This case analyzes a joint venture involving two prominent Georgian entrepreneurs and a Swedish investor to restore a unique Georgian château dating back to the second half of the 19th century. The business concept is, first, to use a mix of modern and traditional methods and leverage the 19th century story of the château to create a premium brand of Georgian wines on the international market, and, second, to develop the winery, castle and other historical assets to provide wine tourism and hospitality services, in line with the European small luxury hotel model.
The project took advantage of Georgia’s liberal business environment to acquire full ownership of the entire estate, including 160 ha of land and historical buildings. At the same time, the investment phase has taken much longer than originally envisaged. To date the company does not have full access to about a third of the land it lawfully privatized in 2009, and the project has had to deal with many of the bottlenecks that seem to characterize doing business in Georgia. These include limited access to long-term finance (particularly after the 2006 Russian trade embargo and the armed conflict in 2008), an inadequately educated workforce, low labor productivity due to an inadequate management culture and resistance to learning, a very small number and low quality of local suppliers, and very small foreign and domestic markets.
The group of Georgian investors, which had initially received Château Mukhrani in a 50-year lease in 2001, changed in the process. Frederik Paulsen, a Swedish businessman, academic, philanthropist and explorer, joined the company in 2006, buying out the shares of other partners and bringing a much needed infusion of cash. Paulsen currently owns 80 percent of Château Mukhrani shares through Marussia Beverages (which also owns Georgian Wine and Spirits Company (GWS).
The enterprise was ultimately a great success thanks to a unique constellation of factors, including long-term vision, a well-executed branding and marketing strategy, and access to significant equity funding from a foreign partner. The project also benefited from an excellent international management team, which combines knowledge of Georgian and global best practices in wine production, hospitality business, and marketing. The investment carries many benefits for the local community and Georgia’s economy as a whole.
- While its self-sufficiency in grape production—integral to the château concept—means that the Château does not buy the output of local farmers, the company brings many benefits to the local community. The main one is employment, which peaks at harvest time, and Château Mukhrani plans to expand the breadth and depth of services it already procures locally once the wine tourism and hospitality business reaches full scale.
- Château Mukhrani’s business concept provides a key reference point for the Georgian wine industry as a whole, with modern wine production coupled with the branding and marketing possibilities of Georgia’s rich history.
- Finally, the company’s prominent shareholders and senior management play a crucial role in organizing the Georgian wine industry, facilitating its dialog with the Georgian government, and promoting Georgian wines on the international scene.