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In the big league

| March 1, 2012

A small manufacturer in Georgia pursues multinational standards.

By Taco Tuinstra

Quality equipment, skilled personnel and a commitment to continuous improvement have helped OGT secure a dominant domestic market share.

Nick Asanidze, managing director of the OGT tobacco company in Tbilisi, Georgia, is more than committed to product quality—he is passionate about it. Touring the factory with a foreign visitor, he ticks off the many stringent tests OGT cigarettes and packaging are subjected to: loose ends, deformed rods, axial compression, carton abrasion resistance, smell/taste migration …. Then he opens a large binder with test results to prove that a young factory in the southern Caucasus can meet and even exceed the standards set by the world’s leading tobacco multinationals.

This year, the OGT factory celebrates its 10th anniversary. Officially opened in November 2002, the plant has come a long way in its short existence. With an annual production of 3.2 billion sticks, OGT is now the leading producer of cigarettes in Georgia, manufacturing international bestsellers such as L&M and Chesterfield and local favorites like Comet and Mtkvari. The Tbilisi cigarette factory is among the most modern in the Caucasus.

OGT started as a cigarette distributor in the early 1990s. In the difficult days following the collapse of the Soviet Union, consumer goods were in short supply. Many factories had shut down and imports were scarce in the newly independent state of Georgia. Yet Georgians smokers still needed cigarettes. Even as tobacco consumption declined in other European countries, smoking remained—and remains—a popular pastime in Georgia. Zaza Okuashvili, an entrepreneur who would later become a prominent politician, sensed a business opportunity.

OGT started importing cigarettes and soon became the exclusive distributor for Philip Morris International in Georgia. Because there was no established distribution network in the country, OGT built it. Today, the company operates a modern fleet of trucks and vans, equipped with satellite tracking devices to allow for real-time monitoring.

As the company gained skills and confidence, it decided to construct its own factory. There were several advantages to doing so. First, Georgia’s fiscal authorities at the time taxed locally produced goods at lower rates than imported ones. Second, local manufacture allowed the company to respond more quickly to changing market preferences. And finally, having a factory enabled the company to develop its own brands.

Because Okuashvili wanted to produce the best quality cigarettes possible, he insisted on starting from scratch rather than reviving an old facility. “My priority is high quality and it would be impossible to achieve this without digital technical equipment, highly trained professional employees and an adequate building,” he told Tobacco Reporter in a 2003 interview.

The company purchased an unused building that suited its purposes and hired the YIT Group, a Finnish construction firm with expertise in tobacco projects, to prepare the structure for cigarette manufacturing. The factory commenced operations in December 2001.

“Our goal was to do everything right from the beginning,” says Levan Agdgomelashvili, general manager of OGT.

That strategy continues to pay dividends today. To ensure uninterrupted production, OGT’s factory is equipped with a dual-fuel boiler plant, a pumping station, a fire alarm and sprinkler system and backup power generators that automatically kick in should a power outage occur. Fully automatic climate controls guarantee a constant temperature of 22 degrees Celsius and 60 percent relative humidity—ideal conditions for cigarette manufacturing.

Among other equipment, the production floor features Molins MK-9 and ITM 8000 (Protos) cigarette makers; HLP-4, HLP250, Schmermund and G.D X2 packers; a Max-S filter assembler; and a Marden Edwards overwrapper. “We are capable of producing all cigarette formats—slims, superslims, nonfilter, round corner, square corner, etc.,” says Asanidze. Quality is further ensured by a small on-site laboratory with instrumentation from Borgwaldt and Cerulean. The entire production process is controlled by Siemens’ powerful S-7 automation software.

OGT’s parent company, Omega Group, also operates a small printing facility with a state-of-the-art Heidelberg press, which allows it to print, emboss and crease cigarette blanks in-house. In addition, the printer serves a number of nontobacco customers, producing magazines and high-quality stationery for foreign embassies in Tbilisi, among other products.

 


OGT Chief Mechanic Besarion Kakauridze inspects a recently manufactured batch of cigarettes.

People

But while good machines are essential to produce quality, they would be worthless without skilled operators and technicians. The general manager is proud of his team. “Our operators are always on the lookout for nonconformities,” says Agdgomelashvili. “If an operator finds products deviating from the norm, he will adjust the equipment immediately. And if the operator doesn’t have enough knowledge, he will ask a mechanic.”

OGT’s operations are ISO 9001 certified. Accordingly everybody knows their role and has a job description.

Because OGT is a flexible operation with little bureaucracy, it can respond quickly. “When the technical department has a good idea, we can implement it after just one meeting,” says Asanidze. Keen to keep its mechanics abreast of the latest technologies, OGT regularly sends its technicians to training courses at the original equipment manufacturers or invites the machinery experts to Tbilisi.

The combination of skills and equipment has allowed OGT to keep the number of product defects below the limits maintained by the world’s leading manufacturer. OGT is proud to have been licensed by Philip Morris International since 2001. PMI, of course, is famously discerning when selecting suppliers and business partners, and the multinational was duly impressed with OGT’s operations to entrust it with its brands.

The factory’s quality benchmarks apply equally to products manufactured under license and OGT’s own brands. Over the years, the company has built an impressive portfolio of uniquely Georgian brands, most of which sell in the value and mid-price segments. OGT’s undisputed bestseller is the Comet family, whose members include Comet Ruby, Comet Sapphire, Comet Burgundy and Comet Navy. Like regulators in other markets, Georgian authorities have prohibited tobacco product descriptors such as “light,” “mild” and other terms that could be construed as health claims, forcing cigarette manufacturers to come up with more imaginative terms to distinguish their offerings. The Comet family of cigarettes is also available in the slims format.

Other OGT brands include Mtkvari, which is named after the river that flows through Tbilisi; Astra Export and Excess Classic. Its most expensive brand is Wilson Superior, which sells in the same price category as Lucky Strike, Gauloises and other famous international brands. Wilson Superior is offered in a round-corner pack and is available as Wilson Superior Sunset and Wilson Superior Midnight.

In addition, OGT continues to import brands such as Marlboro, Parliament, Bond Street and Muratti. While the sales volumes of these brands in Georgia don’t warrant local production, OGT considers them must-haves in its portfolio. Until the 2008 war between Russia and Georgia, they were supplied by Philip Morris’ Izhora factory in Russia. Today, OGT imports its Philip Morris brands from the multinational’s production facility in Kharkiv, Ukraine.

Managing Director Nick Asanidze and General Manager Levan Agdgomelashvili talk tobacco while enjoying Georgia’s famous hospitality and tolerance toward smokers.

Unusual market

Georgia is an unusual market in that the trend toward “lighter” cigarettes, evident in many countries, appears to have reversed here in recent years. Agdgomelashvili says the reasons for this are not clearly understood. OGT’s brands adhere to the European Union’s 10-1-10 standard for deliveries of tar, nicotine and carbon monoxide. About 25 percent of Georgian adults, divided equally among men and women, smoke, while annual consumption stands at 7.5 billion sticks. Cigarette sales are stable to slightly increasing, and consumers overwhelmingly prefer American blends. When including its imported brands, OGT dominates the market with a 55 percent share, while its sole local competitor, Georgian Tobacco Manufacturer, has about 10 percent. Imported brands from other multinationals account for the remainder of the market. All major players are represented in Georgia.

Compared with their counterparts in other European countries, tobacco marketers continue to enjoy considerable freedoms in Georgia. While radio and television tobacco advertisements have been banned for some time, billboards are still allowed and cigarette advertisements are ubiquitous throughout Tbilisi. Internet marketing, too, is permitted, as long as the ads are accompanied by health warnings. The law permits separated smoking areas in most public premises, but state buildings are completely smoke-free.

Prior to 2006, the illicit tobacco trade was a big problem in southern Caucasus due to large price differentials between cigarettes sold in Georgia, Russia and Armenia. The neighbors have largely eliminated those differences, however, taking away the incentive to smuggle. Cigarette prices in Turkey are now actually higher than those in Georgia, as that country brings its policies in line with those of the European Union.

While the value- and mid-price cigarettes account for the biggest market share by volume in Georgia, OGT expects that, as Georgia’s economy develops, more smokers will be able to afford premium brands. Ever alert to opportunity, OGT is now preparing to enter Georgia’s luxury segment with its own brand.

The new cigarette’s blend has been prepared, its packaging designed and stacks of printed blanks on the production floor are ready to be filled with cigarettes and folded into packs. But the company is careful not to jump the gun. “We are waiting for the marketing department to determine the right time for our launch,” says Asanidze. “When they say ‘go,’ we will hit the market immediately.”

OGT is also cautiously looking into exports, a project that will take time because of the many regulations involved. Currently, the company sells exclusively in Georgia. With the exception of the areas that have been occupied by Russia since the war, its cigarettes are available nationwide. Asanidze says that, if the need arises, his company is ready to expand production. “We can double volumes without problems.”

But OGT will not chase growth at all costs. Asanidze and his colleagues are well aware that their company owes its success to its relentless pursuit of perfection. If it’s up them, such passion will continue to guide OGT’s actions in the future.

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