Vivino, Naked Wines, & US DTC Wine

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Benoit, can we step back to when you first joined Naked, in the US? Maybe you could provide a bit of context to your role and the size of the business there?

Basically, I moved back to the US after having moved back to France for a few years. I had been in the US for about 10 years before that. I decided, as a tech guy, to go back to the US to work at a tech company. I picked the Bay Area as a place I could work at a tech company. A few weeks after coming back to the US, I met the founder of Naked Wines, whose business I knew nothing about. We really got along well and he decided to hire me to, eventually, run the US business. I was completely new to the US ecommerce industry and, in particular, to the wine ecommerce industry; I was completely new to wine. My background was that I had worked for Microsoft for 10 years and for telecom companies before that. I worked for Vente-privee for a while, which was slightly similar to what Naked Wines was doing.

I found the business model to be really fascinating. The business had just started in the US, about a year previously; it had been operating in the UK for about three years. When I started, it was really at the very beginning of the US business. Essentially, the idea was to find a growth engine that could scale, to grow the installed customer base for Naked Wines and, eventually, get the business to become closer to profitability. It was very early days for the business and although we knew there was a lot of potential, the investors were not too sure if it could ever be viable in the US. That’s what I came in to do; essentially grow the business first and then optimize it to become more profitable.

What really attracted you about the business model when you met Rowan?

It was just a very disruptive business model where it is a mix of different things. There is an element of a subscription business model which is always interesting; the economics are very repeatable and it is a business built on retention. Then there is the additional element which is the crowdfunding aspect. The crowdfunding is really what powers and finances the growth of the business, which is very unique in the wine business.

On top of that, there is a layer of a very disruptive approach for an industry that tends to be very traditional, very stiff, very off-putting – in some ways – to the new customers. This is a business that is really meant to democratize the industry to the largest extent possible, both on the supply side but also on the demand side. Once again, helping not only the consumer discover some new products, but also helping the producers break through, on their own, as independent producers and winemakers. While the industry is very concentrated, we don’t always see it, as consumers, because there are a number of different labels. But a lot of those labels are owned by four or five big companies. Naked Wines is taking this very revolutionary approach of power to the people, power to the consumers, but power to the independent winemakers, as well.

Who were the early adopter angels in the US?

In terms of the early adopters, a lot of people, interestingly, were small business owners themselves, that really aligned value wise with the mission, which is to empower the little guy to fight with the big companies. We had a lot of success, initially, partnering with other companies that were selling to small businesses because the audience really resonated with this message of, hey, you’re the little guy, the independent winemaker; life is really difficult and it’s hard for you to break through. We want to help you find your audience, grow your production, not have to worry about sales and marketing and just focus on what you do best, which is making the wine.

A second part of the audience were more budget-conscious people who were not necessarily willing to buy expensive wines, but appreciated and were curious enough about wine to want to learn about those winemakers and wanted to relate to those individual stories. They were not necessarily the typical US Napa wine buyers, because the wine is pretty expensive. It is a bit of an old boys’ club, in some ways. We call it the country club audience, in the US; people who buy expensive Napa Cabs and brag about it with their friends.

The Naked Wines’ audience is much more open-minded in terms of just drinking wines that taste good, regardless of where they come from. Some of it was South African or coming from less-known regions in the US. They were judging the wines on a basic binary rating system; either thumbs up or thumbs down. The idea was to simplify it and just trust your instincts.

How did you look to really build Naked’s brand, to get the trust of the US consumer?

A lot of the messaging was around – not in blunt terms – that people are lying to you. When you are buying a $30 bottle, at a supermarket, this is really how much of this $30 actually goes into the wine itself.

We had some regular campaigns and we also put a lot of focus on the onboarding of new customers on demystifying a lot of this. We would break down, this is how much is cost to make a $20 bottle of wine. If you are buying a $20 bottle of wine, at retail, you are probably drinking about $5 or $6 worth of wine, versus drinking a $20 bottle of wine from Naked Wines, where you may have $11 or $12 of actual wine in the bottle. Obviously, there are no marketing costs, this is all sold internally. Without going through the three-tier system, you don’t have the margins that go to the retailers. You can really boil it down to the essence of what the wine is all about, which is the quality of the grapes, the quality of the winemaker’s work. If you are buying a wine that is produced in this vertically integrated system, it is a lot more efficient, in terms of production and distribution.

There was a lot of education around that and there was a very clever onboarding process of new buyers. The way that Naked Wines was acquiring customers was usually with a fairly attractive first-time buyer offer. Then, essentially, you would become an angel and sign up to get $40 – in the case of the US – taken off your credit card every month. But just to make sure that people really made a conscious decision to join this club, we created this concept of a waiting list.

In the past, you would make a purchase, you would become an angel and the money would start being taken off your credit card at the beginning of following first full month. Let’s say you are mid-March, you are really going to start being charged on the 1st May. There was a period, anyway, where you were potentially considered an angel, but you were not really starting to subscribe. So this period was marketed as a waiting list. Every few days, you would get an update on where on the waiting list you were. Because the company was growing really quite fast, it was a real waiting list, with a real number. But it generated a lot of anticipation in the minds of the future angels.

With every single message, first of all, they wanted to open the message to find out where they were on the waiting list, so the open rate was fantastic; there was a gamification aspect to it. Because of the curiosity that was piqued, we were able to get people to actually read through and get educated about the mission of the company, what Naked Wines was trying to do, how the system worked and why this was beneficial to them. By the time they actually did become angels after that month, month and a half period, they would be more educated about how the system worked and they would be much more loyal; the attrition was much lower.

We would lose people that dropped off the waiting list, initially, but that was fine. Part of the process was to weed out people who would not be good, loyal customers, with a high lifetime value. By the time their first angel payment was taken, they were fully qualified future angels and, at that point, the attrition rate was much lower.

What is unique about the way Naked works with winemakers, relative to other wine clubs, such as Wine Access that you worked at, or other clubs that you are aware of?

It’s quite different. With Naked Wines, they are really paying those winemakers as consulting winemakers, like consulting winemakers would be paid by a winery otherwise. We would be paying those winemakers with a contract that specifies the quantity of wine that would be expected from them. The label would be a label that is exclusive to Naked Wines. What is really unique is the expectation of the winemakers. The winemakers were expected to not just produce the wine, but to also communicate and be responsive to all the enquiries, comments and questions from the angels and be actively part of this community.