The FINANCIAL -- Gori Feeding Cannery Kula plans to increase production by over 30% in 2015. The company is working on entering the Chinese and Spanish markets. Canned meat and fish, as well as sugar-free compotes will soon be offered to consumers. By maintaining stable prices Kula has managed to increase sales domestically. However, since the DCFTA with the EU came into force, the growing volume of import is placing the company in a harder, more competitive environment.
Gori Feeding Cannery Kula was established in 2009. The company included two brands. The first - Kula - produced ecologically clean fruit and vegetable juice. The other - Kula baby - produced natural juices for children. Six years on, the Georgian brand Kula is already established in 23 countries. In 2014, Kula started the production of sugar-free jams and preserves. These products are made from fruits. The company uses apple syrup instead of sugar. This is the know-how of Kula that has been introduced not only to Georgia, but other countries too.
In 2014 Kula entered new export markets, including France and the UAE. The company increased its export share to EU countries, as well as to Israel. Production increased by 27% in comparison with 2013.
“In 2014, we launched a new product, which has no analogue in Georgia and can very rarely be found on foreign markets. Kula started the production of sugar-free jams and preserves. These products are made from fruits. We use apple syrup instead of sugar. This is our company’s know-how. Sugar-free compotes will be offered to our customers this year. From the end of 2014 Kula launched juices in economic packages of 3, 5 and 10 litres, in so-called Bag in Box packaging. Such packaging is convenient in terms of price, and is also environmentally friendly. Therefore it has been welcomed by Georgian consumers,” Ivane Goglidze, Director General at Kula, told The FINANCIAL.
In Goglidze’s words, sales of their products on the domestic market have increased by 30-35% in 2014, in comparison with 2013. “Several reasons contributed to it. Of course, we have our loyal customers that appreciate our products and welcome each new product launched by our company. However, since the GEL’s devaluation all the companies started increasing the prices of their products. Kula, as a local producer, which had purchased a sufficient amount of raw materials from the beginning of the year, managed to maintain stable prices.”
In 2015 Kula plans to launch new products, such as canned meat and fish, and various kinds of sugar-free compotes. Production is planned to increase by 25-35%. “We are actively working on entering the new markets China and Spain. The share of our export will be expanded to the U.S. and Canadian markets. Before the end of 2015, we will be offering many innovations to our customers,” Goglidze said.
Q. When the AA and DCFTA were signed with the EU you were sceptical that these agreements would bring significant changes to your company. Has your attitude changed, a year on?
A. Our products have been exported to EU countries: Lithuania, Latvia, Estonia, the Czech Republic, Germany and France. Reaching a DCFTA agreement with the EU has not brought any relief to our company. Even before reaching this deal, our products were free from taxation. However, awareness of Georgian products has increased on EU markets. Meanwhile, EU products also enter the Georgian market without taxation which means that we now have to compete with them.
The products of Kula are exported to 23 countries. The export share exceeded 50% of total realization in 2014. Last year we entered France where our products have been greatly appreciated. Currently one can find Kula products in the big supermarkets in France. In addition, we entered Cuba last year. We are currently negotiating with China and several African countries.
Q. The main part of your export basket was made up by the Russian market in 2014. How has the Russia-Ukraine crisis impacted your company?
A. Kula was founded during a time when the Russian market was totally closed to Georgian products. Accordingly, the Russian market was never our target. We have always been focused on market diversification; 23 export markets is the result of that policy. Lifting the Russian embargo has opened an additional market for our products. Our realization increased in the beginning of 2014. As for the post-crisis period, it affected all businesses and our company was no exception. Our sales on this market decreased. However, as we were working with 100% advance payment, the loss of Kula was not like that experienced by others.
Q. Post-Soviet states still remain the main focus for Georgian exporters. Meanwhile, these markets are very unstable. Why are Georgian companies not managing to switch to European markets?
A. The level of awareness of Georgian goods is really high in post-Soviet states; consumers like them and they do not require any promotion. However, these markets are unstable and we are always wary when cooperating with them, as Russia’s actions are always unpredictable. The Eurasian Union was established recently. The Union incorporates Russia, Belarus, Kazakhstan, Armenia and Kirghizstan. Several other countries also plan to join it. A Russian embargo could be imposed again, which would mean that sales on these markets would be suspended. Accordingly, we have always paid great attention to market diversification and approaching new markets in Europe, Asia and America.
Q. The majority of Georgian businessmen still prefer to invest in the development of food chains via franchise deals. Why do they avoid establishing their own brand and the development of production?
A. Any businessman should decide themselves in which way to develop their activities and gain a profit. Franchising has its advantages, as the brand is already popular, it does not require huge promotion and the technologies are already developed. Accordingly, their implementation and delivery to customers does not require much time. As for our company, we want to create a Georgian brand, of Georgian production, and introduce it to foreign markets.
Q. Against the background of the GEL’s devaluation, consumption of local production has improved. Has the demand for your products increased since then, and has it become easier to compete with imported goods?
A. The GEL’s devaluation really increased our sales. However, the growth was not only due to this factor. Since its establishment our company has been growing from year to year, on average by 20-25%. As we did not increase prices, we maintained the sales volume, although we did face several problems. The main problem was that imported products from Russia and Ukraine, where devaluation reached over 100-300%, have been distributed at a very low cost. Importers were purchasing products in the Ruble or Hryvnia at a two-three times lower cost. Accordingly, price enlargement, due to the increased value of the USD against the GEL, was not significant. Accounting for all of these conditions, we managed the company in a way to bring the least damage to Georgian customers. Our main profit is gained from export, which has been balancing out the sales on the Georgian market.
Q. What are the main challenges for the country and what is your suggestion for how to overcome them?
A. The Georgian economy, along with others, is facing a big challenge at the moment. The income of the population is in GEL, while loans and utility expenditure are linked to USD. With the increase of the USD, our expenditures are also growing. We pay our banking loan responsibilities in foreign currencies and the cost of natural gas has also increased by 8%. The amount of imported goods free of taxation is increasing and local producers are finding it hard to compete. Promoting Georgian production, support and encouragement to explore new export markets from the Government would be good.
Q. Kula has opened its branded store in Tbilisi, on Shartava Street. Are you planning to expand your business activities in retail store development?
A. The company has its branded stores in Tbilisi and Gori. At this stage we do not plan to expand this direction. In this case we will have to offer other products as well and develop a supermarket chain, which is a separate business line. According to our management’s decision, for now we will remain a production company, which only realizes its own production.