2023 June-July Analysis

FMCG market growth in 2022 “unprecedented,” fueled by surging domestic demand

Georgia’s fast-moving consumer goods (FMCG) market outperformed all expectations with 37% YoY growth in 2022, reaching a record value of 19.1 billion GEL. TBC Capital’s latest sectoral report looks at what’s driving that growth and why analysts expect it to stabilize in the coming years.

Key growth drivers

Unprecedented growth in Georgia’s FMCG sector in 2022 was due to a convergence of factors, says TBC Capital’s latest sectoral report released in May. While high inflation played a role, coming in at an annual rate of 11.9%, Senior Research Associate Andro Tvaliashvili says that domestic demand fueled by a substantial increase in nominal wages and a surge of migrants were the primary drivers.

“If we look at inflation-adjusted growth of Georgia’s FMCG market in 2022, it comes to 20.2%. This tells us that last year’s growth was not fueled by inflation alone,” he says, noting that this growth rate is exceptional compared to previous years. “If you look at pre-pandemic levels, for instance, inflation-adjusted growth was only at 5.5% in 2018 and was actually negative in 2019.”

Organized vs unorganized market

Much akin to its analysis from last year, TBC’s latest FMCG sectoral report sees the organized FMCG market continu-ing its trend of strong growth in Tbilisi, coming in at around 60% of the city’s total market. “When looking at Tbilisi alone in relation to other developed countries, the saturation level is significantly high and comparable to markets in countries like Austria, Spain, and Poland,” says Tvaliashvili.

The organized market, however, continues to lag in terms of development in Georgia’s regions, with a penetration level of only 16%. This, says TBC Capital’s Tvaliashvili, is largely due to purchasing power constraints and a lack of adequate retail space. “Purchasing power is certainly a significant hindrance for the organized market in these areas, but there is also a lack of adequate retail space for many of these players. Despite these limitations,” he adds, “we see this regional market, which currently accounts for 66% of Georgia’s total FMCG market, as untapped with significant opportunity for investment and growth in the coming years.”

In terms of revenue, FMCG players in the Georgian market continued to register lower average profits than their regional counterparts in 2022, a trend that TBC Capital analysts say is due to fierce competition within Georgia’s market and high dependency on imports. “When you look at the regional players Georgia is compared to, actors like Russia and Turkey have much larger markets and produce a significant portion of their FMCG products domestical-ly,” explains Tvaliashvili. “Because Georgia imports so many FMCG products, the added import and logistics related costs constrain the profit margins for Georgian retailers.”

Consumer trends

As the effects of the pandemic have faded and covid-related curfew restrictions have become a thing of the past, consumers in Georgia continue to exhibit a greater proclivity for late-night shopping, with 44% of FMCG transactions taking place between 19:00 and 8:00 in 2022 (up from 36% in 2020). This is expected to fuel the continued growth of organized retailers offering 24/7 shopping options for consumers.

“We also see that the average share of total expenditures spent on FMCG products is continuing to increase, coming in 46.5% in 2022 (up from 45.3% in 2021),” notes Tvaliashvili. “While general macroeconomic tendencies would suggest that a country’s growing development be associated with a decreased share of expenditures going towards FMCG products, we see the opposite in Georgia. This could be indicative of uneven distribution of the economic development as well as consumer preferences shifting towards more expensive and higher quality FMCG products as their income increases,” he explains.

Data analyzed by TBC Capital also shows younger generations continue to gain share of the consumer market, with the segment of expenditures by people aged 19-29 making up 21.1% of expenditures in 2022 (up from 15.7% in 2020), which Tvaliashvili says could be due to increased employment levels of younger people and new employment oppor-tunities for students. This trend, he notes, should also positively impact Georgia’s fledgling e-commerce market. “In 2022, e-commerce represented 1.9% of FMCG revenue. Compared to other European markets, this is on the lower end, but we see a lot of positive indicators, like the age dynamics, that indicate e-commerce is on track to continue expanding in the coming years.”