Naked Wines: Business Model Economics

It was just over five years ago; I joined three weeks before my wedding, so I can remember the date pretty well. I think, really what attracted me at first, was Rowan, the founder of Naked. The way I got involved with the Majestic group was that, in my previous job I was a retail strategy consultant and I had actually just led a strategic review, in 2014, of the Majestic Wines business. One of the things that came out of that review was some recommendations around the management team at Majestic, at the time, and also around the broader strategy. In particular, they had a business, back in 2014, that was seeing negative volume movement in their online business which, at that time was quite an achievement. There were some clear themes they needed to work on.

The chairman, at the time, saw the opportunity for a combination with Naked and saw and an opportunity to address both of those things; to bring in a very different, visionary management team, led by Rowan and also to infuse the business with digital capability.

Wind forward a little bit and, as Rowan was doing his due diligence, I got a chance to meet him. I remember, vividly, having a meeting with him in London and I also met with James Crawford who now runs our UK business. I thought, these are a couple of people who have got a really interesting perspective on an industry that is, in general, quite tired. This is a combination of a couple of brands which are really interesting and, I think, could do a lot more. It was a story I knew I wanted to follow. I dropped Rowan a note after the deal closed, and said congratulations; it was a pleasure meeting you. I don’t suppose there is anything interesting that I might be able to get involved with? He sent me a nice note back saying, I was actually thinking about giving you a call. We had a half hour chat, over coffee and I surprised my wife when I went home and said, I’ve taken a new job.

It was a really interesting time. For me, it was a combination of what we learned as a business and what I learned, personally. On a personal level, it was a great chance to work directly with Rowan, for a number of years and get a sense of, not just how the business worked in terms of numbers and mechanics, but the philosophy behind founding it and the ideals and aspirations that we were always trying to get Naked to. I think that was really helpful. If I took one thing away from it, it was the absolute criticality of making sure we construct this business as a win/win business; an ecosystem where winemakers are winning, in partnership with customers. A logical, inevitable consequence of getting those two things right will be that, internally, we’ll do fine and shareholders will do well.

In terms of the business, I think it was a time where we really started to professionalize and made great strides, in terms of how we interrogated our performance and, in particular, our investment performance. A lot of my role, at the time, was helping us go from having a good theoretical understanding of a return on investment, but still being a little bit abstract. We maybe knew and measured the return on a channel, in a market, but the reality is, within that channel, you are investing with seven or 10 different people and some of them could be great and some of them could be bad. If I learned one thing, it’s that in particular, in investment, averages can hide a multitude of sins. Disaggregating that down to a specific level of detail is critical, if you really want to be credible when you say that you take capital allocation seriously.

The nice thing is now, probably what would happen, Will, is that you would come and approach me. We’re in the nice position of being courted, as opposed to having to do so much courting. The first thing we will always do is start with a conversation around you and your passion, your motivation and your desire. What are you looking to achieve and how can we, with the assets and capabilities we’ve got at Naked, help you to deliver that? Is there a fit? Does that match what we are trying to do, as a business?

Here are some of the things that are on our winemaker checklist. First off, you’ve got to be an amazing winemaker that makes great wine. That’s a given. Almost think of that as a hygiene factor. There are lots of great winemakers out there – it’s a great skill and a great calling – and there are lots of people who can make really good bottles of wine. The next thing we spend a lot of time asking people questions about and understanding, is their intrinsic motivation; what makes them tick? There are some people who are fantastic winemakers but their motivation is all around status or making wines that really give them gratification because a sommelier, in a fancy restaurant, on the West Coast, really likes it. Or because some of their friends think it’s really interesting and esoteric. Those type of people don’t tend to fit very well with Naked.

The type of people who work really well with Naked take passion in producing something of really high quality that can be enjoyed by lots of people. They love the idea that they would be able to directly interact with millions of people who have actually consumed their wine and hear what those real people think. They tend to have a real sense of pride in over-delivering. The idea that you can make something that tastes like a $40 bottle of wine and sell it for $20, really appeals.