Feeds:
Posts
Comments

Spot the difference…

Flash Sale Sites vs Naked Wines…what is difference?

Lot18’s UK launch and sudden closure has got a lot of people asking…How have Naked Wines built a $40m business in 3 years when a well funded Lot18 closed their London office after just 4 months, claiming “supermarket stranglehold”

The answer is this:

– No winemaker ever woke up dreaming of creating a wine to be discounted through flash sales site

– EVERY self respecting winemaker dreams of setting up their on own

And that is what Naked Wines do. We fund talented winemakers who want to set up on their own. In exchange we don’t ask for equity, or dividends or interest – we ask for preferential prices, which we pass back to our customers.

See for yourself

Here are two comparable offers. One from us, and one from Lot18, the most successful of the flash sale sites


Can you spot the difference?

Lot18 charged $18 for a wine you can buy for $14

If you don’t believe it, take a look http://www.67wine.com/sku043725_SOHO-SAUVIGNON-BLANC-750ML-2011

And 2,000 Naked Wines customers got together to launch a new winemaker

Rod Easthope has won more medals than Usain Bolt at his schools sports day. And like all talented winemakers, he dreamt of setting up on his own, and making wines free from marketing people, accountants, shareholders etc.

BUT, being a bright guy, he saw that there is something horribly wrong with the wine market. The most successful winemakers are not the ones making the best wines. They are the best salesmen. And some of the best winemakers were broke.

Angels tread where fools fear to dare…

2,000 complete strangers changed all of that. 2,000 people who have never met clubbed together to invest £140,000 to set Rod up in business.

What is new is that companies like Naked have made it possible for people to achieve TOGETHER what they could never achieve on their OWN.

Our 2,000 Angels not only gave Rod the cash he needs. They also provided him with a market. That means that Rod doesn’t have to waste his time or his money selling his wines.

Instead he can invest every ounce of his being making them taste delicious.

And his investors, our Angels, get them exclusively. At a price 70% lower than Lot18’s price for their offer.

The ultimate acid test

If the flash sales sites did not exist, not a lot would change. Someone else would sell those bin end wines.

If Naked Wines’ 100,000 Angels did not exist, a whole bunch of independent winemakers would not be in business. Over 100 wines would not exist. And that really would be a shame.

There’s nothing flash about us…

Crowd powered funding is an idea who’s time has come. I would love to claim that Naked’s success is down to brilliant management and inspired leadership, but the truth is much more attractive…people are tired of paying to be sold to, and now they don’t have to any more.

Advertisements

I have just received a letter from Laithwaite’s solicitors, threatening legal action, over some “false and malicious” wording in a press release we put out.

The dispute itself is pretty trivial (see box) – what is not trivial is being on the end of a legal action from a company 100x our size

Who are Laithwaites?

Tony Laithwaite and his family own a company called Direct Wines, which in turn owns virtually the whole of the wine mail order market in the UK – Laithwaites, Sunday Times Wine Club, Telegraph Wine Service, Natwest Wine Club, British Airways Wine Club, Warehouse Wines, Avery’s, and Virgin Wines. It is a huge business with sales of over £250m.

So if the arguments are so trivial, why are they in such a tizzy?

My guess is that they don’t like competition. Especially when the competition seems be doing very well, at a time when they aren’t (they lost £5.5m last year). And even more so when the competition is coming from a a group of people who used to work for them! (17 of us left Virgin Wines to set up www.nakedwines.com last year)

They have tried threatening some of our suppliers – and with one dishonourable exception, the suppliers have told them where to go.

So my guess is that they are using their size as a last resort. I think that their threatened legal action has very little chance of success because our press release is accurate. But they have the money to fight it and we don’t. And that feels to me like being bullied.

I need to decide what to do – and I would appreciate your help.

I have 3 choices

1. Do as they say – withdraw the press release, apologise to them and pay their legal costs
2. Play them at their own game by hiring a lawyer to write a similar letter back again (perhaps pointing out that if I wanted to be malicious, I have MUCH juicier material (like them threatening our winemakers to try to cut our suppliers off)
3. Ignore them and get on with finding delicious wines

What would you do? Please vote, and if you have the time, use the comments section to tell me how you would reply to their letter. A case of naked wines for the best reply!

What is all the fuss about?

Here is their letter in full, together with the offending press release.

letter

However if you have better things to do with your time, the long and short of it is… Capture

What would you do? My lawyers advice was that we can’t afford to take them on, so avoid a fight. I hate the thought of giving into a bully, just because they are bigger than you. What do you think?

Your votes please – and a case of wine for the best reply to their letter.

Rowan

This content is password protected. To view it please enter your password below:

I was asked to predict what the US direct to consumer wine market would look like in 20 years time 

And this is what I said:

  1. Prices will collapse – from around $37 a bottle to $20 a bottle
  2. Volumes will explode – by about 3x to 4x
  3. And imports will take up a big piece of that growth…maybe even more than half.

Why this would be A GOOD THING –  for wine drinkers AND for wine makers

The non-obvious piece is this…this is good for wine makers because NET selling prices will increase, as GROSS selling prices decrease.

South West Airlines revolutionised air travel with a simple philosophy. If you charge for an aeroplane seat like the plane’s full, it will  be. And their competitors stuck to the alternative…our planes are empty, so let’s make the few suckers that do fly with us pay through the nose.

I think that’s what will happen with wine. Smart wine makers will reduce their costs. Customers will sense value, so they will buy. So selling costs will fall. And everyone will be better off.

And before you start snickering, remember this…South West has been the most consistently profitable airline in history. And the rest of the airline industry has, on average, lost more money than it has made. Ever.

What possible evidence do I have for these sweeping predictions?

  1. The average bottle cost in DTC is $37. In other retail, $9. A 10 to 1 multiple
  2. The average price of a bottle of Napa Cab in DTC is $62. The cost of the Napa Cab GRAPES in this bottle is around $6-7. Yep, another 10 to 1 multiplier. The typical multiple in Europe would be around 3-4x
  3. 55% of all DTC wine is bought by baby boomers. Who in 20 years time will be booming less than they are today. I can say that because I am one
  4. The DTC channel is predicted to grow by 8% a year (source: a guy in a bar, but I’m pretty sure that’s true) and land under vine is highly unlikely to keep pace with that.

So this is what I think is going to happen

  • The baby boomers will get older, and be replaced by the Gen Xs – I would estimate that they will age on average by about 20 years over the next years. See, I do know what I’m talking about.
  • Gen X’s are a great deal less respectful of institutions (like Robert Parker), more cynical, more adventurous
  • More importantly, they got to drink wine at a time when very few wines are actually faulty – whereas the Boomers had to watch their step
  • Sooooo…..my hunch is that these Gen X’ers are going to figure something out. They are being overcharged. They can get stuff that tastes like $60 for $10
  • And being the disrespectful people they are, they won’t say “I’m going to pay $60 in case my friends think I’m cheap”. They’re going to spend $10 and boast to their friends how smart they are not to be taken in by a whole lot of pretentious wine gobbledygook

And before you ask…

  • No, I am not predicting the end of the world for wine makers. I’m predicting the opposite. But for the dinosaurs, tough times ahead….
  • Of course some people will be able to sustain luxury pricing. But not everyone. That’s the point of luxury pricing. People pay for it because its rare.
  • And no, I don’t have a reason to favour imports over domestic. Just do the math. If consumption grows 7% faster than production, something’s got to give

And finally, what do I know?

Almost nothing. I have 16 days experience of running a DTC wine business in the US. So do make a diary note to tweet me in 2032 and remind me how far off my predictions were!

Until now, big was best.

Companies like Wal-Mart and Tesco have created their own virtuous circle. The bigger they are, the more buying power they have, the lower their prices, the bigger they get.

So what will stop worldwide retail from being dominated by one humungous supermarket?

The Internet, that’s what.

The Internet will do to today’s business dinosaurs what meteorites did for the Triceratops. More slowly, more subtly, but just as surely as a hive of bees will bring down a buffalo.

The Expelliarmus effect.

The Internet allows small companies to do something that the giants can’t. No matter how hard they try. We call it the Expelliarmus effect. It gives small companies a structural cost/price benefit over big companies.

And the nice thing is…it works through collaboration rather than confrontation. i.e. suppliers get to make more money rather than less.

If you think that sounds like Internet Alchemy work, it is!  But it really works. For two simple reasons. If we use the wine business as an example…

1. Uncorking genius.
For the first time since the wine industry went global, 3000 years ago, a star winemaker can make the wines they want, without compromise. Naked Wines will
• Finance them – buy the grapes, the barrels the bottles…
• Handle the logistics, from bottling to last mile delivery
• Sell it all.

By connecting winemakers directly with consumers, we have freed them up to show what they can do when they don’t have to compromise.

2. Eliminating the costs you can’t taste.

Why pay to be sold to?

More than half the money most people pay for wine is wasted. Dead. It adds nothing to the taste of the wine. Even the supermarkets, after all these years or remorselessly grinding costs down, still spend an unhealthy % of sales on non-product costs.

There is a new option in town

Up till now, people have to choose. Cheap and dull supermarket wines. Or delicious but expensive boutique wines.

Now they can have Delicious and Cheap.

To illustrate the point, the cost of making a great wine is not a lot more than the cost of making a mediocre wine. Le Pin, which sells for €2200 a bottle, costs €11 to make. A 0.5% cost of goods.

At the more down to earth end of the market, the difference in price between bog standard Marlborough sauvignon grapes and the top quality grapes is around 16p a bottle.

The supermarkets will gladly sacrifice that 16p, and then spend £1 on running a “3 for the price of 2” offer

This is just the beginning.

New business models that use the power of the web to create completely new models are popping up everywhere. Take a look at Unbound. Take a look at Made.

The difference is that these companies are not just making an existing business model more efficient. They are creating products that would not exist, at prices an individual can’t get.

Don’t get me wrong.

I’m not suggesting for a second that Tesco’s enviable growth rate will slow any time soon. They are way too good at what they do.

But as Dan Jago, Tesco’s wine buyer, says, “Naked Wines is like UKIP…hugely loved by a very small group of people”.

Which is just fine by me.

What do I know?

Very few people have made as many expensive mistakes as I have.  These are the often painful lessons I have learned along the way.

A little background on me. I am a failed accountant (passed all the exams, but still can’t do my own tax returns) who discovered that I can start companies. I am now on my 5th start up. The earlier ones include Virgin Money, The Virgin One Account, Virgin Wines and Naked Wines.

My top tips:

  1. The two pint test.  If you can’t explain why your business is going to be able to offer something your competitors can’t in the space it takes you to share a pint… and then answer the 3 main objections in one more pint….you don’t have an idea. Stick with the day job. For example… Naked Wines invests in independent winemakers, to get exclusive wines, at preferential prices, which we pass back to our customers. Shimples. The mistake… when we set up Virgin Wines all I knew was that I wanted to be in the wine business and I wanted to be online. It wasn’t enough. We burned our way through over £20m before we learned the lesson!
  2. Prepare for the valley of death. When you launch, EVERYTHING is against you. Your variable costs don’t vary. Your fixed costs are too high. You can’t get the price you need on your stock. Most of the marketing ideas fail. Your lemons ripen before your plums. Prepare for it, and don’t be surprised when it happens. Remember, a fool is an optimist that thinks this time things will be different. It won’t. The early days will be black.
  3. Only ever work with a small number of very good people. I have Jayne-Anne Gadhia to thank for this. When we set up Virgin Money in partnership with Norwich Union, NU wanted to send us hundreds of middle managers, project managers, change agents etc. Jayne-Anne sent them all back and instead recruited a handful of young, inexperienced, unruly ruffians. Who then worked their balls off to launch a financial services business (complete with regulatory consent, an IT system, marketing campaign, staffing everything) in 10 weeks.
  4. It’s 2.0 or nothing. If your business doesn’t have an unfair advantage over your competitors by using the power of the social web, you just haven’t thought it through hard enough. For example at Naked Wines, the money to invest in our winemakers comes from our customers. Over 50,000 Angels invest £20 a month, so that we can fund our winemakers. Everyone wins. The winemakers get to do what they love – making great wines, rather than selling them. And our customers get better wines for their money than you can any other way.
  5. Don’t believe your own bullshit. When I launched Virgin Wines, it didn’t work. At all. I wasted two years because I could not accept the obvious. It was just a crap idea. Once I grudgingly accepted that, and changed the business accordingly, it took off.
  6. Don’t debate, prototype. Launch early, launch often. So many companies waste their best efforts debating stuff. The original objective gets lost in a cloud of ego and arse-covering. The outcome looks something like Frankenstein’s daughter, crossed with a camel. It’s late. It’s over budget. It is crap. Don’t bother. If someone has an idea, tell them to mock it up. If they can and it looks half decent, find out whether it has legs by launching it to your friendliest customers. if they like it, build it properly. If not, shut it down, clean up the mess and walk away.
  7. Ride your luck. My lucky break was meeting Richard Branson, who offered me the job of setting up Virgin Money. Despite the fact that I had no experience of financial services. Or setting up new businesses. Or managing people. In fact it was hard to find someone LESS qualified than me to do this. My initial jubilation turned to sphincter twitching, gob-dribbling fear, when in no time at all a Powerpoint presentation became a real company with 100 staff and several million pounds invested in a marketing campaign. The first few weeks were awful. Nothing happened. Every time Branson called to see how it was going, I lied. Then with 2 days to go to the tax year end, the security guard came to call me… at the front door was a post office van, loaded with £30m of cheques. We had blown our launch targets out of the water. We were heroes.
So…that’s my dirty laundry on the line. How about yours? What have you learned the hard way?

Follow these tweets:

We thought that was odd, so googled Hayley, and this is what we found:

When we tweeted back….

Virgin responded by saying nothing and blocking Hayley’s twitter account.

Reminds me of the good ole days at Virgin when BA were telling passengers not to fly with Virgin!

I have only ever been to two wine symposia (!). I got lynched at the first one, for suggesting that the internet was A Good Thing, for wine drinkers AND wine makers, and not a 7 headed hydra sent to distrub the wine trade from its 200 year old trance.

So I approached the Master of Wines’ Forging Links Symposium with some trepidation. For one thing I don’t know one end of a first growth claret from another. And I suspected that my message would be even more unpopular this time around.

How wrong I was.

1. It was really inspirational. Now that the trade can see that the internet is the best chance talented winemakers will ever get to connect direct to thier customers, they are embracing the online world

2. Unlike most businesses, in the wine trade, the closer you get to the top of your game, the nicer people are. I sat next to Paul Draper, the man who put Montebello on the map….one of my wine heros. NOt recognising him at first, the conversation went something like this.

Me….Hello, what do you do?

PD….I make wine

Me…Oh, that’s nice. Would I have heard of you?

PD…..probably not.

3. Le Pin really is the dogs bollocks. I have tasted Chateaus LAfite, Latour etc…and wondered what all teh fuss was about. Last night I tasted Le Pin for the first time, and now I know what it feels like to drink a £1500 bottle of wine…that I would actually buy if I had the money. And as above the owners Fiona Morrison and Jacques Thienpont could not have been more delightfully down to earth.

4. I met some exciting new winemakers, all with the same story…I have a delicious wine, but I don’t know how to sell it, I don’t have the money or the time to do it myself….so expect to see them on Naked in the very near future.

I am on my way back to the office now, ideas buzzing around my head.  4 days well spent

Rowan