The FINANCIAL - 90% of the Ground Coffee sold by Weight in Georgia is Bogus 

90% of the Ground Coffee sold by Weight in Georgia is Bogus 

90% of the Ground Coffee sold by Weight in Georgia is Bogus 

Coffee beans sold by weight is the bestselling coffee product in Georgia, making up over 60-70% of sales. Mainly this is cheap Robusta coffee beans from Indonesia. The second bestselling coffee product is ground coffee sold by weight. However, such ground mixtures contain just 30% real coffee. Chickpea, soy, nut shell and acorn are the most common products used as coffee substitutes in Georgia. The total import of ground coffee continues to rise this year. In contrast, instant is seeing a drop in demand.

 

“More than 90% of the ground coffee sold by weight is bogus coffee,” Irakli Lomtatidze, Director at Cherie, coffee supplier in Georgia, told The FINANCIAL. “Ground coffee sold by weight is of the lowest quality as it is mixed with other ingredients. However, as Georgians are quite price-conscious, this sort remains the bestselling. Real coffee consists of just 30% in such mixtures. The rest is made up by other admixtures, like chickpea, soy, nut shell and acorn.”

 

In Lomtatidze’s words, the main problem connected to the coffee business segment in Georgia is that there is a high amount of falsification going on. “There is no laboratory in Georgia that will examine what is being mixed into the real coffee. With different mixtures, the cost of such so-called ‘coffee’ is very cheap. And, due to the average citizen’s economic condition, low cost is the main determinant of sales volume, not only in the coffee segment but everywhere.”

 

Cherie was established one year ago with investments of USD 3.5 million. “The Georgian coffee market was saturated with primitive garage-type manufacturings at the time. They were not able to produce qualified products. Even the raw materials they imported were of the cheapest price, and therefore low quality. There were only three or four importers of green grain at the time. The Georgian coffee market was lacking high-priced aroma coffee. It was the ongoing situation that inspired me to establish the company,” said Lomtatidze.

 

According to the data of the National Statistics Office of Georgia, import of ground coffee to Georgia amounted to 2,711.3 tonnes, worth USD 7,348,100, during the first half of 2015. The figure was 2,191.5 tonnes, worth USD 6,146,800, during the same period of the prior year. With 1,929 tonnes (USD 4,201,200) Indonesia is the top country by coffee export to Georgia. It is followed by Vietnam with 281 tonnes (USD 618,500) during January-June 2015.

 

While the statistical data shows an increase of ground coffee import, the figures also depict a falling trend of instant coffee consumption this year. Georgia imported 1,651.2 tonnes (USD 7,983,600) of instant coffee during the first half of 2015, down from 1,778.9 tonnes (USD 9,400,500) from the previous year’s data. The top five countries by largest import share comprise: Ukraine - 393.4 tonnes; Russia - 340.7 tonnes; Singapore - 250.7 tonnes; the UAE - 183.1 tonnes; and Brazil - 122.9 tonnes.

 

“The Georgian coffee market is very complicated. Packaged coffee which is available in stores is in the lowest demand. The most popular type is ground or grain coffee sold by weight. When we first established the company we expected consumers to switch to packaged coffee. We later found that our expectations were misplaced. It was a habit that had developed over years. So, we couldn’t expect people to change so quickly. As a result, from January of the current year we started selling coffee beans as well as ground coffee by weight. Since then we have been having 10% sales growth month on month. Currently we are selling approximately 40 tonnes of coffee per month. We did not plan to start selling ground coffee by weight as there is quite a high risk of it being falsified. However, we had to meet the existing consumer demands,” said Lomtatidze.

 

The Georgian instant and ground coffee markets have always been saturated with imported brands. There were local individual players appearing on the market, which later ended their operations with bankruptcy however. Over three years ago local ground coffee package companies were mostly blaming Armenian importers who used to monopolize the market. One of those companies was Kazbegi, owned by one of the leading beer manufacturing companies in Georgia. Company Director Vaja Burduli said that since this country has no antimonopoly regulations, local production is experiencing a downfall.

 

“All the money and income goes to Armenia. Since entering the Georgian market, they have swallowed up the whole market. They have occupied almost the whole market and don’t let other companies have an equal go at it,” said Burduli in his interview with The FINANCIAL.

 

The Consumer Federation of Georgia publicly stated that Armenian-made coffee sold in Georgia was harmful to one’s health. A laboratory examination proved that 12 brands of coffee, including Armenian ones, do not meet the prescribed standards. “The main problem with Armenian coffee was that it had low humidity and caffeine content. People buy coffee because of the caffeine, so if the coffee doesn’t contain caffeine that means it is of low quality.”

 

Currently the import share of ground coffee from Armenia stands at around 150 tonnes (USD 553,400) as of the first six months of the current year’s data, provided by GeoStat. For example, in 2009, import amounted to 1,184.3 tonnes. Moreover, in 2015, Georgia was the country that actually managed to export coffee to Armenia.

 

“Coffee imported from Armenia is the cheapest priced bean of Robusta sort. Their main target is Tbilisi and the Javakheti region, where many ethnic Armenians are settled,” said Lomtatidze, Cherie.

 

Contrary to 2014, this year Georgia managed to re-export ground coffee. The only destination has been Armenia. In total 257.4 tonnes of ground coffee, worth USD 540,800, was re-exported to Armenia during January-June 2015.

 

In Lomtatidze’s words, there is no monopoly on the Georgian coffee market right now. He estimates the business environment to be quite fair and competitive. That is why he decided to enter this segment. However, while local players received a free and antimonopoly environment of doing business in the Georgian ground coffee segment, the problem that has been raised regarding Armenian coffee - that it is of low quality - still remains.

 

“All the individuals or companies that sell ground coffee combined with various mixtures are doing it legally. There is always a list of ingredients on the back of the ware typed in a small script. Soy might not be harmful to the health but it is not coffee,” said Lomtatidze.

 

In Lomtatidze’s words, the margin on ground and bean coffee is quite low. The main share of the company’s profit is made up by packaged coffee brands, consisting of highest quality expensive sorts of coffee. 

 

The company produces 4 distinctive brands at the moment: - the first and cheapest one is Cherie Natiffee. It is comprised of 75% Robusta and 25% Arabica, and average price at stores is - GEL 1.50 for 100gr bag. It is followed by Cherie Original - 60% is Robusta and 40% Arabica - it costs GEL 2.50. Then we have Cherie Classic; it is 100% Arabica. Lastly, there is Cherie Gold, also 100% Arabica relatively dark roasted product. As for ground coffee sold by weight, it is 100% Robusta.

 

Cherie is distributed all over the country. Over 60% of our sales are in Tbilisi. Out of the other regions, Samegrelo is the next bestselling for the company. “Further growth of the company is directly linked to the improvement of overall economic conditions.”

 

The company has exported two test batches to Turkmenistan and Uzbekistan. “We see much more opportunities in post-Soviet markets. One can still find their niche there. Accordingly, we decided to target them. We have patented our brand in 15 post-Soviet states,” Lomtatidze told The FINANCIAL.

 

Out of 80 countries Georgia is 27th, with 0.588 cups per capita, by coffee consumption. Georgia’s per-capita consumption of 0.588 cups a day is almost the same as Turkey, Kazakhstan and Azerbaijan combined.

 

It was recently announced that local coffee importer BB Company plans to open a coffee factory in Tbilisi, supported by their Italian partners. BB Company will develop a Georgian roasted coffee blend and supply it to the local market before venturing further afield and selling it to foreign markets.

 

BB Company took out a GEL 1.8 million loan from Bank of Georgia to establish the new coffee enterprise, which will be built within the Governmental programme Produce in Georgia. The state will cover 10 percent of the loan.

 

 
Author: Madona Gasanova

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