A Toast to Future of Borjomi

Competitive & Corporate Strategy

Tamar Zhuzhunadze
October 2022

(2831 words excluding graphs, annexes, footnotes, references and tables)

1
Contents
Abstract ...................................................................................................................................................... 3
Company Profile & History.......................................................................................................................... 3
Strategic challenge ...................................................................................................................................... 3
Current Corporate & Competitive Strategy ................................................................................................ 4
Trends in Spa & Wellness Resort Management .......................................................................................... 6
Should Borjomi diversify in resort management? ....................................................................................... 8
Strategic advice of Borjomi resort concept ................................................................................................. 9
Proposed Business model for diversification Strategy .............................................................................. 17
Conclusion ................................................................................................................................................ 19
References ................................................................................................................................................ 35

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Abstract

Borjomi is a premium carbonated mineral water of volcanic origins - unique with its features with over 2000
years of history of being used as a drinking water. It is a juvenile water pushed up from 5-6 miles depth by
carbon dioxide pressure to the surface. It is extracted in Borjomi Valley in pristine condition – not being
cooled down before reaching the surface - getting enriched on its way to the surface with 60 minerals
found in the rock layers of Caucasus Mountains.

Borjomi has curative traits for gastrointestinal diseases, liver disorders, biliary tract disorders, slow
metabolism, kidney diseases, upset stomach and alcohol side effects.

In this paper, I will analyze the competitive and corporate strategy of IDS Borjomi – the only company
licensed to manufacture and bottle Borjomi (Borjomi)1. I will focus on its current strategic challenge and
how Borjomi can address it via further diversification paths into the Spa & Wellness resort management
and how such strategic renewal model can build a future of the brand.

Having worked for Borjomi, I will come to grips with my personal knowledge and I will try to demonstrate
an unbiased picture of the facts and interpretations thereof.

Company Profile & History

80% of 500 million bottles annually manufactured in Borjomi valley is exported in 30 countries, making
Borjomi biggest exporter of Georgia with largest market shares in carbonated mineral water sector in Russia
(80%) - and Ukraine (85 %) - two major markets for Borjomi.

Brojomi’s current revenue is 140 million USD (Q3 2021), whereas net profit in 2021 was 15 million USD (Q3
2021).2 In Georgia Borjomi holds 2 carbonated mineral water brands: Borjomi and Likani (with lower
mineralization).

In 1890 the first bottle was manufactured reaching 450-million-liter production at Soviet peak (Exhibit I).
After the collapse of Soviet Union, Borjomi was fully owned by Georgian government and because of wars
in Georgia, factory equipment deteriorated resulting in production reduction and entrance of 15
counterfeit Borjomi brands to the market. In 1995 Borjomi moved to private hands and the company made
significant investments to defeat counterfeiters and restore its business.

Strategic challenge
Despite number of historical moments triggered Borjomi to change the strategy or start anew, I would like
to address the current strategic challenge to expand and differentiate beyond post-soviet area to compete
with the brands of similar quality scale: San Pellegrino, Vichy, Evian, and Perrier.

1 This paper will use the term Borjomi for both, the mineral water and the company producing the Borjomi water depending in
the context.
2 IDS Borjomi annual report 2021

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Competing on European market directly on high scale at the cost of reducing export in Russia and other
post-soviet countries is not commercially feasible. Due to scarce resource (940 cubic meter per day) the
export choice should be made for the market with guaranteed full sales, due to highest market share,
history, and reputation. Therefore, I believe, Borjomi should restate Borjomi resort that once during peak
of Soviet time was a leading curative and healing resort due to its unique water. Currently all tourists who
visit the resort are those who at least once tried this beverage. Further, currently the hotels that operate
in the resort capitalize and monetize exactly on the Borjomi water brand equity which is created by IDS
Borjomi. So, why the others should benefit from it and not the Borjomi company itself?

The question I will try to answer in this assay is: “Considering the limited resources, how Borjomi via
diversifying in resort management can gain competitive advantage on global market and differentiate as a
global brand?”

Due to the similarity of natural, historical, and cultural resources and context with Vichy (French carbonated
mineral water trading company, managing top Spa and Wellness Resort), the paper will examine Vichy case
in detail for benchmarking purposes.

To address the question, I will first demonstrate current corporate and competitive strategy of Borjomi.
Further I will look into current state of Borjomi resort, as well as, provide an overview of Georgian tourism
trends with the emphasis on Spa & Wellness hospitality. Further, I will provide analysis of current global
trends in Spa & Wellness industry.

Current Corporate & Competitive Strategy

The focus of Borjomi current strategy is on export sales (90% of exported Borjomi is exported to Post Soviet
countries). Being manufactured in Georgia, Borjomi has its branches in Russia, Ukraine, Baltic countries and
Azebarijan covering the whole post-soviet territory. Georgian market is very small consisting of 3 million
people with 17 USD Billion GDP. From commercial perspective, market of Georgia is not attractive for
Borjomi. If not a historical duty towards its motherland and liability to keep traditional iconic brand on
Georgian market shelves, the Company would choose a strategy of exporting 100% of the production.
However currently strategy is focused, not on 100% export as desired, rather on 80% export and 20% local
sales. Current revenue overview exposes that 90% revenue comes from the export sales and 10% from
sales in Georgia – which justifies the current strategy focused on export. Despite distributing 20% of the
products on Georgian market, the company’s revenue from Georgia is solely 10% (Graph A). It should be
noted that in 2021 increase in the revenue from Post- Soviet countries was 23%, whereas decrease in
revenue from non-Soviet countries reached 14% (IDS Borjomi Annual report 2021).

Graph A
Borjomi Sales Borjomi Revenue
Export (Russia, Ukraine and 80% 90%
other post -soviet countries) (40% Russia, 30% Ukraine, 10% -
rest)
Georgia 20% 10%
(IDS Borjomi Annual Report 2021)

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Graph B

Important financial figures (2021)

Revenue – USD 140 0000
cost of production materials – USD 38.4 million
bottling expanses – USD 7.2 million
Depreciation of fixed assets – USD 3.8 million
Natural resource cost – USD 2.6 million
Repair and maintenance expenses – USD 0.9 million
utility costs – USD 0.7 million
Amortization of intangible assets – USD 0.6 million
Employee compensation expense – USD 0.4 million
Other – USD 2.87 million.
Total bottling expanses – USD 63.3 million.

Distribution costs:

transportation costs – USD 4 million

advertising and marketing services – USD 2 million
Total distribution cost – USD 6 million.

general and administrative expenses – USD 6.1 million

Financial cost – USD 31.3 million.

(IDS Borjomi Annual Report 2021)

It is solely historical liability that motivates Borjomi to lavishly put efforts in entrenching its position on the
Georgian market via creating barriers for competitors. Biggest competitor Nabeghlavi3 water is a
carbonated mineral water, of lower, yet of an acceptable quality at 40% lower price, which gives Nabeghlavi
a competitive advantage. To create barriers for Nabeghlavi, Borjomi created a diversified brand – Likani-
which is a lower quality mineral water brand extracted from Borjomi nearby area. By choosing cost
leadership strategy for Likani4, (placing Likani in the same price range as Nabeghlavi) the company
leapfrogged the market which keeps Nabeghlavi’s market share at constant rate (35%), whereas Likani
holds 30% market share.

3
Nabeghlavi is also a carbonated mineralized water, slightly lower quality than Borjomi, which entered the Georgian market in
90’s, the time when Borjomi was fighting with counterfeiters producing falsified Borjomi.
4
Likani is another carbonated mineral water, which is also extracted in Borjomi area. The water is lower in mineralization than
Borjomi. Likani is also manufactured by Borjomi company in the same factory as Borjomi.

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Graph C
Mineral (Carbonated) Water market overview in Georgia
Produced by Borjomi Company Produced by Nabeghlavi
Borjomi Likani Nabeghlavi
25 % market share 30% 35%

High price (40% more), High Likani and Nabeghlavi: Same price range, similar quality
quality
(IDS Borjomi Annual Report 2021)

If Borjomi is placed in pricing range of Nabeghlavi, Nabeghlavi would be disrupted making Borjomi a market
winner. However, due to high export revenues, Borjomi does not envision to change its current strategy in
Georgia.

Yet, Borjomi has an ambition to expand beyond post-soviet area and differentiate itself as a global brand.
The need for expansion becomes even more vital after war between Russia and Ukraine– both the biggest
target markets for Borjomi: First, Ukraine market became unprofitable resulting in closure of Borjomi
branch in Ukraine. Second, all Borjomi owners are sanctioned having close ties with Kremlin. Third, Russian
economy is at stake with unclear forecasts and relying on such market, places Borjomi’s future at stake in
long term. Lastly, being a luxurious Brand Borjomi deserves global recognition as post- soviet and Russian
acclaim is no longer an ostentatious regalia for premium brand such as Borjomi.

To demonstrate how diversifying in Georgian resort management will serve as a primary strategic tool to
differentiate Borjomi as a global brand, first I provide overview of Borjomi resort (past and today) (A NNEX I

Currently tourism and hospitality scene in Borjomi is inadequate to what it can be given the rich cultural
and natural resources that abound in this town. The main driver of this barrenness is not the lack of interest
but rather a complete lack of infrastructure. There is a large market gap to be filled. As infrastructure takes
off and hospitality market begins to resurface, so will demand.
In addition, I include highlights of current tourism industry in Georgia (A NNEX II

Trends in Spa & Wellness Resort Management

Global cultural, technological, social, and economic transformations effected the needs of resort industry.

Tourism became focused on leisure and services for health care (spa and wellness), with special emphasis
on physical activity in open air. Young tourists require mental rest and relaxation services to improve
appearance, mood, and health, combining medical treatment and leisure. People are no longer able to

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spend 2-3 weeks in sanatorium as it was 50 years ago in Borjomi resort. Rather weekend gateways and 4-
5 days stays are more common, demanding for active rest with health care, using beauty products and
treatment via natural materials: mineral waters, muds etc. Leisure time becomes part of quality lifestyle
focused on physical fitness, sport, mental health, and recreation.

Graph D
Spa and wellness market highlights

Global market value: USD 12,438 million with estimate to reach USD 29,542.33 million by 2030.
Market growth rate: 9%5
Industry trends:
• Curative and wellness resorts are places devoted to overall well-being through a variety of
professional services that encourage the renewal of mind, body and spirit.
• The popularity of health and hedonic wellness is gradually expanding around the world and make a
profoundly promising field of business.
• Although in most post-Soviet destination hotels are with wellness labels, generally the scope of their
supply and quality is remarkably lower compared to the European standards and only a few would
fit.
• Research shows that western European countries take top positions in providing quality spa and
wellness services, compared to central European locations (Kunc, 2011)
• Health and wellness are all-season activities for guests with bookings made all over the year. This
remarkably makes the health spa and wellness industry available any time of year.
• Over time health spa and wellness from being luxury are becoming a necessity to a healthy lifestyle.
People put increasing emphasis on the quality of services in relation to price and service providers
need to respond to new circumstances (Hall, 2013)
• Service providers should know characteristics of their locality and source of demand. If more elderly
guests, improve and diversify healing procedures; if more youth visitors, make aquaparks and
modern spa infrastructure, and serve as an amusement centre for the general public.
• Service providers should carefully evaluate which services they are focusing on, what type of
clientele they are working for, so that they design appropriate services responding to customer
needs and setting themselves apart from their competitors.
• European market is associated with demographic ageing – low natality, decreasing mortality and
increasing life expectancy resulting into less young people and more elderly (65+ years) (Puczko,
2010)
• On curative wellness trips the average length of stay is in general longer, taking into consideration a
fixed schedule of treatment procedures and regimes.
Also resorts providing curative spa services, also benefit from increased capacity utilization of their
accommodation, as more guests would need to stay for few days at least.
• In curative wellness the tourism expenditure and the receipts are 30–35% higher than in other areas
of tourism.
• However, insisting on a strictly medical character of spa services can be very expensive as medical
spas need to meet several standards defined by law.
• Also, nowadays the average length of wellness trips is shortening, as guests often prefer a visit of a
more recreational character, complimented with some curative treatments at the spa. More hedonic

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https://www.giiresearch.com/report/grvi1044720-medical-spa-market-size-share-trends-analysis.html

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 wellness-oriented destinations add excursion and sport activities to their facilities, enrich them with
history, culture and culinary experiences. This way they can have highly diversified clientele, as they
can attract more young people and children too.
• For popularizing a place good marketing, communications and a special partnership with all the
relevant bodies are needed: tour agencies, service providers, local government, etc.

For detailed overview please see A NNEX IV

There are number of examples in which the companies manufacturing, and trading carbonated mineral
water like Borjomi diversified in spa and resort management. Major examples are in France: Vichy, Aix-en-
Provence and Contrexeville, and in Polend, Krynica and Muszynianka, all of which are running currently
successfully 5 star resorts branded in spa and health tourism sector capitalized and monetized on mineral
water brand equity. All of them share similar history and path of being a historical balneological resorts in
the past, later revitalized and modernized as health, beauty and wellness resorts. Vichy case is from which
Borjomi can learn and develop its strategic plans accordingly. (Please see A NNEX III

The sales of Vichy’s carbonated water, with alliance with French government to diversify in hospitality,
largely contributed in history of wellness tourism.

Vichy diversified in the modern spa resort in 90s. Currently, the revenues from mineral water sales are
annually approximately 140 million euros (similar range as of Borjomi revenues), whereas annual average
revenues from Vichy resort are 35 million euros (2022).

Should Borjomi diversify in resort management?

Below analysis is provided pursuant to (Markides, 1997).

Market improvement and new winner

Absence of modern spa and healing center with natural and thermal springs not only in Georgia, but in
Caucasus, indicates that market needs improvement. Via diversifying in resort management Borjomi will
modernize the tourism market and tailor it to current trends for sport, health, and wellness. The current
trends in tourism and geographical location of Borjomi, as well as, its recognition post-soviet area, will help
Borjomi resort to become a winner on the wellness tourism market.

Usage of Strategic Assets for current business and for diversification

Strategic assets of Borjomi are:
• Natural resource of unique mineral water (highest amount of minerals (60) in the world, whereas
Vichy has 15 minerals and San Pellegrino – 25)
• N1 mineral water brand in post-soviet Area with export in 30 countries
• Historical balneological resort
• Major employer in Borjomi region with closest ties with local municipality
• N1 exporter of Georgia with close ties with Georgian governmental and private sector authorities
Borjomi can use all the above in favor of its capacity to restate Borjomi resort as well as benefit its current
business to increase popularity of Borjomi.

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Via recreating the resort under Borjomi mineral water brand, the strategic assets of the company’s current
and diversified business will be kept together, which makes easier to operate both businesses under one
marketing machine. This will also help Borjomi to create cross-over customers and synergies in its current
and future activities.

Diversification as learning experience

The diversification will serve as a useful learning experience for Borjomi. As Borjomi is only expertized in
bottling, manufacturing, and exporting the mineral water, it does not yet have a knowledge of potential
curative affects of Borjomi in beauty products and other wellness treatment solutions. Via diversifying, they
will also invest in research and development of unknown potential (cosmetics, beauty products similar to
Vichy) of Borjomi to make the resort attractive for tourists visiting few days to improve their mood,
appearance, and heath. Company will focus in researching how Borjomi can affect mental health, detoxify
body, and improve appearance and boost energy for sport and physical activities, all of which will be major
service focus for the resort.

Purchase expertise at a reasonable cost

Borjomi does not have expertise in resort management, which means that they need to cooperate with
global hotel management brands, such as Marriot International which already operates successfully on
Georgian market in the capital city. Borjomi will also need a partnership in real estate to perform property
acquisitions and acquisition of operations for hotel management (stuff, service, wellness products,
technologies, food etc.). Please see the cost-of entry test below.

Strategic advice of Borjomi resort concept

Borjomi should revitalize and create leading spa and wellness brand in Caucasus region. Soviet recognition
and reputation will help Borjomi first to attract tourists from Russia and Post-Soviet region to generate
revenue to fund its further development targeted on European tourists. However, the major focus and
long-term strategic goal of the resort should be attracting tourists from Europe, so that within 5-7 years it
becomes a European wellness resort. By making the resort well-known brand, strategy of 2040 of Borjomi
should aim to market Borjomi water for European customers, so that in the future, Borjomi can slightly
change its export strategy of current business line which will allow Borjomi to also export in Europe; Thus,
step by step decrease distribution in Post-Soviet area and increase sales in Europe, in combination to
managing the resort business line.

Graph E
SWOT analysis of diversification idea of Borjomi
Strengths
• Cultural memories: Borjomi is associated with
healing properties, resort activities and
relaxation in the minds of millions who
remember the town as one of the most
popoular balneology resorts of the Soviet
times;
Weaknesses
• Relatively far from the tourist centre of Tbilisi
(capital)
• Lack of character: Borjomi, while remaining in
the cultural memory, has no brand or character
of its own anymore
• Lack of tourist infrastructure: no retail,
nightlife, food and dining options

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 • Unique resources: mineral water, alpine
climate, flora and fauna – Borjomi has
numerous resources that can be exploited;
• Location: proximity to an urban center and an
international airport; only 2.3 hours drive from
the Capital;
• Ecological cleanliness and low air pollution
metrics;
• Architectural and cultural heritage of
Sanatoriums;
• Modernizable urban plan and city layout;
• Empty slate: Borjomi is ready to be built ground
up.
• Delapidated state of the sanatoriums and lack
of maintenance at bathhouses
• Pollutedness of the park and surroundings
• Lack of connectivity within and outside the
urban bounds
• Lack of qualified professionals, especially when
it comes to medical procedures
• Absence of modern diagnostic center, without
which Borjomi will never develop into a proper
medical tourism hotspot

Opportunities
• Projected growth of economy and tourism,
post-COVID
• Rising popularity of SPA resort centers and
facilities
• Ability to attract international clientele
• Virtual lack of competition.
• State support in Borjomi revival
• Ability to attarct numeours visitor subgroups
due to vairety of natural and cultural resources
– both existent and potential
• Ability to tailor Borjomi to modern needs: make
it sustainable, eco-friendly, welcoming, livable,
inclusive
• Ability to develop local agricultural practices
Threats
• Inflation; devaluation of the national currenc;
• Uncertain political and economic environment
• Low disposable and discretionary income levels
• Uncertain epidemiological forecast of COVID-
19 pandemic
• Slow rise in the volume of tourism as well as FDI
post-COVID
• Lack of well-trained staff in Georgia

There are a number of guiding principles or priorities need to be set forth for the rehabilitated Borjomi.
First of all, whatever its primary function or designation, Borjomi should be a livable city. A city designed
for the comfort and convenience of its residents is convenient and intuitive for its visitors as well.
Additionally, ecological cleanliness and technological advancement in the direction of sustainability are
crucial to turn Borjomi into an adaptable city of future and to ensure the longevity of its relevance and
utility to generations.

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 Graph F
Borjomi resort project concept priorities

A Livable City

Synergy Sustainability

Social Preservation of
Infrastructure Art History

Increased Updated Brand

Mobility and Image

Inclusivity

Graph G

Proposed Strategy 2028

Horizontal Integration (Ansoff, 1957)

• Acquisition of Borjomi-Likani hotel which currently uses Borjomi water brand as equity to capitalize
• Rehabilitation and revival of the park and its surroundings (with alliance of Georgian government and international
investment funds (will be discussed later)
• Revitalization and restatement of Borjomi Resort: Creation of Health, Spa and Wellness Center
• Exploit its resources to generate revenue by primarily focusing on Russian and Post-Soviet tourists for whom
Borjomi is remarkable brand

Vertical Integration
• Revitalize healing services of the health resort
• Modernization and creation of spa and wellness facilities
• Restoring medical center; training of medical staff, workshops and courses in health resort medica care
• Recreation of health resort hospital, sanatorium, natural medicine center, health resort park, bathhouse,
fitness infrastructure
• Creation of spa facilities and spa day facilities
• Allocating funds from the revenue on research and development for services and products using Borjomi
mineral water
• Use the resources of the resorts for marketing Borjomi water among the resort visitors
• Cutting edge Data analytics: Researching and data analysis of the visitors according to nationality, budget,
age, selection of services, duration of stay. Collect visitor history and experience information. Establish
early warning system for customer dissatisfaction, decline or insufficient customer demand. Analyze
service history and mineral water consumption history during visitor’s stay.

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 • Focusing on sponsorships of sport and health related products and services
• Market Borjomi as a functional brand with a primary purpose to support physical fitness, sport, and
mental well-being
• Market Borjomi as a lifestyle essential for healthy life
• Create open spaces for hosting professional sport events and activities
• Imbue connection of sport with Borjomi water brand to gain customer loyalty
• Strategic partnership with Bakuriani ski resort which is 40 min drive from Borjomi to market Borjomi as a
winter resort
• Arranging direct transportation from Airport (Capital) to Borjomi resort
• Market Borjomi as a four-season resort
• Strategic partnership with companies who organize sport activities: marathon and other sport
competitions
• Create spaces for Borjomi entertainment events
• Create supportive environment for sustainable development: Organize waste collection events in parks
and forests
• Courses for healthy eating, treatments, and therapies
• Offering hiking tours, water routes, bicycles trails, direct transport to Bakuriani ski stations from the
resort, tourist shipping, car rental service
• Creation of tennis court, water park, golf space
• Creation of Nighclub and entertainment spaces
• Restate Romanovi Palace and create cultural and tourist sightseeing spot
• Create personalized Borjomi resort tours to Borjomi municipality historical places
• Congress and conference centers and exhibition halls
• Souvenir shops
• tourist information points
• Local pharmacy and wellness product store
• Enhanced safety with collaboration with policy and private security firms

Proposed Strategy 2040

• Expansion of Borjomi water export on European market (Use the result of cutting edge data analytics to choose
the strategic markets).
• maintenance and further development of resort management line
• Create Borjomi mineral water based cosmetics and beuty manufacturing line

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Graph H: Proposed infrastructural derivation of Borjomi
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Hospitality, Retail, F&B,

Nightlife, Waterpark,
Leisure, Families Outlet, Adventure Park,
Sports
Visitors
Hospitality, Retail, F&B,
Individual, Business MICE, Nightlife, Casino,
Adventure Park, Sports

Retail, F&B, Nightlife,

Current Residences, Outlet,
Adventure Park, Sports

Residents
Residences, Retail, F&B,
Nightlife, Waterpark,
New Casino, Adventure Park,
Sports

Park Infrastructure, Town

All End-users All End-users Center, Rehabilitation
Center

6
F&B refers to Family & Business

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Graph I: Proposed Practicalities and Priorities

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•Liveable City
•Preservation
Hospitality, F&B, Retail, •Branding
Leisure •Inclusivity
•Synergy

•Branding
MICE •Social Infrastructure
•Synergy

Park, Rehabilitation, •Livable City

Town Center, Residential, •Social Infrastructure
•Synergy
Sustainability Infr.

Diversification strategy should include horizontal integration in resort and hotel business as well as in spa,
health & wellness business. Further the vertical integration should be in following areas: sport events,
health entertainment, detox activities and wellness service.

Concentric and value creating diversification

Having close ties with current business, diversification will be concentric and will serve building combined
business model, with interrelated marketing strategy, to generate revenue from Borjomi manufacturing as
well as, from resort management business. This means that both business lines will have a shared value
which will increase synergies within the company. Thus, Borjomi strategy should be integrated so that it
can operate independently in each business directions as well as operate synergistically (Pitorski, 1988).

The resort should create an energy-filling environment via offering services and activities in wellness and
physical activities, including sport activities and events. In this process Borjomi will exploit better its existing
resources to use Borjomi brand for marketing the resort at the same time exploring new learnings via
researching potential and unknown features of Borjomi water for health and wellness, as well as, learning
the specificity of hospitality and wellness business.

7
MICE tourism in this case will encompass conferences, conventions, concerts, large and small-scale events,
etc.

14
 Graph J

Attractiveness test Better-off test (Porter, Ownership test (Porter, Cost of entry test
(Porter, 1988) 1988) 1988)

Via diversification in Borjomi entering Borjomi should ally with Investment cost will be very high and
wellness resort hospitality industry will hotel operators (possibly return on in investment will not have
management, Borjomi give Borjomi competitive with Marriott), so that immediate effect. However, due to
enters attractive advantage over other they can use the shared risks and revenues with
market of hospitality mineral water brands who hospitality expertise of hospitality partner the costs will be
(attractiveness of the are in the same industry the hotel operator. It is reduced. In addition, some costs for local
market is as Borjomi water is recommendable that the municipality infrastructure should be
demonstrated in Annex highest quality with the revenue and risk are born by the local government as part of
II, Annex III, and Annex highest number of shared between Borjomi. Municipal Development Fund (MDF)
IV), which will help minerals in the world. The Mariott and Georgian regional development projects financed
Borjomi to create new fact that Borjomi is N1 state at least for the first by World Bank, ADB and KFW provide
revenue streams and brand in Post-Soviet area 5-6 years as of the significant infrastructure investment
create basis for further proofs its uniqueness and entrance to the opportunities. Borjomi should use its
expansion of Borjomi superiority. Once Borjomi hospitality business. bargaining power and connections with
water sales in is marketed in European Further alliance with the governmental authorities in order to
European market. market, it will prove its Georgian government prioritize Borjomi infrastructure projects
competitive advantage make the project more over the other municipal projects.
over European attractive, as recreational Having worked for MDF and being
carbonated mineral water area and park will remain familiar with project, I strongly believe
brands such as Vishy, San under Georgian state that this cooperation will be successful.
Pelegrino, Aix-en- ownership. (Example of The Vichy example shows 4 times more
Provence, Contrexeville, Vichy, where the revenue generating from mineral water
Krynica and Muszynianka. development Spa and sales then from resort management. If
It should be emphasized Wellness resort under Borjomi increases sales in Europe at the
that when Poland was mutual ownership of the cost of decreasing sales in Russia, this will
part of Soviet Union, company and the French lead to approximately 15-20% loss in
Borjomi was leading state). revenues, as in Europe unknown brand
mineral water even in will not have success in sale, while
Poland, despite Krynica, potential profit from Russia will be lost. In
Muszynianka and other addition, if Borjomi spends 10-15% of its
Polish brands existing at revenues in marketing of Borjomi in
that time- which once Europe, this will not be sufficient for its
again underlines success as building reputation of the
superiority and high carbonated, highly mineralized brand in
potential of Borjomi Europe needs years. Thus, in total,
water on European currently entering European market
market. directly is too costly and uncertain for
Borjomi

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As part of cost of entry test t is noteworthy, the Vichy case should be looked at, which initially invested
around USD 25 million in spa and wellness, within 10 years having around USD 170 million return on
investment, Borjomi should also envision more or less similar investment scale and range. Thus for Borjomi
the initial investment should be around fifth of its annual average revenue (USD 140 million). Majority of
the investment should be accumulated via MDF as indicated above.
.
the cost will be further minimized considering the low labor cost in Georgia. 1 Georgian Lari equals
0,36 United States Dollar. Below are the average salaries in Georgia in Georgian national currency.

Graph K

Education 1 283.3
1 036.5
Real estate, renting and business activities 800.9
1 489.5
Transport and communication 1 426.7
853.6
Wholesale and retail trade; repair of motor vehicles and… 970.0
1 634.4
Production and distribution of electricity, gas and water 1 391.6
1 021.7
Mining and quarrying 1 385.2
905.9
Agriculture, hunting and forestry 706.6
0.0 200.0 400.0 600.0 800.01 000.01 200.01 400.01 600.01 800.0

(National Statistics Office of Georgia 2021)

Considering above, I would recommend investing in the resort and create future revenue stream which will
also benefit current business line and serve strategic plan of European expansion in the future.

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 Proposed Business model for diversification Strategy

Key partners Key Activities Value Proposition Customer relationships Customer segments
• Mariott International- as • Hotel Largest center in • Majority of tourists • Local tourists
a hospitality partner • Medical treatment Caucasus for visiting Georgia have • Tourists from Russia
• Borjomi Municipality- to • Spa wellness, physical loyalty and familiarity for • Tourist from Post-
coordinate infrastructure • Wellness service activity, beauty Borjomi brand Soviet countries
projects • Sport camp and health • For Georgians it is iconic • Tourists from
• Bakuriani Municipality-to brand Europe, Americas
coordinate connection Key Resources Healthy Channels and Asia
with Bakuriani ski resort • Borjomi water brand • Borjomi • Strategic partners of • Sport clubs
• Research organization to • Borjomi resort treatment current business line • Sport organizations
research further • Expertise of method (Borjomi has loyalty from • Top-level athletes
potential of Borjomi hospitality partner • Health, sport, leading Georgian
mineral water in wellness • High level well-being and companies and brands)
and health connections with beauty • Customers of Borjomi
• Travel and tourism governmental and programmes water
networks private sector • Weekend & • Social Media
• Sport clubs and sport Short term • Sport clubs and
organizations healing and well- organization
• Skin care and body care being packages • Medical organizations
product brands Affordable • Word of mouth
Services and
products are
cheap in Georgia
Cost structure Revenue streams
• Investment costs • Spa, sport, health, and wellness services
• Maintenance cost • Hotel revenues
• Revenues from sport & wellness events
• Revenues from hotel

17
 Graph L: Proposed Value Proposition

• Borjomi treatment method- together with experts Borjomi should develop unique treatment method with Borjomi mineral
water and other natural materials.

• Health, sport, well-being and beauty programs

Borjomi should offer functional treatments for health, well-being, and beauty and offer respective packages:
• Treatment for metabolic disorders
• Treatment for gastrointestinal diseases
• Liver cleansing and treatment
• Care for future mothers
• Anti-cellulite treatment
• Mental health treatment: anti stress and detox packages
• Mental and physical treatment for people with cancer and other heavy diseases
• Treatment for physical back pain
• Women and men wellness treatments
• Treatment for various addictions (alcohol, drugs etc.)
• Angi aging treatments

• Weekend & Short term healing and well-being packages

Due to high demand for weekend and 4-day healing resort stays, Borjomi should offer small gift packages such as: couple
break, detox weekend, massage, etc.

• Sport camp
• Resort should be used for sport camp for top athletes with respective infrastructure facilities including conference
and meeting rooms, physiotherapies and etc.

• Borjomi culture
Resort should offer personalized (only resort based) tours to Borjomi historical and sightseeing places, host cultural events,
music festivals and exhibitions.

18
Conclusion
Borjomi being 130 year old company has not changed its business model significantly over the years. Due
to the limited natural resources it’s not possible to expand further beyond Post-Soviet geographies, where
Borjomi is a leading carbonated mineral water with top market shares, 100 years of history and reputation.
If Borjomi remains solely in mineral water bottling industry, they can only export in Post-Soviet countries
(from commercial strategic perspective) where the company has guaranteed sales and established business
chain. Limited resources puts them into position whereby hey have to strategically select the best selling
market which is Post-Soviet area at the moment and not Europe, where the brand is not known yet.

I believe that the key to European and further global expansion is in diversification in Spa and Wellness
hospitality industry and rehabilitation of Borjomi resort. Attractiveness of the industry, potential of Borjomi
resort and example of Vichy proves that such diversification path can be successful, which will create future
of another 130 years of business cycle, bringing recognition and acclaim as a global brand. I strongly believe
that Borjomi can standing next to Vichy by 2040.

19
ANNEX I
Borjomi resort

Borjomi resort exists since 19th century, when the Russian Royal family built its castle (Exhibit II) in Borjomi
to enjoy curative treatments of Borjomi water and healing microclimate of the resort. During its peak
popularity in Soviet time, Borjomi was very popular indeed, attracting around 300,000 visitors a year.

After the collapse of the Soviet Union, the resort became desolate. Therefore, despite existing resort
infrastructure, Borjomi resort needs revitalization and restoration, as currently it is labeled as “former”
soviet balneological resort, whereas it has a potential to become a brand in Spa and Health tourism.

Borjomi resort is located on 800-950 m above sea level, some places exceeding 2500 m sea level,
surrounded by mountains, with mountain microclimate comparable with alpine zone and located in 2.3-
hour ride from capital (main airport), having the largest balneological area in Caucasus with historical
sightseeing spots (EXHIBIT III – B ORJOMI RESORT

Borjomi has a unique forest park (85,000 hectares) and 57% wood territory. (EXHIBIT IV – BORJOMI
N ATIONAL P ARK

Borjomi is rich with various natural springs. Visitors can get unlimited amount of Borjomi water from
fountain in park (EXHIBIT V – BORJOMI WATER FOUNTAIN
A famous ski resort Bakuriani is located with In 40 min ride. (E XHIBIT VI – BAKURIANI SKI R ESORT

There are around 300 individual and legal companies operating in touristic sector in Borjomi and there are
only two 5-star hotels (Borjomi-Likani and Crown Plaza), one 4-star hotel and three 3 star hotels, whereas
the rest are guest houses.

It should be noted that both of the large hotels in Borjomi – Borjomi Likani and Crowne Plaza offer extensive
spa and medical menus as well as one- and two-week packages. These are popular spots for gastrointestinal
patients.
Health & Wellness Resort Hotels in Borjomi

(National Statistics Office of Georgia 2021)

KPIs of Borjomi Health resorts in Summer and Winter time

(National Statistics Office of Georgia 2021)

20
Borjomi is rich not only in natural resources but also in cultural heritage, history and memory – all the
components that make up a well-established, popular, world-class spa resort. The town has an enormous
potential to exploit its strengths, while becoming a sort of a manifesto for the outlook on the Georgia
future. As it stands, Borjomi is a landmark of the post-Soviet cultural trauma. But it can become the beacon
of development and forward-mindedness if properly developed. The strategy and directionality for
Borjomi’s transformation.

Due to the Covid-19 impact the real picture of the visitors of Borjomi is shown in the statistics of 2019,
below.

Graph Tourism Dynamics in Borjomi

(National Statistics Office of Georgia 2021)

Length of Stay of Borjomi Visitors

(National Statistics Office of Georgia 2021)

There is work to be done on the marketing side as well. The fact that Borjomi is primarily visited by tourists
from the post USSR countries is indicative of the fact that the cultural memory of its reputation remains.
This needs to be exploited while additional efforts should be made to more strongly position the town on
the destination map of European, American and Asian visitors.

Finally, it is important to implement strategies and diversify offerings in order to attract the younger
generations to the town. Rehabilitation of hospitality infrastructure is only one part of the rehabilitation of
what is set to become a manifesto for a modern multifunctional resort in the Caucasus.

21
ANNEX II

Tourism in Georgia and Wellness hospitality sector

Georgia has great potential for tourism development due to its natural beauty, varied topography, climate,
cuisine, rich culture and history. Small country with 3.5 millions of residents received 10 million
international visitors last year. Georgia classifies as four-season tourist destination.

Last decade, on average annual increase in tourists are 35% from European countries and around 25%
annual increase from Russia (Graph C). Overall, in spite of Covid-19, number of tourists increased by 15%
% in 2022 compared to 2019.

52% of tourists are from Russia for whom Borjomi is well-known brand and leading mineral water (80%
market share) and 13% are visitors are from post soviet countries – also recognizing Borjomi as the leading
mineral water brand (Graph C). 32% visitors are from Europe for whom Borjomi is not a known Brand.

In general, tourism is raising with increasing trend of European visitors, which is an opportunity for Borjomi
for the resort development.

The majority of tourists (54%) are 25-40 years old, whereas majority of Spa and Wellness visitors (36%) are
36-45 years old, which means that strategy of the resort should focus on this age group.

Wellness resort hospitality market in Georgia has come a long way since the beginning of 2010s and in
some subsectors has even entered a stabilization period. Introduction of branded hotels is a relatively new
thing but these latter are operating with great success and generating impressive occupancy and revenues.
The main shortcoming of resort locations in Georgia – and the main reason why most of them are primarily
weekend getaway locales – is that they are not part of a comprehensive, all-encompassing master plan that
ensures that the average length of stay is extended. Borjomi resort should be planned in a way that ensures
lengthier stay, not just from medical visitors, but leisure and business visitors as well.

Graph C

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 Foreign Visitors 2022 Foreign Visitors
2022
Russia
Armenia
17% Europe
1% Kazakhstan 39%
Russia
23% Azerbaijan
44% Rest
45% Latvia
2%
1%
1%
1% North Europe
2%
1%
Western Europe
23% South Europe
Eastern/Med Europe
America/Carribean

(National Statistics Office of Georgia 2021)

ANNEX III

GLOBAL SPA MARKET

Spa and Wellness overview

The term wellness, which is a combination of words “well-being”, “fitness” and “happiness”, first appeared
in the 1950s in the USA and carried the idea of maintaining health by a conscious lifestyle. Hence, wellness
did not solely focus on treatment of illness but encompassed the intention of healthy lifestyle. In modern
society “health no longer means the absence of disease, but indicates an active lifestyle choice aimed at
combating stress and countering psychological problems” (Messerli & Oyama, 2004). Over time hotels and
service providers have observed the trend and started to support the physical and mental well-being of
their guests.

The natural-resources-based health tourism can be divided into 4 pillars: curative, wellness tourism,
medical tourism - popular in the health sector, and medical wellness – the new western European trend
(Clarke and Priszinger, 2008). Borjomi diversification strategy should focus more on generalized
curative/medical wellness concept and (hedonic) wellness tourism. During curative/medical wellness a
doctor advises wellness treatments to visitors who focus on prevention, medication and rehabilitation
services (Boros et al., 2011). Those guests try to achieve the optimal health through physical, spiritual and
mental balance. Whereas, wellness tourists do not have medical purposes on the background and travel
for physiological purposes.

23
However, it is noteworthy that the difference between wellness and medical wellness has become quite
vague as service providers try to cater to both pure medical consumers and tourism consumers, and meet
customer needs that are regularly changing in line with social and lifestyle changes (Harmsworth, 2004).
Nowadays wellness focuses on achieving one’s own well-being in a short-term while covering all aspects of
beauty, relaxation, and recreation. Wellness destinations provide a wide-range of services, such as steam
baths, saunas, massages, cosmetic treatments, as well as fitness, body care, meditation and special curative
packages.

To keep transparency, fair competition and comparability possibilities European Spas Association (ESPA)
have created the EuropeSpa standards - the only official certification system in this area in Europe.

In post-Soviet countries treatment tourism is more common than pure wellness due to the influence of
Soviet-period traditions and sanatorium-resort infrastructure. Sanatorium complexes provided medical
treatment and recovery and were part of domestic public health service, making them widely affordable.
Whereas, wellness tourism is relatively less widespread in these region (Romanova, et al., 2015).

ANNEX IV
Successful mineral water brands diversified in resort management

Great Spas of Europe is a group of eleven spa towns across seven countries that has been nominated to
UNESCO for inscription on the World Heritage List. Great Spas of Europe currently are: Bad Ems, Bad
Kissingen, Baden-Baden, Baden bei Wien, City of Bath in Germany, Františkovy Lázně, Karlovy Vary,
Mariánské Lázně in Czech Republic, Montecatini Terme in Italy, Spa in Belgium and Vichy in France.

Vichy case is what Borjomi should look forward in its resort diversification path. Vichy and Borjomi are
classified in the same quality cluster of carbonated mineral waters.

Vichy is a great example of continuous diversification and modernization. Being top destination for health
and well-being improvement, it is located in Allier River, surrounded with green parks, cultural and sporting
activities. It has been hosting famous international waters sports competitions. Vichy has rich architectural
and historic heritage.

Vichy resort offers traditional hydrotherapy and drinking cures for digestive, metabolic, rheumatic diseases
and allergies as well as, latest skincare and beauty techniques, including but not limited to hydrotherapy
treatments using the Vichy spring water.

In addition to its signature “Vichy Method” treatment (massages, steam rooms, saunas etc), Vichy offers
consultations and workshops in lifestyle, behavior therapies with follow up support treatments.

Besides the mineral water drinking treatments, Vichy developed techniques of mineral water shower, mud,
water massage, carbonated bath and other thermal water treatments.

24
Vichy further diversified in productions of mineral water based cosmetics, laboratories, octogonal soda
pastille while maintaining its primary course of business of bottled water, today exporting in more than 40
countries.

In order to be more youth oriented Vichy diversified in a way to attracted healthy and wealthy tourists of
all kinds, also offering spaces for professional conference and created Vichy sport centers. Further Vichy
established Grand Casino.

Vichy Figures (2019 is important as 2020-2022 provide biased pictures due to Covid-19 impacts)

Years
Year 2015 Year 2016 Year 2017 Year Year 2019
2018
Number places days - Beds 1,929,390 1,904,205
per year 1,732,655 1,792,150 1,895,810
Arrivals 452982 460966
381,030 393,629 421,908
Beds to arrivals ratio 4.5 4.6 4.5 4.3 4.1
Overnights stays 1007739 1014049
907,812 922,326 967,040
Length of stay
2.4 2.3 2.3 2.2 2.2
Bed Occupancy % 52.4% 51.5% 51.0% 52.2% 53.3%

EXHIBIT I – B ORJOMI MANUFACTURING HIGHLIGHTS

25
26
BORJOMI MANUFACTURING IN 1894.

27
IN 1961 BORJOMI WAS EXPORTED IN 15 COUNTRIES .

28
EXHIBIT II- B ORJOMI ROMANOVI P ALACE (CURRENTLY ABANDONED AND CLOSED )

29
EXHIBIT III – BORJOMI RESORT

30
EXHIBIT IV – BORJOMI NATIONAL PARK

31
32
EXHIBIT V – BORJOMI WATER FOUNTAIN

33
EXHIBIT VI – BAKURIANI SKI RESORT

34
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Dataset Access Dates:

IDS Borjomi Annual report 2021
Georgian National Tourism Administration
National Statistics Office of Georgia
Civil Aviation Agency
Oxford Economics
IMF
World Bank

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38