Wine matters – Covid made that point abundantly clear – and for the now separate wine retailers, physical stalwart Majestic, and online DTC pioneer Naked, that fact has meant divergent strategies working well in the same category.
Why it matters: The story shows how loyalty is key to the wine business, and that successful companies – even when they plough very different paths – need to tread a careful path of drawing in new customers with an eye on the long-term, while maintaining a hardcore of loyal customers whose newly flexible shopping preferences can be met.
Background: Back in 2015, when Majestic acquired the online upstart Naked Wines, and named Naked founder Rowan Gormley CEO of the enlarged group, it was a sign of where both the company and the industry foresaw a general direction of travel. Fast forward four years, and Majestic was now up for sale to an American private equity firm.
As it turned out, the two companies were facing two very different user bases, and that together, the benefits of Naked’s proposition didn’t chime with Majestic’s convenience.
As the Grocer magazine pointed out at the time of the sale, “Some marriages don’t work. The trick is knowing when to call it a day.” Ultimately, Naked’s digitally-native American ambitions were not the right next step for Majestic, whose new owners have allowed it to focus on its core physical operations that feature expert salespeople and extensive ranges.
A year on from the divorce and, per the Financial Times, the retailers’ results show they are better off apart.
A focus on the physical: Majestic remains committed to stores, with two more opening this year and a further 24 locations earmarked as potentially fruitful. Its secret appears to have been specialism at scale.
Even at a time of economic crisis, lockdown was good to Majestic, and partly because of its retail stores. These provided a network of basis from which its partnership with Deliveroo could offer rapid delivery, bringing in 150,000 new customers.
In a blog post reporting a 300% growth in online orders, CEO John Colley noted that even under lockdown “There is still absolutely a role for bricks and mortar wine retail in this country,” he said.
“Our stores are at the centre of who we are and what we do. The way they adapted to working as delivery hubs meant we were able to come through lockdown in good shape”, Colley added. “If anything, this has given us more confidence in the role of our bricks and mortar arm, and its ability to offer a truly multi-channel experience for our customers.”
What it has shown is the need for agility when moving to the channels where consumers are. This means existing customers moving online, as well as – post lockdown – new customers who had encountered the company online coming in-store in order to access the full experience.
A Naked tech path: Meanwhile, Naked’s post-split plan sought to deploy strategies more typical of tech or software companies. It is a subscription service in which customers are introduced to the products of independent winemakers without the costs of importers and then retail buyers.
What it means, however, is that beyond word-of-mouth marketing expenses in search of high customer acquisition costs are high. In a trading update, the company noted that it continues to “invest aggressively” in customer acquisition to the tune of 14% of projected sales. Sales to new customers are up 185%.
Usually, it works, with finance director James Crawford telling the FT that it tends to make back 67% of that acquisition cost in the first 12 months. The biggest opportunity is in the US, where the share of wine sold online has rocketed from 5% to 20%. As a result, total sales were up 73% year-on-year.
Bottom line: Though both have prospered due to the surge in both wine sales and online shopping – a project enabled by the merger back in 2015, in which Naked got the cash it needed, and Majestic learned about the internet.
What’s interesting is that loyalty is fundamental to wine retail and is a key element in both a subscriptions and big box wine offer. Part of Majestic’s problem pre-acquisition had been that it was becoming reliant on new customers, which required an expensive and ultimately unsustainable program of store openings. As it happens, it is now thanks to greater loyalty that it can afford to expand.
Sourced from The Grocer, Majestic, Harpers, Financial Times; additional content by WARC staff