2022 October-November Analysis

How Georgia’s wine history helps exports

In late August, Tbilisi welcomed over 100 wine economists from around the world for the first time as it hosted the annual conference of the Association of American Wine Economists. Among their top recommendations for expanding the cradle of wine’s burgeoning export market? Sell your story.

Storytelling can be key in opening new markets, and the Georgian wine industry has “the best plot ever, a history confirmed by science.” So states a paper published under the aegis of the Association of American Wine Economists (AAWE), a New York-based organization whose members span the globe and share an interest in encouraging and communicating economic research, analysis, and ideas on the wine industry. Georgia as the “cradle of wine” has always held a fascination, and over 100 of SSWE members from 12 countries assembled in Tbilisi last month for its 14th annual conference. Many of the papers presented held useful “heads-up” messages for Georgia’s wine industry.

Karl Storchmann, executive director of the AAWE, explained the choice of Georgia for the conference: “Because Georgia is the homeland of wine. Winemaking [here] is totally different from the mainstream, as are the grape varieties. In addition, Georgia and its wine economy are in the middle of fundamental changes. This refers to higher quality production and the development of new export markets. Exports of Georgian wines to the U.S., its largest Western market, have been surging.

“All these factors make Georgia an excellent location for any wine economics conference. The academic exchange of researchers from over the world is mutually beneficial. In particular, Georgian wine-related research and universities will be tied into the global network.”

The multi-faceted purpose of the conference included helping Georgia’s wine industry increase its geographic reach, raising its profile in the U.S., and familiarizing more drinkers with Georgia’s historical wine story. The major focus, however, was on discussion of the well over 50 international papers presented in person and online on everything from wine tourism, the influences on auction prices, branding, training wine staff, sustainability, value creation and capture, quality in wine cooperatives, global warming, logistic services, and bottles (all of which can be accessed on the AAWE website). Appropriately, these discussions took place in Tbilisi State University under images of the creator of modern Georgian winemaking, Alexander Chavchavadze.

Source: TBC Capital

Market research

Among the papers important for Georgia was an analysis of what influences the satisfaction of Chinese purchasers of Georgian wine, the subject of a paper from Universite Jean Moulin Lyon and writer Jiajia Pan, who concluded that “the unique packaging of Georgian wine offers satisfaction to Chinese customers.” This refers to wines sold in pottery bottles, inferring that “the gift market is an essential target for Georgian wine in China.” He also concluded that Chinese customers, instead of being attracted by a low price, were “more likely to focus on the value for money aspect.”

Researcher Jiajia Pan concluded that Chinese consumers of Georgian wine prefer to buy pottery bottles
Most significant of all in China, however, seemed to be Georgia’s culture and the wine’s characteristics, with Jiajia’s online survey eliciting responses using technical terms such as “sweetness, tannin, and acidity, ruby.” A few years ago, she says, Chinese consumers lacked such knowledge, but it appears that customer loyalty to Georgian wine is increasing. Awareness of Georgia was high in the survey, with strongly positive responses. “Some comments show that shoppers are happy with and proud of sharing the originality and uniqueness of Georgian wine with their family and friends.” Thus, the ongoing marketing campaign in China seems to be working!

Also good news for Georgian wine were the findings from the testing of wines from 466 Georgian winemakers for sensory evaluation, which indicated an improving trend. Tastings of 5,100 bottles were carried out by the Georgian Wine Guild (GWG), whose paper described finding only 640 as having faults. “The most common microbiological faults were caused by sulfur containing compounds and oxidation,” it states. While 17% of the bottles were rated at less than 80 points out of a possible 100, with the tasting notes on them listing “lack of harmony, low acidity, grippy tannins, too astringent, flat, and absence of a primary aroma,” the GWG says the numbers with such a low score have been decreasing every year. What helps, it says, is the education coming from this kind of monitoring with its attendant publicity.

No aspect of the wine industry has been neglected by AAWE, and another paper, from a Swiss academic, examined the design of bottles, investigating whether the shape has an impact on perceptions and willingness of young wine consumers to buy. The pattern of results indicated that “respondents by and large react more favorably to traditional bottle shapes (in particular Bordeaux, Burgundian and Rhine shapes), which are evaluated as significantly more traditional but also significantly more elegant and appealing”.

The willingness to pay was also appreciably higher for traditional shapes (led by Bordeaux, Rhine, Champagne and the Miraval-shaped bottle), with mean prices ranging from 10.1 to 11.4 euros, whereas the more unconventional bottle shapes (in particular the olive-oil-like bottle and the elliptical Ott-shaped bottle) lagged behind with means of 7.6 and 7.9 euros, respectively. These results, says the writer, were unexpected, and so they anticipated a need for some rethinking of the packaging of bottles designed to attract younger wine consumers.

Given cost pressures across the industry globally, but perhaps particularly in Georgia, which is being advised to tackle Western markets with more upmarket wines, a study of interest to all producers is the paper “Does quality pay off? Superstar wines and the uncertain price premium across quality grades.” The authors, from the universities of Milan and Pisa, used data from the leading U.S. magazine Wine Spectator on 266,301 bottles from 12 countries that were sold in the United States. They investigated among these the link between the score awarded by the guide and the price charged.

Tbilisi State University hosted the conference for more than 100 wine economists from around the world.

While many wine producers “pursue quality excellence to obtain greater recognition on the market and a premium on the retail price,” they point out the significant effect of wine quality on prices is “only achieved with outstanding scores.” Hence it seems, as they suggest, reasonable to wonder whether the potential benefits in terms of price are worth the efforts and the costs required to achieve an excellent quality product. They found that “the price premium attached to higher quality is significant only for ‘superstar’ wines.” Among the broad range of still very good, but lesser quality than these top wines, “prices were not statistically different from each other.” So, “pursuing excellence is a risky strategy: the average price is significantly higher only for wines that achieve top scores, and the price premium becomes more volatile.”

Highly pertinent, too, at the moment in Georgia, is the topic of female winemakers, as several are at the forefront of Georgian wine marketing. Their appeal (or not) to drinkers was the focus of a paper presented by a team from the French business school Kedge – the subject of which was “How does information about the gender of the winemaker affect the way consumers evaluate a wine (willingness to pay).” Surveying 1,500 consumers in France and Belgium, they used three different models to analyze reactions, with some labels bearing the identity of the makers and traditional ones with no information. Generally, in this study, when a female winemaker was identified, the amount the buyer was prepared to pay was around one to two euros less, and women were found to be even less enthusiastic than male drinkers.

“The wine industry is still a male-dominated industry, and it seems that collective strategies supporting women are not appreciated by consumers,” they state. They combined information about the winemaker, including the gender of the respondent, and compared the reactions to those with a neutral label regarding the winemaker (no information). The results were that while male respondents provide a price premium to the wine made by a male winemaker (+1.5 euros), female respondents associate a price discount with the wine made by a female winemaker (-1.8 euros).

“Our result is in line with previous evidence, but (this was based on studies for women respondents only): male products, produced in a male-typed industry, are favored by male consumers; female products, produced in a male-typed industry, are disadvantaged by female consumers. Women judge gender incongruence more severely than men.”

A lesson for local producers

Storytelling in the Georgian wine market, one report quoted, is in the excellent library of papers on the AAWC site, reading of which is generously offered for free. Georgian wine producers could do well to explore it as it discusses the challenge of establishing Georgian wines’ status internationally as coming not from the “Old World” or the “New World” but from the new category of “Historical Wines.” Storytelling is integral to this.

“The Georgian efforts to open a new market niche for historical wines is an entrepreneurial action. It represents both the discovery and the exploitation of a market opportunity,” say the authors of “Tales of Georgian Wine: storytelling in the Georgian Wine Industry.” Storytelling is being employed by Georgian wine companies as “stories can communicate a large amount of information in a readily acceptable manner: easy to understand, easy to receive the message, and instrumental in creating a positive relationship between the consumer and the product.” Storytelling is both old and digital media friendly, written and oral.

Georgia’s overarching story, as described in the paper, is “8000 vintages,” referring to the archeological findings dated to the Neolithic Era. Then come stories around the central artifact, the qvevri, and Georgia’s place as the Noah’s Ark of viticulture, with 535 endemic grape varieties.

The second story centers around religion and is composed of the relationship between the Christianization of Georgia, the creation of a nation, and includes the key elements of St. Nino and the Alaverdi Monastery.

Next comes the story of the 19th century modernization of Georgia’s wine industry and the adoption of state-of-the art French technology. Following that came the Soviet period, comprising negative elements as well as industrial progress. Lastly, there is the emergence of Georgia’s commercial modern wine industry, ranging from large company exporters to small producers catering for their own guest houses.

Storytelling, says the paper, is a form of content marketing that is working domestically in tourism, for some export markets, and particularly in China. Former Soviet countries are already familiar with the history. In the unfamiliar markets of Europe and the U.S., “storytelling is especially important.” While exports to these destinations are increasing, it is “not to the volumes that the industry wants,” note the authors.

They add that “change is still in the making,” and that this marketing strategy is still relatively new. Meanwhile, the stories selected are helping package the idea of Georgian wine “by offering Georgian culture in a bottle” and their circulation is increasing – such as via this conference.