Within an hour of being fired from Virgin Wines, Rowan Gormley started customer-funded online competitor Naked Wines. Last month, after it was bought out by rival retailer Majestic Wine, Director spoke to Gormley about Naked’s rapid growth, and his new role as chief executive of the combined company
Rowan Gormley is three days into his new job when we speak. Our interview request the previous week to discuss the impressive growth of his start-up Naked Wines had been favourably received by its public relations rep – but less than 24 hours later it was announced that wine warehouse chain Majestic had bought the smaller online retailer for £70m.
With print deadline fast approaching, the news that Gormley would take on the role of chief executive of the newly enlarged company made us even more determined to meet him, and when we do finally get him on the phone, he admits, with a characteristic chuckle, that taking time out for an interview after a hectic few days is quite a relief. For us, too.
Having launched Virgin Money, the Virgin One account and Virgin Wines, his move from Naked Wines to Majestic Wine is the latest twist in the South African-born chartered accountant-turned-entrepreneur’s career – though this is a much smoother transition than the last time he switched jobs. In 2005, Virgin Wines became a subsidiary of Direct Wines, but by December 2008 Gormley was jobless.
“I got fired,” he says. “I had a wife and hungry children so I needed a job to make some money. [After the buy-out] I had agreed to stay on for five years, but about three-and-a-half years in, the management changed, the new guy and I clashed and they slung me out of the door.
“It was 2008, Lehman’s had just gone bust, Greece was about to go bust, Ireland was bust, I think Iceland had vaporised. It was a crazy time. Fortunately, within five minutes of getting fired I walked out, bought myself a new phone, called the office and said, ‘Guys I’m going to start a new wine company’. I gave them a list of people and said, ‘Whatever happens tell this group of people not to sign anything’.
“I phoned up a German family company [WIV Wein International] we had been talking to about expanding into Germany and said, ‘How would you like to start a new wine company?’ Within about 20 minutes I had raised the money and had the people. Then we needed the idea.”
Gormley faced the prospect of launching a wine retailer against the backdrop of recession. Though wine was still seen as an affordable treat by consumers who had cut back, supermarkets were applying heavy discounts for bulk purchases. Gormley’s proposition was for customers to act as angels – investing £20 a month to fund winemakers and in return buying the bottles at wholesale prices. (Customers who aren’t angels pay full price.)
“We couldn’t compete by screwing the winemakers because they were already screwed,” says Gormley. “Their overdrafts were being cancelled and they were struggling to get funding. The obvious way to get good wine at good prices is to help fund the winemakers. We didn’t have any money so that meant getting complete strangers – customers – to give money to winemakers they had never met to make wines they’ve never tasted.”
He jokes of “bribing” the first customers by offering 100 people the chance to taste six bottles of wine for free in return for rating them online. “About 80 of them honoured their side of the agreement and the vast majority of them are still customers,” he says. Naked Wines now has 300,000 angels and a waiting list of people wishing to join.
The model allows the company to strip back selling costs. “A typical £12 bottle of wine contains around £3 of wine with up to £5 of selling costs,” explains Gormley. “We can add another pound’s worth of wine in the bottle and knock a few quid off the top to create a better wine for less money.”
Last year the company doubled UK profits to £2m on worldwide sales of £53m. It sold a record 13 million bottles of wine from 145 winemakers in 13 countries.
“These guys [winemakers] have been beaten senseless by the supermarkets. They’re stuck in this vicious circle – if you want to sell through the independent sector, and have a chance of making money, you’ve got to spend so much selling that you don’t make any money. If you go to the supermarkets and try it for [their] price, you give your margin away. Small winemakers struggling to make a living – that’s the normal story.”
Often, says Gormley, people who have gone into winemaking as a career are not commercially minded. “Good salesmen tend to be bad winemakers and good winemakers tend to be bad salesmen,” he says.
“Very often, when you come across a commercial success it’s because they’re great salesmen and the wines are pretty mediocre… We tap into a treasure trove of stunning wines that are hard to find because these guys would rather be in the cellar or the vineyard and hate putting on a suit and tie to sit in Chesham and speak to Tesco.”
He says the wine business is “odd”, with many in the industry not liking others making a success of it. “I think there’s some respect and privately a lot of people have been supportive for pulling people away from supermarket two-for-£10 discounts to explore wine, but a lot in the industry don’t like change.”
He is frank about why winemakers chose to work with Naked. “We turned up and said, ‘We will help fund you, we will take everything you make and you no longer have to do any selling and you’re guaranteed a profit’. It’s a pretty compelling proposition – and we can get the best winemakers on the planet to come and work with us.”
The biggest cost to the business has been investment in growth; when Naked Wines brings on more angels it has to fund the winemaker to make the wines to satisfy them.
“When you launch a new winemaker you’ve got to discount the wines very gracefully to get people to try them. The cash out to build the business is a heavy drain, but once customers are in, their lifetime is very long, so you’re going to have some return on those people for many years to come,” says Gormley.
Transparency, as the Naked Wines moniker implies, is key. Angels can converse both with each other and the winegrowers on the website’s Facebook-style forums.
“Customers help each other choose wines and they become friends with the winemakers. We’ve created a vibrant community. We’ve got three-and-a-half million ratings on the site now. When you see that 92 per cent of 42,000 people would buy this wine, it’s a pretty good vote of confidence… Some of it is about economics, some about personalisation and some about the fact it’s not a snobby, pretentious place where people talk to you like you’re an idiot if you don’t know your left bank from your right bank.”
Despite 15 years in the wine industry, Gormley denies being a connoisseur – “I’m not a wine geek but I do like the stuff” – nor, he says, are his customers. “The way they would describe themselves is, ‘I don’t know much about wine but I know what I like’. They typically bought all their wine from a supermarket before and every now and again tried something different, spent twice as much on something posh and French and had been disappointed by it.”
He talks of the anxiety around wine, particularly among high-earners who would otherwise make confident decisions on car or home purchases.
“If a French sommelier puts a wine list in your hand and says, ‘How can I be of help, sir?’, everyone turns nervous all of a sudden. The odd thing is wine is a pleasurable product but there’s a lot of anxiety. People feel it’s socially necessary to know something about it. I think there’s a great opportunity to help people discover wines they will love.”
Gormley anticipated WIV Wein would remain long-term partners but says Naked Wines was growing bigger than the level of investment that it was comfortable with. The approach from Majestic was timely.
“We were looking to raise more external equity to keep growing the business, because although we’re profitable now, the customer only funds some of the investment required in the winemakers, so there is an ongoing cash requirement to grow. About the same time, Phil Wrigley, chairman of Majestic, phoned up and said, ‘You’ve got some elements of a great business, Majestic has got all the other elements. Don’t you think we would be better together rather than competing with one another?’”
Market analysts reacted favourably to the takeover, with Investec’s Kate Calvert predicting that Gormley would unlock Majestic’s online potential. The reaction from Naked Wines’ angels has been mixed, with some taking to its forums to voice fears that its proposition would be diminished.
“It’s absolutely fair enough for them to question whether we’re going to remain true to our values, whether that ethos will remain,” says Gormley. “The vast majority of them have said, ‘I’m going to watch this space and if you bugger around with the formula, I’m off’.
“The truth is, Majestic wants to do the deal precisely because of the ethos, and the reason I’m running the combined group is because they want that permeated through the broader group. As long as it’s got anything to do with me, not only will we remain true to the values that we’ve always held but we’re now in a much better position to deliver them, because we’ve got a partner with the financial strength to help us deliver.”
The two – along with a third subsidiary, fine-wine retailer, Lay & Wheeler – will be kept separate with their own management teams, customer propositions and ranges, though Gormley says synergies will be found from sharing knowledge.
“You’re not going to see Majestic suddenly setting up a scheme to fund winemakers and you’re not going to see Naked stocking Veuve Clicquot. [But] yes, we are going to introduce click-and-collect for Naked customers at Majestic stores and hopefully introduce more personalised [home] delivery slots using the Majestic van network.”
He talks candidly of restoring Majestic Wine’s entrepreneurial spirit, which he acknowledges has faded slightly in recent times. The retailer, which was founded in 1980 and floated 16 years later, has faced market challenges.
It disappointed investors last June when it reported flat profits of £23.8m. The board warned it did not expect to see substantial growth until 2016. On the day of the Naked takeover, Majestic said it will announce adjusted pre-tax profit of £21m this June.
Gormley says a reinvigorated, confident Majestic will also pull back from opening new retail outlets and concentrate on getting customers into existing stores and online. “Naked knows how to generate traffic. We will give customers better reasons to visit shops, build loyalty and sales.”
Keen to improve Majestic’s mobile offering, he wants to make its customer experience seamless, with the business looking at stores, online and mobile as a whole, not as separate propositions.
“Companies let internal measurement get in the way of what suits the customer,” he says.
“I know from experience trying to convert people from buying in shops to online is very hard. Channels should be invisible to the customer. It should be whatever suits you best at the time – increasingly, that’s becoming mobile.
“I don’t know what the retail of the future looks like but I’m pretty certain that when it comes to wine it will involve a physical presence because there’s nothing like tasting the product to believe in it. It will involve mobile, because whether you find us inside or outside the store, it knows where you are and it knows what you like and that’s a very powerful part of the proposition. It will involve a degree of personalisation way beyond the segmentation techniques people currently use and something approaching what personalisation ought to really be – personal.”
Speaking of personal, as the interview wraps, there is just time to ask Gormley about his favourite tipple. “If it’s a bright sunny day outside it’ll be a £6 rosé, and if I’m sitting eating a big red lump of meat it’ll be something with piles of oak in it – and every permutation in between. I’m a creature of broad taste,” he replies.
He won’t be drawn on his wine, but Majestic shareholders and Naked’s angels will hope Gormley’s nose for a successful business will uncork the full-bodied potential of the enlarged company.