Naked Wine US Positioning

How do you compare the opportunity in the US and the price point, given the three-tier structure, versus the UK?

In the US, due to the three-tier structure, there is a real patchwork of regulations by state, whether it is wine you have to bottle or is it wine you have to have made yourself, all those kind of rules. Because Naked can go direct to consumers, navigates that quite well and has set it up quite well, there is a real gross margin advantage in the US that give a price advantage and makes the wine club, with a direct to consumer model, a lot more compelling in the US. Some of that gross margin is offset by the fact that you are shipping wine across a continent, instead of across a country. As I said, wine is pretty bulky and requires some specialist handling, so that makes it more expensive. But overall, the US has definitely led to a price advantage point.

Because the value proposition is more compelling, as the price of wine, I think, is the highest globally, in the US?

That gross margin advantage means you can do really good quality wine at a slightly lower price. The direct to consumer model does become compelling, at that level. It’s just a great level to run your business on, to have that underlying price advantage. You can decide how much of that price advantage you give away in price and how much you put into the experience; Naked have done great things around that.

How do you think about that? Let’s say you are running Naked in the US and, clearly, it’s higher gross margin because of the three-tier structure. I think, the US consumers are more used to paying higher prices for wine, therefore, you can capture part of that margin or you can pass it all onto the consumer. How do you think about managing that kind of balance between how much do I take, versus passing back to the customer?

Very basically, there are lots of ways for money to leave a business. It can go to the consumers, in the form of lower prices; it can go to the shareholders, in the form of dividends and retained profits. It can go to the consumers, in the form of some sort of non-price discounting and a whole bunch of other ways. It can go to the wine makers, in terms of a better relationship and better prices for their wines. At Naked, it wasn’t a philosophical decision; it was very much a data-driven decision. It was a case of, at one level, we want to grow fast and have new customers and being very competitive on price would give you that. But on another level, we want to retain customers and we want to make sure that we are not just churning through customers who take one case and then disappear.

There are things like the free bottle program where every month, they are giving away a free bottle which is a great way to, firstly, engage consumers for them to say, let’s get your monthly wine purchase in. Secondly, it is a great way to showcase new wine makers. Here is someone new; give them a shot. Let’s get them off to a flyer with loads of reviews. But the main way we worked it out was that we would just test, test, test, all the time. Do a free bottle; don’t do a free bottle. Change the value of the free bottle. All that good stuff that you can just continually test and work out what the right balance is.