As part of the ShareBuyers’ going for growth series, we take a look into the growth prospects of Naked Wines (LON: WINE) – the unique AIM-listed online business that connects wine drinkers (Angels) with some of the best independent winemakers from around the world.
With Naked Wines shares nearly doubling in value since the start of the year and showing far more than just resilience in an uncertain macro environment – it is easy to see why investors have flocked to Naked Wines proven and unique business model that is flourishing.
Find out why Naked Wines Chief Financial Officer James Crawford is confident that the business is ready to toast to even more success and how he would pitch the business to legendary investor Warren Buffett!
Firstly, could you please tell us a bit about Naked Wines and its value proposition?
Naked Wines connects everyday wine drinkers with some of the world’s best independent winemakers. We do this because we think it’s a better deal for everyone.
Naked customers (we call them Angels) commit to a monthly subscription which goes into their Naked account and builds towards their next purchase, while providing capital for us to back our winemakers by funding their working capital. In return, our Angels get exclusive access to a wide range of great quality wines. It creates a virtuous circle that benefits both wine drinker and winemaker. Talented winemakers get the support, funding and freedom they need to make the best wine they’ve ever made. The wine drinkers who support them get much better wine at much better prices than traditional retail.
The Direct to Consumer (DTC) model we operate offers consumers superior value by removing the additional layers in the supply chain, therefore providing high quality wines at affordable prices and unlocking margin which would usually sit in other tiers. Our model is particularly effective in the USA where we are classified as a wine producer within the regulatory framework. This means we have an end-to-end direct-to-consumer business whereas most wines have to go through several layers of the value chain, and give up margin along the way.
It’s a unique business model. Our mission is to change the way the whole wine industry works for the better. In the last year, we have served nearly 600,000 individual customers in the US, UK and Australia, making us a leading player in the fast-growing direct-to-consumer (DTC) wine market. Furthermore, our customers have direct access to over 200 of the world’s best independent winemakers making over 1,000 quality wines in 19 different countries.
The current climate is presenting challenge and opportunity – how has this applied to your business?
This has been a year of change, challenge and opportunity for Naked Wines but we are trading well, given that our online pureplay model is ideally suited for the current climate.
Our teams reacted quickly to the lockdown restrictions allowing us to sustain a high-quality customer experience while modifying our operations and supply chain to safeguard the wellbeing of our people. We increased operational capacity and secured the stock required to support heightened sales levels, and while customers have at times experienced longer fulfilment times, as well as some changes to range availability, our overall customer experience has remained excellent with 5* customer and 90% buy it again ratings.
The business remained operational through the lockdown and has traded very strongly through the period. Total sales for the four months year to date were +76%, split between new customer sales +185% and repeat customer sales +58%.
On a broader scale, we believe the enduring impact of the pandemic and the lockdown restrictions will be to accelerate trends towards direct, online models, in categories like wine, and that Naked is well-positioned to deliver the combination of quality, value and community that customers are looking for.
Growth catalysts are crucial to business growth – what do you believe yours are?
I believe the crisis will likely serve as an inflection point for consumer migration online for wine purchases. The COVID-19 pandemic massively increased awareness of online models and increased the perceived legitimacy of online within the wine category. In particular in the USA, where online wine delivery had low uptake prior to the pandemic. AC Nielsen estimates that online penetration moved from 5% to 20% of wine sales during the lock-down restrictions. Consumers new to the online space still require excellent service and value to convince them to stick with new habits once restrictions eventually ease, but I firmly believe Naked is ideally placed to do just that.
The increased trading volumes that we’ve seen since lock-down have also served to demonstrate the scale efficiencies accessible to the business. Scale efficiency translates to higher margins and the ability to invest more aggressively in growth. Improved economics also unlocks further investment opportunity to significantly widen our customer acquisition efforts into new channels.
Underlying all of that, we are well-positioned as a scaled operator in each of our large and growing markets. We have a differentiated and disruptive proposition, and with over £50 million of cash on the balance sheet, we are well capitalised to continue growing our investment in customer acquisition.
What are the biggest headwinds you foresee to achieving growth in the coming months and years? How will you tackle them?
One of the biggest challenges we face is convincing customers of the viability and value on offer through DTC channels. Our brands are exclusive to Naked so they are not the typical labels which a potential new customer would pick off the shelf at their local liquor store.
As the value in our proposition has become more recognised, we have been able to attract big-name winemakers, such as Jesse Katz and Tom Rinaldi. Winemakers of this calibre will only add to the strength of the brand and drive greater awareness amongst suppliers and consumers.
Imagine you find yourself in a lift with Warren Buffett. What would be your ‘elevator pitch’ to summarise why he should invest in your business?
- Our business model delivers a better outcome for all key players in the value chain by eliminating redundant costs.
- We have a unique model with critical mass and we’re building a defensive moat as we scale
- The pandemic has accelerated consumer migration to online categories, which plays to our strengths as a scaled leader in each of our markets
- We’ve proven the profit potential in the business and have a huge market opportunity
- The business is well capitalised and has a significant pipeline of high return growth investment opportunities available to us.
Please note: this discussion with James Crawford of Naked Wines forms part of the ShareBuyers’ going for growth series – helping companies with high growth potential to share their story. It is not a recommendation to buy or sell shares in WINE.