Gurieli Tea: “GEL’s Devaluation Expanded our Production”

Gurieli Tea: “GEL’s Devaluation Expanded our Production”

Gurieli Tea: “GEL’s Devaluation Expanded our Production”

The FINANCIAL -- Geoplant LLC, producer of Georgian tea under the brand name Gurieli, plans to add seven sorts of products to its assortment in 2015. The company is working on the rehabilitation of tea plantations and the implementation of a drip irrigation system. A new tea packaging plant is scheduled to be opened in July 2015. After Japan and China, Georgia will be the third country to produce the world-famous Sencha tea. According to the company, the recent devaluation of the Georgian Lari expanded their production and is maintaining their competitiveness on export markets.

Over the past seven years Geoplant has invested over USD 6 million in local production. In 2014 the company grew adequately alongside the Georgian economy. Growth amounted to 4.5%. “There were external factors, such as turbulence of the exchange rate, and under such conditions businesses react in accordance. All businesses are focused on maintaining their existing positions and reaching a stable measure of income and sales. The current strategy of the Georgian Government to support local production makes me optimistic that we will have much better results in local production and an increase in export in 2015” Mikheil Chkuaseli, CEO at Geoplant, told The FINANCIAL.

Geoplant launched the Prince Gurieli line on the market in 2014. For the first time in the history of Georgian tea we have started producing the so-called pyra-packs, loose tea packaged in pyramid tea bags to retain the best taste. In Chkuaseli’s words, production of pyramid bags is very important as it gives the company competitive advantage on the local market and most importantly, it places them in an equal position with the giant brands present in this field.

Moreover, in 2014 Gurieli launched the Gurieli Herbal Tea line and now offers mint, chamomile and alpine teas, which are uniquely blended with the best Georgian green tea. All of the plants are grown in Georgia. They are hand-picked in an ecologically clean environment, carefully processed without any additives, emulsifiers, and without chemicals or poisons.

The third point of importance, together with the development of the products in 2014, was that the company finally completed its development plan. Geoplant presented two projects, and got financing from governmental projects, one from Produce in Georgia, and the second from Preferential Agrocredit.

“Preferential Agrocredit has been issued for the rehabilitation of tea plantations that cover over 300 hectares of land. This means that yield per hectare will increase at least four times. We will have a jumping quality of tea leaf. It will contribute to export boost of loose as well as packaged tea. The second important thing is that we shall have the opportunity to conduct some experiments on the plantations. This includes implementation of a drip irrigation system. This system is unique even for such giant countries of tea production as China, India and Ceylon. It will allow us to increase productivity and efficiency five times or more. An additional ambitious plan involves import of anti-freeze methodology from Japan. There is a short period during spring which carries risk of damaging the tea leaf in the event of temperature falling below six degrees. Implementing the new method will help us prevent this risk,” said Chkuaseli.

According to Chkuaseli, last year during their visit to Japan the management reached a historic deal with its Japanese partners to implement a Sencha tea production line. “We will start working on it from the end of the current year. Sencha is a world popular tea leaf produced in Japan and China. We did not have the special technology before as its production is only possible with a specific tea leaf, and with special equipment. We do have an outstanding tea leaf. Starting the production of Sencha in Georgia is of significant importance not only of the company but for the whole country.”

“Through the state project Produce in Georgia we have been financed with USD 2 million. For the last 40 years there has been no packaging plant built in Georgia. We are constructing this plant. It will be opened in July of the current year, spread over 1,300 square meters. The plant will be equipped with the latest technologies. Georgia will get a quality and have the high standard of packaging equal to that in the European countries. We will implement standards which will never allow this industry to go backwards again,” said Chkuaseli.

Q. How did you position yourselves on your export markets during 2014?

A. Due to the current geopolitical situation we interrupted negotiations on our export markets in 2014. We entered the Russian market, however with a lower amount than projected. During the current year we plan to expand our market share in the Baltic States. We will have our special representative there. We may not have been aggressively increasing our export during 2014, but it is very significant that we have been in active negotiations and prepared the ground for further cooperation. We plan to enter the UK and U.S. markets in 2015. We are optimistic that all of our work done during 2014 will bring fruitful results this year.

Over 12% of our produce is exported, the rest is realized on the local market.

Q. The tea production industry in Georgia ended together with the collapse of the Soviet Union. What is the potential of this industry?

A. There are still many Georgian companies involved in tea production. However, they are not present in the retail sector. All these companies and individuals that maintained tea plantations and ensured they continue working, are huge patriots of our country. The average consumption of tea in Georgia is 800 tonnes. There are still many deforested plantations. If the Government pays more attention to the industry it would be very helpful for the whole economy. I am convinced that Georgia can re-assert its place in the global tea industry. It has the potential to supply not only local demand but also export it. The increasing trend of tea consumption is a good proof for that. We are witnessing an increase in black tea consumption. The demand for green tea and its consumption is even increasing fivefold. Georgia has huge potential to respond to this demand. In order to use the existing potential, we should maintain our plantations. The Government should support large companies, as they have the real potential to develop the industry on a grand scale. During its history, Gurieli has invested a huge sum in developing its brands. Gurieli Tea is an established brand. Now we have to develop the plantations, which will give us an effect of synergy. Although today Gurieli might be standing alone against all imported brands, but I promise that we will not be alone in future and certainly we won’t lose this war.

Q. International institutions have been claiming that the GEL’s devaluation has been having a positive impact on exporters, as they maintain their competitiveness on foreign markets. Meanwhile, we are witnessing a drop in export, to which your company was no exception. So, was the GEL’s devaluation helpful for your particular company?

A. The results are not instantly clear. When you have a static condition for a long time, economic behaviour is never rapid since its change. Significant devaluation of the national currency from 1.75 to 2.30 against 1 USD, pushed us to expand production. We are in a situation where production and export are more profitable than a year ago. However, there is some pressure as we have loans in a foreign currency. In general, such a rapid change in the exchange rate is never good for businesses.

Given the recent developments in the region, if the Georgian Lari would not have depreciated, it would have contributed to an extreme shortage of our resources and the whole economy. The Georgian market, which is terribly saturated with imported products, would have faced more import that would accordingly damage local production. It would cause a larger negative trade balance than we have today. So, the devaluation has been really helpful in restricting import. All of this contributes to the growth of our economy.

Q. Awareness of Georgian tea on the global market is quite low. What should be done in regard to this?

A. Unfortunately awareness of Georgian tea on the global market is low indeed. In this regard we need support from the Government. We have a good example to follow - in how the state managed to increase the popularity of Georgian wine worldwide. Georgia is recognized as the homeland of the vine, but we cannot compare it to tea. However, during Soviet times Georgia was in the list of the top five countries in terms of tea production. The knowledge, the experience and success stories of tea production have been unique. There were 16 sorts of frost-hardy tea. Georgia played a crucial role in developing the tea industry in Vietnam, Iran, Turkey and Argentina. Currently all these countries produce much more tea than Georgia. So, the Government should support Georgian tea in attending all international exhibitions. Meanwhile, better positioning on the local market is also important. Sending Georgian wine abroad to our foreign acquaintances is a common practice amongst Georgians. However, you rarely hear the same about tea. The situation is similar in restaurants. One will rarely be offered Georgian tea. The majority of Georgian restaurants are working on a 400% margin. That is why they avoid selling Georgian tea.

Q. The Georgian tea market is saturated with imported products. How do you manage to compete with them?

A. The Georgian tea market is replete with such giant players of the industry as Unilever, the advertising budget of which is equal to the total annual turnover of our company’s if not more. We also try to compete with Orimi. This is a Russian company producing tea under the brand name Greenfield. Production of this company is 160,000 tonnes. Our competitor is also Ahmad Tea, which is packaged in the UAE’s free industrial zone, which means they are free from taxes. So, considering all these aspects, we are quite well positioned on the Georgian market.

Appreciation of our brand by Georgian consumers is our best competitive advantage. Unfortunately, from the very start we have been facing huge problems with retail stores and restaurants. As for the consumers, they have always welcomed us and remain loyal and supportive towards Georgian products.