Getting to Know the "Other Georgia" on Your Mind

January 23, 2017

Eastern European country is enjoying a tourist boom and is rising in the ranks as a business-friendly location for franchising.

By Giorgi Tsikolia

We invite you to find out more about Georgia, not the one you thought you knew, but a country sandwiched between the Black and Caspian Seas, surrounded by the Caucasus mountains and located at the crossroads of Europe and Asia.

This very much European country is currently witnessing a tourism boom and features an open and liberal economy. Georgia has received high ratings from international institutions, including its recent 16th place ranking in the World Bank’s Doing Business 2017 edition. Georgia is not only a leader in the region in terms of ease of doing business, but it is also ranked among the top 10 countries globally for implementing business regulation reforms.

When it comes to economic freedom, The Heritage Foundation ranks Georgia 23rd in the world and 12th in the European region. According to Transparency International’s Corruption Perception Index, Georgia’s ranking improved and it is now 48th in the world, which makes it one of the least corrupt countries in the Eastern European region, including European Union states.

For many people, it may be surprising to learn that despite its size (69,700 square km), Georgia offers tourists a large variety of landscapes and activities and is a four-season destination. Between 2005 and 2015 the number of international visitors to Georgia increased by more than 10 times. In the first nine months of 2016, Georgia will have hosted over 6 million international visitors, making this the fifth year that we will host more visitors than the population of the country (3.7 million).

Investors searching for opportunities

Of course, tourists need somewhere to stay, eat and go out. Investors are now looking for investment and franchising opportunities.

In 1995, McDonald’s was courageous enough to enter the Georgian market at a time when no one fully understood franchising and the benefits it could bring. Today, Georgia has a completely different outlook when it comes to franchising.

The fast food sector, the hotel industry, retail and restaurants are benefiting from franchising agreements and offering world-class services. Thanks to intensive government reforms, Georgia is now a business friendly country, offering one of the best investment climates and attracting an increasing number of investors.

In fact, out of the world’s 10 largest franchises, five are present in Georgia. One major factor in Georgia’s success in attracting new brands is the readiness of Georgian companies to cooperate with them, as well as their diligence and willingness to share brand philosophy. In addition, the Georgian legal framework is adapted to franchising and includes an exact definition of franchising, therefore creating a favorable environment for brands.

Nowadays the most penetrated sector for franchising is the fast food industry. In Georgia, you will find Wendy’s, Dunkin’ Donuts, Subway, Burger King, KFC, Texas Chicken, Domino’s Pizza, ELVIS American Diner and McDonald’s.

The hotel industry is also saturated with 19 franchises, including big names such as InterContinental Hotels Group, Carlson Rezidor Hotel Group, MILLENNIUM Hotels and Resorts, Radisson BLU Hotels & Resorts, and Starwood Hotels and Resorts. Recently, Rixos Hotels, Crowne Plaza Hotels & Resorts, Accor Hotels and Best Western joined the other major hotel chains and positioned themselves in Georgia. Not all of these hotels are located in the capital of Georgia, Tbilisi, which means tourists and investors can find nice lodging in almost every big city or resort. The most recent entrance was made by The Biltmore Hotel, which will be the first luxury hotel in Georgia.

As for cafes and restaurants, the latest franchise agreement was signed with Hard Rock Café. Hard Rock Café is selective when it comes to its franchise locations, and this decision affirms Georgia’s attractiveness as a market for expansion. This food and restaurant sector also features names such as The Coffee Bean & Tea Leaf, Buddha-bar, Ci gusta!, moka&more, Morelli’s GELATO and Paul.

The retail sector includes Carrefour, which has been in Georgia since 2012 and operates five properties (two hypermarkets and three supermarkets) in Tbilisi, as well as SPAR, which has been in the country since 2014 and operates 22 properties in Tbilisi, Kutaisi and Rustavi.

Companies should keep in mind that entering the Georgian market also opens up the potential to expand to Armenia and Azerbaijan. Many franchises have taken this step after establishing themselves in the
Georgian market.

Government, private investors offer financial support

The government is extremely supportive of businesses and has implemented a special incentive program called “Produce in Georgia,” which helps hotel developers introduce new brands to Georgia. If a company decides to start a hotel business and constructs a hotel using certain criteria set by the program, the government applies a special bank loan interest rate co-financing mechanism and also pays the royalties to the franchising companies for the first two years after entry.

To further enhance the business environment in Georgia, there is a special government fund, called the Partnership Fund, which co-finances interesting projects. Its current portfolio comprises a Rixos five-star resort hotel in Borjomi and Hotel Gino Wellness Spa, with partners from Slovakia. Upcoming projects include The Hyatt Regency hotel in Tbilisi, the Best Western hotel in Kutaisi and the Radisson hotel in Tsinandali.

Another interesting financial tool is the private fund. The Co-Investment Fund projects include:

Axis Towers;
$83 million five-star Pullman Hotel currently under construction;
The construction of a $100 million seven-star Marriott’s Autograph Collection hotel in the heart of Tbilisi, which will begin soon;
$200 million seven-star Marriot’s Autograph Collection hotel on top of the capital’s botanical garden, connected with the city center by a cable car ropeway;
$80 million seven-star Marriott’s Autograph Collection hotel on the black sea coast of Georgia and;
An additional five upcoming hotel projects with a total of $300 million in investments are currently without international brand operators.

To further promote franchising activities in Georgia in 2016, Enterprise Georgia in cooperation with the Commercial Law Development Program of the U.S. Department of Commerce organized a workshop to raise awareness about the franchising and investment opportunities among Georgian companies.

As a follow-up to the workshop in Tbilisi, CLDP supported the participation of several Georgia companies in New York’s International Franchise Expo. In the framework of this expo, one of the Georgian hospitality companies signed an MOU with a U.S. company to establish a joint-venture hotel management company that will operate in the Georgian market. The first new hotel under the management of this joint-venture was opened in the capital of Georgia several months after the agreement was signed.

2017 will mark the first year when Georgia hosts the largest International Franchising Exhibition in the region, the “BUYBRAND Transcaucasia,” which will feature more than 100 new brands and exhibitors from Georgia, Azerbaijan and Armenia as well as large international brands that are interested in exploring the opportunities of the Caucasus Region.

We welcome you to take part in this first of its kind, unique opportunity.

Giorgi Tsikolia is Envoy Extraordinary and Plenipotentiary of Georgia to the United States. He was appointed as an envoy in August 2015, and was previously CEO at the Georgian Entrepreneurship Development Agency (Enterprise Georgia).