High Price of Water in Resource-Rich Georgia

High Price of Water in Resource-Rich Georgia

High Price of Water in Resource-Rich Georgia

Manufacturers point to different reasons for why the price of bottled water in Georgia exceeds EU prices

 

Georgia, well-known for its mineral and spring waters, is not a place where the population can freely enjoy the natural resources that the land provides, as bottled water in Georgia is more expensive than in several EU member countries. 

 

The cost of 1.5 litres of spring water is GEL 0.60 in Barcelona, while in Georgia it reaches GEL 0.80. Representatives of leading spring water companies have said that in regard to the price of water, one needs to understand the many contributing factors and costs that make up the final price.

 

“When it comes to the price of water, you need to understand that there are many factors and costs that contribute to the final price. From the material costs, governmental license, bottling costs, delivery, marketing etc., to the investments in production and logistics facilities. All these costs add to the final price of bottled water,” Robert Tudor, Brand director at Sairme Mineral Waters Ltd, told The FINANCIAL.

 

“Moreover, the price for the end consumer also depends on the pricing policy of each sales channel,” Tudor added.

 

In Tudor’s words, when we evaluate the price level we also need to take into consideration the connection with the prices of products from related categories and many other factors. Tudor states that the prices of spring water in some neighbouring countries are higher.

 

“We should also mention that the bottled water market in Georgia is highly competitive and it’s not particularly easy to compete, especially to withstand the price competition. Nevertheless, our company manages to keep on top of the market trends, both in terms of costs and price policy,” said Tudor.

 

Sairme Mineral Waters bottles the spring water Nakaduli (Sairme Springs). In the past seven months the company has doubled the production of spring water compared with the same period of last year.

 

As Tudor mentioned, the company also managed to double the spring water share of the total production volume. Therefore more than a quarter of total production and sales volume is attributed to spring water.

 

Like Tudor, Nitsa Cholokashvili, official from IDS Borjomi Georgia, also said that the final sale price includes the whole expenditure of the company.

 

“The sales price of 0.5 litres of Bakuriani is GEL 0.30. The price of 1.5 litres is GEL 0.80. This is the lowest price that can be found for bottled water in Georgia. The price includes the whole expenditure of the company. Auxiliary materials: bottle, label, cap, etc., make up the main expenditure,” said Cholokashvili.

 

IDS Borjomi incorporates five brands: mineral waters Borjomi, Likani, Mitarbi and spring waters: Bakuriani and Borjomi Springs. Out of them, only Borjomi is exported, to 40 countries. 30% of our production is exported. The remaining 70% is consumed on the local market.

 

According to Cholokashvili, the production of water in litres by IDS Borjomi Georgia has exceeded the ratio that was called the peak measure in the soviet era. In her words, the company has a 10-15% annual sales increase.

 

“Consumption of bottled water has been growing year by year. We are pioneers in this direction. The company first produced the spring water Borjomi Springs in 1998. At that time everyone was surprised to find bottled spring water on shop shelves. Sales were quite low therefore.  However, the situation is quite different today. The market of spring water is growing from year to year and we are developing at the same pace. Other players that produce spring water have also appeared on the market. The world trend is being adopted in Georgia. As for the difference, the fields of Bakuriani and Borjomi Spring are located in the Borjomi-Bakuriani region. The water is slightly mineralized and is full of beneficial elements,” said Cholokashvili.

 

According to Euromonitor International 2014 research of the Georgian bottled water market, consumer habits relating to still bottled water are changing.

 

“While previously Georgian consumers generally did not see the benefit of purchasing still bottled water when they had drinkable tap water at home, over the course of the review period, this perception has started to change. Impulse purchases of still bottled water increased, largely as a result of strong information-based campaigns by manufacturers. As a result, more consumers believe that still bottled water contains more minerals and beneficial elements than water from a tap. In addition, the increase in disposable income for a proportion of the population supports the trend of switching to still bottled water, as the average consumer no longer finds it prohibitively expensive to pay around GEL0.40-0.50 per 0.5 litre off-trade. Nevertheless, consumption of still bottled water remains relatively low in Georgia,” the report said.

 

Category leader IDS Borjomi Georgia Ltd resulted in a company share of 39% in off-trade value terms in 2013. The second position was held by Healthy Water JSC, achieved with its brands Nabeghlavi and Bakhmaro, giving the company a 36% share. Ranked third was Sairme Mineral Waters Ltd, with the Sairme brand, with a 9% share.

 

The report said that positive growth is expected to continue over the forecast period. However, an increase in the tax for water extraction might force smaller operators to close, a trend that has already led to the exit of Georgian Water Ltd’s brand Phlate although the company intends to return to the category as soon as it raises sufficient funds. As a result, a greater degree of concentration is anticipated within the bottled water category.

 

The FINANCIAL asked the representatives of Aqua Geo, operating under the brand name SNO, for a response to its questions. However, the company could not provide any answers due to the absence of its CEO.

 

“Currently, Nakaduli (Sairme Springs) is exported to 17 countries, but we have negotiations for further expansion of the distribution network in several new countries.  Russia, as one of our largest importers, makes up a significant share of our export sales. However, our spring water is also popular and has high potential in other countries,” said Tudor.

 

Currently, the share of Nakaduli (Sairme Springs) consumed in the local market is about 70% of the bottled spring water the company produces.

 

“From our estimates, we have the confidence to say that by the end of the year we will at least triple the volume of bottled spring water, compared to last year,” said Tudor.

 

Tudor said that as a production company, their margins are quite low compared to other industries. “We try to reduce the cost in multiple ways, also of course by the reduction of operational costs. But for us as a fast-developing company in a very competitive environment, this task is relatively difficult compared to our competitors,” he said.

 

“The price for one litre varies according to packaging format. Of course as on all other markets (not only on Georgian), it gets cheaper on big economy packaging formats. For example in 6 and 8 litres packages, the price at the shelf can go as low as 30 tetri per litre, but of course is higher for example for the glass bottle, which is considered as more  premium package,” said Tudor. 

Besides the increasing number of spring water producer companies, the majority of Georgians still consume tap water. Tbilisi residents are provided with their water service by the company Georgian Water and Power (GWP).

 

“It conducts multiple processing of the raw water. The company is responsible for the quality of the drinking water in the capital. It is absolutely safe for the health of the population. In order to protect public safety the company strictly controls the water quality 24/7. More than 400,000 subscribers are supplied with a product of high quality. Its quality is in line with the recommendations of the WHO and national standards,” said Tinatin Makaridze, spokesperson at Georgian Water and Power (GWP).

 

Makaridze could not compare the quality of tap water with bottled water. “It is out of our company’s competence,” she said.

 

“The price per 1 cubic meter of water or 1 tonne in Tbilisi is GEL 0.266. The price per litre is so low that it is probably not even worth mentioning,” said Makaridze.

 

The average consumption of water per subscriber is 800 litres per 24 hours. Those who have enumerators consume it more rationally and use around 350 litres per 24 hours.

 

“Spring water is created by nature in pristine alpine zones. We provide our customers with a product that has the original composition provided by the rich Georgian nature, without any added external elements in the production process, maintaining the natural optimal balance of minerals, which is essential for our organism,” said Tudor.

 

“We see that, more and more, the Georgian consumers understand these aspects and become more health conscious,” Tudor told The FINANCIAL.