Interview Transcript

What do you think is the biggest challenge for Naked, in the US?

The biggest challenge for Naked in the US is that the Naked funding model, where angels deposit into an account, is a good capital investment but it’s not enough to undo the real issue in wine. The real issue in wine – and it’s multiple in the US because of the size of the market – is that if you are growing like this, then the capital you need to maintain that growth curve means that while you are selling at this point on the curve, you’re investing this much capital in inventory. If that forecast goes wrong, all of a sudden, you have got invested capital that you need to release out of that inventory and it becomes dangerous, for all businesses.

The alternative is that you haven’t invested enough capital and, therefore, you get low in your stock and when you’re low in your stock – and in the US we saw this – your attrition rates get high. In the early days in the US, we would run out of the key products that angels loved and then we would see attrition follow. Keeping a broad range that people are into, in a growing company, in a country like America where growth can be like that, it’s the relationship between invested capital and releasing that invested capital and getting your forecast right which is the biggest risk. It’s the main headache, I’m guessing, that every wine company is running into these days.

If we look back in 10 years’ time and Naked is another one of these failed wine club-esque models, what do you think would be the reason?

Firstly, I want to be clear, I don’t think that will happen. But if it did happen, the reason will be that Naked looks like every other wine business. That’s either because Naked has morphed towards them, so it has lost what we talked about earlier and started to look more like every other wine business. It’s very easy to forget the importance of your purpose, when you’re trying to hit targets and you just move into execution mode. Naked will either move towards its contemporaries, or its contemporaries will move towards Naked and Naked won’t move away from them. That will be the reason. When everybody starts looking the same, a new person will come up and say, we’re different and everybody will say, the thing that is different about you is the thing that has been annoying us about the wine industry and they’ll jump on it. That will be the reason.

Naked has to do two things. It has to remain true to its purpose and it needs to keep ahead of its contemporaries. As its contemporaries move towards its purpose, it needs to find new ways to reinvent that.

Is there a risk that they can’t acquire customers as well as on vouchers, using TV or digital ads? Is that a unique channel for them?

I think that is the obvious standout and you’re absolutely right to raise it. Probably, these days, when Naked talks to investors and so forth, the investors say, the big risk we see here is that you’ve got one acquisition channel and it’s vouchers and can you do it? But the vouchers have been working for so long. Whilst they are working, you should keep rowing that boat. There is risk there but you will solve that risk whilst you have an attractive proposition, within the business. I think the real issue would be if you lost that attractive proposition in the business. Those vouchers would get more painful because the lifetime value is stripping out of our customers, so now we can’t be as hot on those vouchers. Or if we are as hot on those vouchers, we have to start underinvesting somewhere else and that’s either in the wine quality or it’s in the model, and you start rolling your way down towards your competitors.

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