Six months since launching in Australia, online wine community Naked Wines has reached 20,000 customers, with more than 6,500 ‘angels’ now contributing a monthly amount as part of the company’s crowd-funded approach to wine making.
Naked Wines was been established locally by Luke Jecks, previously the Director of Sales and Marketing for Cellarmasters (the online wine retailer acquired by Woolworths in 2011). The Naked Wines brand and business model was developed by UK entrepreneur Rowan Gormley, who helped establish a number of companies for Richard Branson’s Virgin empire, including Virgin Money and Virgin Wines.
Here, the concept has proven popular, with sales having exceeded $1 million in the two months prior to Christmas. While there was an initial investment of $1.5 million to launch the company in July 2012, Jecks says the majority of this went to acquiring physical assets such as wine.
“One of the things we’ve learnt is that we need to decide on faith, not fear. Believe it or not, we run the risk of running out wine because of that.”
Jecks says a six-week campaign with Bing Lee turned out to be incredibly successful for acquiring customers. Naked Wines offered the electronics retailer $50 wine vouchers to give out to its customers in stores across the country when they spent more than $500 on kitchen items. More than 60% of those who redeemed a voucher became an angel, essentially committing to a recurring purchase each month. Bing Lee also supported the promotion with a traditional advertising campaign. Like many of partnership stories we hear, this one came about thanks to a chance message sent to a guessed email address.
“We guessed an email address and said this is what we’d like to do. It started from there. There’s only one way to do it: get on the phone, and avoid long lunches with business development people.”
The lay-by model for wine has two benefits, says Jecks. Firstly, it helps with cash flow. Without the angel process Jecks says the company would have to use debt or equity to finance its operations. By allowing customers to be part-owners, it provides a better financing opportunity and cash-flow for inventory.
Naked Wines CEO Luke Jecks (Image: supplied)
The second benefit is the stickiness created by customers already having money to spend on the site. Each of the 6,500 angels contributes a minimum of $40 to their account each month. Check back every now and then, and you find you have enough money to order a case or two. In the meantime, the money sits in a trust fund at the Naked Wines end, where it can be applied to growing the business, or (shock!) earning interest.
The mistake is you think you can build it and people will come — they don’t. Or you don’t have the stickiness to get them back.
The best strategy for convincing people to sign up as angels has been to offer rewards. Angels are offered 25% off each purchase, and receive a free bottle with every case they order.
The 12 employees of Naked Wines are based in Newport on the Northern Beaches. Wines are warehoused in Eastern Creek and managed by an external logistics company.
Like other Australian retail startups, Naked Wines faces the struggles of an outdated local logistics network. Jecks says Australia is still not set up for delivering goods quickly, efficiently and cheaply. The costs are too high in metro areas, as they subsidise freight to rural areas. He says it’s the result of a network that in the past has focussed primarily on the B2B market.
Naked Wines isn’t the only startup to have struggled with its logistics. In November 2011, 99dresses founder Nikki Durkin wrote on the Silicon Beach Google Group that leaving Australia to join Y Combinator and focus on the U.S. market was in part a necessity: “Australia doesn’t have the logistics systems to do what we want to do. Aus post [sic] doesn’t even have APIs, and we need that to un-niche 99dresses.”
Although Australia Post now offers an API, many of the pricing, logistic and timing issues are still hurdles for startups. The fact that you can only have parcels delivered by couriers during office hours is a skeumorph of days gone by; before you could snap up a camera or a t-shirt in five minutes online. While Australian startups like ParcelPoint are now offering services to make it easier to pick up parcels when it suits, the real problem still lies in the logistics networks that are expensive to establish.
In 2013, Naked Wines will work its way through its remaining winemaker development fund. Its website currently lists more than 21 winemakers, however Jecks says Naked Wines is looking to fund another 13 more in the next few months.
“Our portfolio of Australian wine makers will grow. We’re also making the transition from startup to SME to bed down our growth.”
Is Naked’s 60% conversion rate on a retail voucher an all-time Australian record? Or average? Or high? Let us know what your experience has been in the comments section below.