2023 October-November Analysis Featured

What’s driving Georgia’s e-commerce boom?

Georgia’s e-commerce market is booming on the back of rapidly growing domestic demand, despite experi-encing some growing pains within the local market, says TBC Capital’s latest sectoral report. The market, estimated at around GEL 1 billion in the first six months of 2023, has experienced impressive levels of growth since the pandemic, surging 51% YoY in 2021 and 82% YoY in 2022.

Demand Drivers

Georgia’s nascent e-commerce sector is seeing a post-pandemic surge due to several favorable demand drivers, says TBC Capital’s latest sectoral report. On the back of a higher-than-average internet adoption rate of 88% (compared to 66% worldwide and 89% in the EU) and a growing urban population, rising wages are also playing a major role in pushing Geor-gian consumers into the e-commerce market. While average nominal monthly wages increased by 8.6% between 2011 and 2022 to GEL 1,592, growth has been particularly pronounced since the pandemic, registering 22% YoY growth in 2022 and 19% growth in the first quarter of 2023.

These factors, says TBC Research Analyst Tamta Beroshvili, have set the stage for rapid growth in the e-commerce sector. “We see a lot of positive dynamics that are encouraging the growth of online transactions,” says Beroshvili. “In addition to higher salaries and internet adoption rates, we also see an upward trend in non-cash transactions.” Card usage in Georgia was up 30% YoY in 2022, reaching a volume of GEL 59 billion, with the first six months of 2023 already showing promising 40% growth. “This shift from cash to non-cash transactions and online purchases,” she adds, “is an important part of transi-tioning traditional purchases to the e-commerce market.”

Supply Drivers

While several positive factors are contributing to greater consumer demand for online marketplaces in Georgia, the local e-commerce market remains largely in its nascent stages. Figures from 2022 show that only 13% of Georgian companies have a website, with only 18% of those featuring an integrated shopping experience. This low e-commerce adoption, with only around 3% of Georgian businesses reporting any revenue through online sales, could be due to a lack of technical expertise, says TBC Capital’s Beroshvili. “Building up a website and integrating payment systems is a technical process for which many Georgian businesses don’t have the in-house capacity, so they need to be convinced that investing in this would benefit them.”

And while some Georgian businesses are not convinced of the value proposition as of yet, local delivery service applica-tions are offering up a strong proof of concept that is hard to ignore – registering double and triple-digit growth since the pandemic. These apps, which include popular delivery courier services Glovo, Wolt, and Bolt, registered a 203% increase in revenue in the first year of the pandemic. Despite a high base effect, the apps registered an additional 88% YoY growth rate in 2021 – reaching a value of GEL 71 million – which Beroshvili says has played an important role in transforming Georgian consumer habits. “We certainly saw the use of online delivery apps explode during the pandemic,” she notes, adding: “this helped to develop consumer habits and increase trust in the use of online platforms for what was a very new market before the pandemic.”

New customer-to-customer (C2C) and business-to-customer (B2C) marketplaces are also developing at the local level, with C2C sites MyAuto, MyMarket, and MyParts registering a combined total of 4.9 million site visits in June 2023. B2C site TKT represents the number one service marketplace in Georgia, and marketplaces offering physical goods like Veli.store and Extra.ge are also working to gain market share.

Market Outlook

Despite high levels of consumer demand and a growing number of local online marketplaces, cross-border purchases continue to dominate the Georgian e-commerce market – representing 79% of transactions in 2022. TBC Capital’s Berosh-vili says that despite these figures, several factors, including customs regulations and high costs of international couriers, are providing an opportunity for local actors to capture more of the market.

The customs barriers around cross-border e-commerce represent a significant deterrent for customers,” says Beroshvili, noting that many consumers keep purchases below the equivalent of GEL 300 to avoid paying an 18% import duty. “But they also represent an opportunity for the local market to capitalize on significant existing demand,” she adds, noting that TBC Capital estimates the market should grow an additional 79% this year to reach a record value of GEL 2.35 billion, before reaching a value of GEL 4 billion next year.

“One of the biggest barriers that local e-commerce platforms need to overcome is a lack of consumer trust,” Beroshvili says. “Many customers in Georgia are just starting to get comfortable with the idea of shopping online. While the pandemic helped accelerate this trend, local actors need to focus on building the trust of consumers. By offering, for example, convenient return policies, online chat assistance, and good customer service – which many are starting to do – these local platforms have a real opportunity to capture a larger share of this growing market.”