Overview
Naked Wines is an online-only wine specialist with a mission to disrupt the wine industry for the benefit of customers and winemakers.
The business was founded by Rowan Gormley in 2008 and acquired by Majestic Wine Group in 2015, with Gormley becoming chief executive of the larger group. This included fine wine specialist Lay & Wheeler as well as bricks-and-mortar specialist Majestic Wines.
The three entities separated in December 2019, however, with Majestic being sold off to US investment group Fortress in a £95m deal and Naked using the funds to eliminate debt and invest in its online services to support it as a now online-only and direct-to-consumer business.
Performance under pressure
Naked had been performing robustly following separation, helped by the transition to online shopping brought on by the pandemic. However, total revenue fell 18% year on year to £290.4m for the 52-weeks to 1 April 2024 (FY2023) while the business remained in the red at both operating and pre-tax levels.
The US, UK and Australian markets all reported revenue declines in FY2023.
Ongoing investment for growth - including customer acquisition, subscriber engagement and fulfilment capacity - has put pressure on the bottom line.
And with customer retention rates plummeting in the wake of the pandemic, Naked has been “taking steps to reset our cost base and unwind inventory levels” as it embarks on its “pivot to profit” strategy and focuses on sustainable growth.
Admitting it had “made mistakes” while pursuing “rapid growth”, the retailer announced a shakeup of the business in a bid to cut costs. It has recently been exploring possible finance options amid challenging market conditions.
Indeed, the retailer claims to have continued to make progress on its turnaround plan and has said it has “made substantial progress in returning Naked to profitable growth”.
Disruptive business model
Naked has been seen as a key disruptor in the wine industry by facilitating a direct connection between customers and winemakers. Because the business model does not require a costly retail infrastructure, this not only saves the customer money, but also provides them with the emotional benefits of discovery and proximity to the vintner (wine merchant).
Its customers - referred to as angels - commit to a fixed prepayment each month, which is applied towards their next purchase. Naked, in turn, funds the production costs for winemakers, generating savings that are passed back to its customers.
Whilst the UK is Naked’s most mature territory, it was overtaken in sales by the US the year before Majestic was sold on. The UK provides just over 41% of total revenues. It had been growing well before FY2022 but the retailer has posted UK sales declines for the latest two financial years, impacted by reduced investment in new customers and an increase in prices for new customers, which was a strategic move in order to attract a better “quality” of customer.
Repositioning in the UK
While all aspects of the business had seen strong growth over the two years to FY2021, management has acknowledged that it hasn’t always got the balance quite right. The retailer set about repositioning the UK market towards a more premium offer in 2022 after it placed too much emphasis on growing the volume of new customers at the expense of quality during the pandemic. This was being supported by partnerships with additional winemakers and the extension of its range of higher-priced products.
In mid-2022, Naked said it was reshaping its formula for customer acquisition in this country, including a short-term reduction in new customer investment and limiting the subsidy of initial orders to improve margins on new customer sales.
This approach impacted the retailer’s financial performance for FY2022 and FY2023 as it pursued its “pivot to profit” strategy.
Business priorities
Underlining the scale of the problems across the business, in September 2022 Naked parachuted in founder and former CEO Rowan Gormley as an adviser as it embarked on a strategic review of the business.
Gormley, who still holds a 2.9% stake in Naked, was to “represent the views of shareholders and advise the board accordingly”. He held the unpaid position until December 2022 when he stepped away from active involvement with the board after helping to address “near term performance challenges”.
Gormley took on the role of chair from July 2023, however, replacing David Stead who had held the position for just six months and has since become executive chair on an interim basis following the departure of CEO Nick Devlin after yet another downgrading of its sales and profits forecast in November 2023.
However, in early 2024 Rodrigo Maza, who had been working as Naked’s UK managing director for a few months, was appointed group chief executive designate. Maza worked alongside Gormley for the following few months to accommodate a successful transition. In April 2024, Gormley returned to his previous position as non-executive chairman and Maza was confirmed as CEO.
Gormley’s initial recruitment in 2022 had come days after a non-executive director representing Naked’s biggest shareholder left the business after only three weeks. His return - one of a number of founders returning to troubled retail businesses in the second half of 2022 - also followed the departure of chief financial officer Shaun Tabak in July 2022.
Moving forward under new CEO Rodrigo Maza
On publishing its FY2023 results, Naked said the past six months had been spent laying a solid foundation in terms of:
1. A new management team
2. Clearing the problems of the past
3. Creating a platform for the future
This had included the hiring of Maza as CEO. Additionally, from 11 November 2024 Dominic Neary will step into the CFO role.
One key element of Maza’s aim (set out in its FY2023 results announcement is to achieve higher customer retention, which it aims to do through:
- The competitive advantage of the model
- A “privot to personal” through tailoring the proposition to a wider audience
- Fundamentally rethinking how it demonstrates Naked’s value proposition to current and prospective customers - part of this entails moving away from an over-reliance on discounts, vouchers and coupons to attract new customers
In late 2022, Naked had announced the new operational and financial plan designed to pivot the business into profit. The troubled retailer admitted it had “made mistakes” while pursuing “rapid growth”, and Naked announced a shake up of the business in a bid to cut costs.
Former boss Devlin said Naked had built up stock and grown costs in anticipation of growth “which has not been delivered”. While sales had soared during the pandemic, low consumer confidence and supply chain inflation has resulted in a much weaker performance for the retailer more recently.
Outlining the new strategy, Devlin said the retailer was “taking steps to reset our cost base and unwind inventory levels”.
Naked completed a new $60m (£47m) credit facility with PNC Bank in July 2024, replacing its existing agreement with Silicon Valley Bank.
As well as continuing to focus on inventory and costs in its 2023 financial year, Naked had said it “must turn a greater share of attention to the third goal of our pivot to profit strategy: the delivery of sustainable, profitable growth”. It is also committed to reversing the lower levels of customer recruitment it has been experiencing.
It focused on:
- Resetting its cost base
- Increasing its marketing efficiency
- Exploring new ways to drive traffic
- Aiming to drive up lifetime value of subscriber base
In the UK as elsewhere, Naked wants to develop a sharper focus on improving customer retention and driving up the lifetime value of its subscriber base.
Naked offers an enhanced customer proposition in the UK through its Wine Wizard and Wine Genie subscriptions. Wizard is a monthly to quarterly subscription of seasonal wines, whereas Genie is a curated subscription which allows customers to provide feedback to Naked’s sommeliers for tailored recommendations. The retailer also offers an en primeur service, allowing customers to purchase vintages before bottling.
Naked’s main draw is its Angel investment plan in which customers deposit £25 per month that can be redeemed against any wines at any time. This allows the retailer to fund winemakers, develop exclusive products and then offer those at a lower price.
Personalisation is a key priority
As a purely online business, Naked Wines works hard to ensure its website is as engaging as possible. With the feel of a club for wine enthusiasts, it provides customers with the opportunity to connect with a large number of winemakers and purchase wine that isn’t available through retail outlets.
A huge amount of information is available on the wines and their producers, which can be filtered by country of origin, style of wine, or price, to help customers make their selections. Extensive customer reviews also play a key part in the decision-making process.
Online tasting events have become a regular feature since the pandemic, with customers able to interact with the winemakers, receiving tasting and pairing notes as well as information on what went into creating the wine during these events.
Current priorities include improving data-led personalisation of the shopping experience, rolling out enhanced CRM and CMS tools in order to help deepen segmentation for communications, and to make shopping across devices easier and quicker.
Technology investment stepped up to support rapid growth
Naked Wines is a technology-driven business and stepped up its investment in this area in FY2021 as it sought to reinforce its technology infrastructure to improve the customer experience and support its rapid growth. It is looking to move its core technology systems to a “more scalable, flexible and resilient framework”.
Naked’s early investment was focused primarily into new customer acquisition, specifically to refine its digital marketing targeting algorithms.
In FY2019 it refined the technology behind its wine reservation proposition, ‘Never Miss Out’, and its wine recommendation engine known as Wine Genie.
FY2020 saw some £3m of investment in testing new digital channels and strategies. It also increased recruitment in digital marketing and data science at an additional cost to the business.
As part of efforts to improve technology capabilities, Naked Wines introduced the Product Model, which it describes as “a way of working that delivers incremental change without large-scale disruption”.
International strategy
The US is now the retailer’s largest market, accounting for 45.1% of total sales in FY2023, and the current focus for growth. The direct-to-consumer model is still new to the US as protectionism in favour of wholesalers had made this a non-viable channel until recently. The country has therefore lagged the UK in terms of online migration for the wine market.
But with protectionism relating to alcohol production and direct-to-consumer sales slowly being dismantled at state level, the US presents major growth opportunities for Naked, which is busy expanding its US-based growth team, adding new roles focused on new channel development, content creation and strategic partnerships.
Further supporting growth, Naked has opened a fourth US fulfilment centre and consolidated another into its national distribution centre to reduce shipping costs and delivery times. It has also transitioned to seven-day fulfilment to provide it with the scale needed for growth and improve the customer experience.
The Australian market is considerably smaller, accounting for just 12% of sales in FY2023.
