TBC Capital has published a research about wine industry in Georgia. According to the research, total revenues generated by local alcoholic beverage producers increased at an 8-year CAGR of 15.4%, expected to total GEL 1.47bn in 2019 (+15.9% YoY).
“We expect the formal alcohol market to account for 91% of total turnover in 2019, while informal producers (wine and spirits) to grab 9% of total turnover, approximately the same as in 2018”, TBC Capital notes in the research.
According to the research, the growing market and sizable profit margins is attracting new producers.
Availability of finance via state-subsidized loans and grants in past years increased the sector attractiveness among potential entrants, resulting in a large number of small-size registered companies in the wine sector. The industry features 420 producers of wine (2.3x increase from 2010), 84 of spirits (2.4x), and 27 of beer (1.5x), excluding unregistered producers (mainly households).
The wine and spirits market is largely fragmented. The large companies generated 28% of the market turnover in 2018, up from 26.7% in 2017. The reason for such a low concentration level is the current agricultural land ownership structure in the country, as mostly small-scale farmers (95.4% of whom owned less than 1 ha as of 2014 census) own vineyards. In the past years, wine producers focused on purchasing grapes from locals rather than cultivating. Going forward, we expect the concentration of large companies to increase due to the growing demand for standardized, high quality products as well as for achieving the economies of scale, needed to push the costs down in the long term.
Unlike wine, beer production is highly concentrated, with large companies capturing 90.6% (+0.6pp YoY) of the total sector turnover in 2018. JSC Lomisi led the sales in 2018, representing 38.5% of the market. Georgian Beer Company JSC (GBC) was a runner up, accounting for 32.8% of the total turnover. On the expense of Lomisi and other (medium and small) companies losing their portions of the market, Global Beer Georgia LLC (GBG) and JSC Argo have increased shares in 2018, increasing to 10.5% and 8.7% respectively, from 7.6% and 6.7% in 2017. After the acquisition of the brand name and commercial assets of Kazbegi JSC by GBG in the first half of 2019, the level of market concentration increased further.
