Naked Wine UK Price Positioning

What was the process of finding the sweet spot price point, in the UK?

Partly, it’s what the customers are after. If you’re the kind of person who would baulk at spending more than £6 on a bottle of wine, then the supermarkets and the discounters have you covered. For the people above that, where it gets a bit more discerning and where people are a bit more interested in wine and what they are drinking, I think it just naturally comes out at that sort of price point. That’s the kind of price point where the overlap with the supermarkets is a bit less. They definitely have range, but it’s where their range starts to get a bit more limited. I guess, it’s probably just a step or two below The Wine Society as well, who are the other big beast in the UK. They are now online but they started as a mail order business and a club. The sweet spot where Naked sits is just below that level.

I think the average bottle, in the UK, was about £10 originally?

Roughly, yes. I would have thought the average sale would come in a bit lower than that. The average listing price is probably about £10 and the average bottle price is probably a bit lower than that.

How did you see the gross margin change as you moved up to the top of that sweet spot and beyond, at £12 to £15, in the UK?

It is generally the case in any consumer goods category that the higher priced the item, certainly within a range, the more margin you make at the top end. At the lower end, you are trying to hit price points and have a price proposition level. Whereas at the higher end, you have a bit more freedom because people are actively seeking out the product and they are a bit less price conscious. There is a general progression in gross margin, as you go up. But it’s not massive.

Do you think that limits the UK growth and size of the market where it doesn’t work as much at the lower price points?

The vast majority of the UK market, in wine, is at the lower price points. That’s where you find the huge amounts of volume that go through Tesco and Lidl and so on. It’s just the price point where you get to the point where the gross margin per bottle, the pennies per bottle that you are making, never mind the percentage gross margins, it gets very hard to be able to ship that wine. At that sort of level, you need the customer to do the work, in terms of going to the store and picking up a bottle of wine and taking it home themselves. I think that’s another reason why online naturally gravitates a bit more towards the slightly higher price points.