.

Ministry of Agriculture Breakdown of Projected Spending 2009, via GeoWel Research

The growth in popularity of New World wines in the U.S. market, especially with younger wine drinkers, has given Georgia a good chance of joining the mix.  In addition, the many unique aspects of Georgian wine-making, and the potential to expand sales of the uniquely Georgian made “qvevri” artisanal wines make Georgian wine something new and exciting for consumers in urban markets looking to expand their palates without breaking the bank.

With the global economy beginning to turn around in 2010, prospects are good for a rebounding wine industry as various developed countries consumers return to higher-end products without embracing products associated with conspicuous consupmtion.  Georgian wines are priced at that level above bargain (e.g., Trader Joe’s or Yellow Tail) but below luxury (e.g., wines from the controlled and guaranteed areas of Italy and France).  As noted above, most retail for under $10 a bottle.  Thus, they should begin to benefit from consumers seeking new and different wines that offer both value and caché.

Georgian wines, then, have the potential to be adopted by sophisticated consumers at an exponential scale.  Just as Argentina popularized the Malbec and Australia the Shiraz, Georgia can do with the Saparavi and its other varietals. The price is likely right, the groundwork laid from the hard work of Tsereteli, USAID and the Georgian winemakers. Let’s see what Georgia can do in 2010.