Woolworths’ Cellarmasters Acquisition

Before we dive into Naked in a bit more detail, can we just return to the point on Cellarmasters? I’m trying to get a sense of why Woolworths bought the business and how much of that was just the online part of Cellarmasters versus the physical? What was the rationale there, behind the acquisition?

This is an interesting story. As I say, I came back to Australia and was part of the selling team and it was a great experience. We were pitching to big VCs and so forth. All of us thought that Woolworths were buying Cellarmasters because it gave them another direct sales channel. Cellarmasters was one of the best in the world. Cellarmasters and Laithwaite’s would always argue over who was the better wine club. We thought that was what they were buying.

In the end, we got it all wrong. Why did Woolworths buy Cellarmasters? Yes, it was good; they got an extra database. Yes, it was good; they got a direct marketing company and they got good staff. But the reason they bought it was that Cellarmasters owned a winery called Dorrien Estate and Dorrien Estate was a huge winery that allowed Cellarmasters to make its own wines. Woolworths sold about 50% of all wine in Australia, through Dan Murphy’s and all that and another 25% sold by their main competitor, Coles. So 75% of all wine in Australia is sold by those two players. What Woolworths had worked out is that they were not going to get a bigger market share than 50%, so the way they could improve their profitability is that they wanted to start making their own wines, to get more profit out of those wines.

What they ended up doing is they would take a brand that everybody knew and get you into the store with that. Then they would put their brand next to it and say, this is cheaper, and get you onto their brand. That strategy was enabled by them buying Cellarmasters, because when they bought Cellarmasters, they got the entire production facility of Cellarmasters, which was Dorrien Estate. That enabled them to be making upwards of a million cases of wine a year, to then distribute out through their stores.

They bought the ability to have their own wine and that’s why they bought Cellarmasters. We thought they were buying it because we were amazing marketers and they thought, we’re going to get that. That’s not what their reason was.

Did they not really focus on the online side, then?

Yes, they did, in the sense that it’s still there and it’s still a part of their mix. For them, Cellarmasters is a small piece of sales, even though it’s $150 million turnover. It’s nothing for them. They didn’t buy it to open up another channel to market. They bought it because it gave them more profitability throughout all their channels, because of this ability to produce their own wine.

Do you think Naked Wines has a strategic value for either a large retailer or wine brand or corporation, in the future, at some point?