E-commerce in Georgia increased more than threefold year-on-year in 2020 to nearly $45mn, a Galt&Taggart report states.
The report summary reads as follows:
"The Covid-19 pandemic has boosted Georgia’s e-commerce market, as lockdowns encouraged many to purchase online for the first time or increase the frequency of online purchases. The lockdowns also forced Georgian companies to expand their online offerings.
The size of the local e-commerce market increased 3.2x y/y to GEL 137.9mn in 2020, with its share in total (local and cross-border) up from 11% in 2018 to 23% in 2020, according to our estimates. However, the e-commerce penetration rate in Georgia is very low at 1.1% of retail sales, far from the average 12% in Europe. Furthermore, total annual e-commerce spending per user stood at c. GEL 950 in 2020 in Georgia, 3x lower than that of European average. With development of local retailers’ online platforms and increased trust from customers, we believe the share of local e-commerce will rise, grabbing more than half of total e-commerce spending by 2025.
We expect local e-commerce spending to grow at a CAGR of 52% to GEL 1.1bn over 2020-25, yielding penetration rate of 4.7%. We believe that the Georgia’s e-commerce sector growth will be supported by: 1) an increasing number of users engaged in online shopping; 2) growth in average annual spending per customer; and 3) local online retailers grabbing a larger share from cross-border online spending. We see ample room to scale up across all product categories as e-commerce penetration is less than 3% in every product segment in Georgia.
The most popular category in local e-commerce is electronics, household appliances and equipment, accounting for 65% of local e-commerce sales in 2020, according to our estimates. Retailers in this category started to invest in digital channels long before Covid-19 hit, entering lockdown more prepared than other sectors. Apparel and accessories are the 2nd-largest category, grabbing 16% of the local e-commerce market, followed by home and furnishing materials with an 8% share in 2020.
Food delivery earned a special niche in Georgia’s digital buying ecosystem as Georgian retailers used food delivery channels to deliver grocery, personal care and pharmaceutical products during the pandemic. This is contrary to developed markets, where retailers have their own in-house delivery services. We estimate the food delivery sector turnover at GEL 167mn in 2020 up 3x from 2019, with grocery and personal care products accounting for 20% of the total. Whether retailers will stick with this third-party delivery scheme or invest in their own delivery channel depends on different factors, including availability of financial and human resources.
We estimate cross-border e-commerce spending at GEL 459mn in Georgia in 2020, having grown at an average annual rate of 40.3% over 2018-20. The four largest foreign online platforms – Amazon, eBay, Taobao and Aliexpress – command 2/3 of total cross-border purchases but face increasing competition from small market players in apparel, accessory, beauty and cosmetic retail sectors. International online retailers attract customers with their low prices, large product variety and superior user experience, offsetting the disadvantages of their long delivery time and additional shipping charges.
Improvement of user experience is crucial for sector development. Poor customer experience of local online shops remains a challenge - most online retailers lack the basic features for convenient shopping (including price lists, product availability, geographic coverage, etc.). As a result, Georgians spend 3.3x more on international online shops than locally. Improvement of full shopping experience (from search to delivery) is crucial to attract and retain users, requiring huge financial and human resources. Therefore, economies of scale are vital for e-commerce development, creating strong growth potential for leading third-party marketplaces. Mymarket.ge (primarily C2C model) is the largest online shopping platform in Georgia, attracting more than a million unique visitors monthly (2021). Extra.ge is the largest B2C marketplace (c. 500k monthly unique visitors), followed by vendoo.ge (230k unique visitors) and be.ge (>130k). On top of this, there is an urgent need to improve digital infrastructure, increase usage of internet/mobile banking services and develop logistics environment. In this regard, Georgia should capitalize on its developed banking sector, widespread internet accessibility and the country’s relatively youthful population."