NakedWines.com Disrupting the Wine Industry? · is case study was prepared by Professors Sandra K. Newton and Armand Gilinsky, Jr., Sonoma State University, as a basis for class discussion

NakedWines.com—Disrupting the Wine Industry? 1

NakedWines.com—Disrupting the Wine Industry?Sandra K. Newton, Sonoma State UniversityArmand Gilinsky, Jr., Sonoma State University

Copyright © 2015 by the Case Research Journal and by Sandra K. Newton and Armand Gilinsky, Jr. This case study was prepared by Professors Sandra K. Newton and Armand Gilinsky, Jr., Sonoma State University, as a basis for class discussion rather than to illustrate either effective or ineffective handling of the situation. All characters and events are real. An earlier version of this case was presented at the 2013 NACRA conference in Victoria, BC. The authors wish to thank the principals of NWC.com for written permission to use this case for classroom purposes, as well as the associate editor and reviewers of the Case Research Journal for their guidance on how to improve the case.

We built a profitable wine business in just four years by doing just the opposite of the rest of the wine industry. We have used the Internet to connect wine drinkers directly to the people who make their wine. We have used crowd funding to raise the money to fund 105 winemakers in sixty-two locations around the world. And now mobile accounts for 24 percent of our traffic and we don’t have a strategy.1

—Rowan Gormley, CEO and co-founder of NakedWines.com

Just back from a short holiday sailing the Andamans, Rowan Gormley, CEO of NakedWines.com (“NWC”), sat in his Napa, California office in June 2013, work-ing his way through nearly 3,000 e-mail messages that had piled up. He noticed

a message marked urgent, from Chief Technology Officer Derek Hardy (a founding partner of NWC, Hardy had worked with Gormley since 1999, most recently as IT director for Virgin Wines). Use of Naked Wines’ mobile app had grown rapidly, yet Hardy wondered if the NWC mobile app strategy needed to be rethought. Gormley quickly typed a response:

I don’t think we have a mobile app strategy, Derek!

NWC funded winemakers, who produced wines on consignment to NWC that were then sold directly to consumers via the Internet. By contrast, traditional wine producers’ wines could be spotted at retail point of sale displays and sampled in restau-rants or on visits to wineries. Without intermediaries, NWC not only had lower costs than traditional wine sellers, but also faced bigger challenges in creating brand aware-ness. A folder on Gormley’s desk contained a report from NWC’s marketing team, discussing customer acquisition tactics and costs, as well as attrition issues within ninety days of a customer’s first purchase. Gormley noticed a Post-It note on his sta-pler. Left for him by one of NWC’s non-executive directors, the note read:

If Naked Wines today is capable of capturing one percent of the wine market in terms of cased goods shipments, why not 20 percent? Now—how to do this?!

NA0375

This document is authorized for use only by Renu Singh in 2017.

2 Case Research Journal • Volume 35 • Issue 4 • Fall 2015

Gormley sighed, pondering how best to tackle the three main challenges before him: how to articulate a compelling message that would attract new customers; whether and how to develop new mobile apps; how to reduce customer attrition/improve customer retention. Could Naked Wines work on all three problems at once? Probably not, he thought. The management team would need to discuss the pros and cons of each idea, decide on a priority project and get started on it. He picked up his cell phone to notify key members of his team to meet for lunch and a discussion that he hoped would forge a consensus on how to tackle one of these challenges.

Competitive LandsCape

The U.S. Wine Industry At the end of 2012, there were approximately 7,498 bonded and virtual wineries from the U.S. that competed in the global wine industry, of which 3,532 wineries were located in the state of California.2 Of the 7,498 wineries, 6,439 were bonded and 1,059 were virtual wineries. [See Wine Industry Glossary for definitions of bonded versus virtual wineries and other helpful information about wine making and wine-related terms.] Most of the 7,498 wineries, 5,836 or 78 percent, were classified as very small or “boutique,” i.e., producing fewer than 5,000 cases per year. Small wineries numbered 1,374 and produced between 5,000 and 49,999 cases per year, while 239 medium wineries produced between 50,000 and 499,999 cases per year. Under one percent—forty-nine wineries—produced more than 500,000 cases per year

The number one company in sales in 2012, E&J Gallo, had captured an estimated market share of nearly 20 percent of the entire case wine production—about 360.1 million cases—in the U.S. The top three producers (Gallo, The Wine Group, and Constellation) together accounted for just over 50 percent of domestic case shipments in that year. Many U.S.-based wine businesses owned and managed a portfolio of a number of brands and wineries.3 See Exhibit 1 for the top fifteen producing U.S. wine companies, ranked by annual case shipments (12 × 750 ml bottles) for the 2012 calendar year.

Three-tier distribution system. In place since the end of Prohibition in 1933, this highly regulated system placed restrictions on all alcoholic beverage producers’ access to markets. Each of the fifty states and the District of Columbia regulated the trans-port or import of “intoxicating liquors” within its borders.4 The three tiers consisted of producers that made wine, distributors-wholesalers that delivered wine to stores or restaurants, and retailers that sold wine directly to consumers.

Variations to the three tiers were: a private winery could also grow and supply all of its own grapes for wine production; a wine maker could also sell direct to consumers where permitted by law; and some supermarkets—such as Costco and Whole Foods—could also sell their own generic or private label wines by purchasing blanks (unlabeled bottles) from wine makers and having them labeled appropriately.

The 2005 Supreme Court’s Granholm versus Heald decision held that the Twenty-first Amendment “did not give states the authority to pass non-uniform laws in order to discriminate against out-of-state goods.”5 For a typical U.S. winery, this now meant that individual state regulations dictated the fees and taxes, as well as how much, how often, or if any of its products could be shipped directly to a consumer of that state, thus bypassing a rapidly consolidating three-tier system.6

For the exclusive use of R. Singh, 2017.



Exhibit 1: Top 15 U.S. Wine Companies in 2012 (by volume sold)

Rank Company Annual U.S. Case Sales*

1. E&J Gallo Winery 72,000,000

2. The Wine Group 62,000,000

3. Constellation Wines 50,000,000

4. Trinchero Family Estates 18,000,000

5. Bronco Wine Company 17,000,000

6. Treasury Wine Estates 16,000,000

7. Ste. Michelle Wine Estates 7,500,000

8. DFV Wines 6,000,000

9. Jackson Family Wines 5,500,000

10. Diageo Chateau & Estate Wines 4,500,000

11. Viña Concha y Toro (Fetzer Vineyards) 3,000,000

12. Korbel Wine Estates 2,400,000

13. CK Mondavi Family Vineyards 1,500,000

14. Bogle Vineyards 1,500,000

15. J. Lohr Vineyards & Wines 1,400,000

*Volume amounts U.S. domestic only; exclusive of export case sales. One case is equivalent to 12 × 750 ml bottles.

Source: Penn, C. (2013) “The WBM 30 Largest Wine Companies,” Wine Business Monthly, February, p. 42. (Top 15 extracted from “The WBM 30” list.)

Direct-to-consumer (DTC). In the aftermath of Granholm versus Heald, opportuni-ties in the direct-to-consumer (DTC) channel grew slowly at first, from three states in 2005, to forty states in 2012. This represented an increase of nine states over 2011.7 Increasing shipments of wines straight to consumers spawned related businesses, such as VinoPro.com and ZeroLinkMarkets.com (vinoshipper.com). These new businesses provided e-commerce, mobile app, and point-of-sales solutions; developed compli-ance technologies including databases that sorted through the myriad of regulations among the fifty U.S. states and the District of Columbia; performed logistics manage-ment and fulfillment services; and provided shipping materials and common freight carriers for packaging and delivery of wine.8

Via DTC channels, producers were able to retain nearly a full gross margin (less costs of packaging and shipping) on sales to customers, rather than forego about 50 percent of profit per bottle or case to wholesalers and distributors. The emergence of the Internet and social media marketing and technologies, as well as the advancement of more efficient delivery options, such as United Parcel Service and Federal Express, made DTC a viable channel, especially for smaller wineries, i.e., those producing fewer than 100,000 cases of wine annually. DTC sales were perceived as the number one opportunity for growth for U.S. wine producers, while traditional distribution sales and wine club sales placed second and third among the top ten opportunities identi-fied in Silicon Valley Bank’s State of the Wine Industry 2013, based on reports from 500 U.S. wineries.9 California, Texas, and New York were the top three states in overall wine sales. In terms of DTC shipments, California (32 percent of shipments and $435



million in value, Texas (9 percent and $136 million), New York (7 percent and $101 million), and Florida (6 percent and $81 million) together accounted for nearly 50 percent of all U.S. direct wine shipments by volume and by dollar value.10

In 2012, wine sales in the entire U.S. reached an estimated retail value of $34.6 bil-lion; California wines accounted for a 64 percent share with an estimated retail value of $22 billion.11 While DTC had become the highest growth channel for wine busi-nesses, many small-medium wineries still depended on either hand-selling or boutique distributors to move increasing volumes (cases) of wine.12

The Online Wine Retail Business In 2012Consumers had a number of options to purchase wine online. These included “flash sale sites,” such as Lot 18 or Wines Til Sold Out, as well as the two largest online wine merchants, Laithwaites and Wine.com. Laithwaites primarily distributed wines to wine club members who were subscribers of other service providers, such as The Wall Street Journal and the New York Times. Laithwaites, proclaimed as the largest home delivery wine business in the world, celebrated an 18 percent rise in revenues from the U.S. in 2012. Sales at its Direct Wines holding company grew by 2.5 percent to $537.4 million in that year, yet investments in software and overseas expansion cut after-tax profits from $17.5 million to $10.1 million.13 The oldest Internet wine retailer, Wine.com, founded in 1999, grew to $65 million in revenues in 2011, and was projected to capture $80 million in revenues by year-end 2012.14

After two previous well-publicized and failed attempts to get into the online wine retail business, Amazon.com announced the launch of its Amazon wine site on Novem-ber 8, 2012—just in time for the 2012 holidays.15 NWC did not consider typical wine clubs or Amazon’s entry into the online wine sales as direct competition. Gormley said:

Amazon really isn’t a factor. If Kickstarter decided to do wine, now that would be seri-ous competition. But I don’t see Amazon, Wine.com, or Lot 18, as competitors. It may be complacent of me to say this, but I don’t think a competitor will come from the wine industry, but from outside, like Kickstarter. Someone already has been trying to emu-late our model but with fair trade coffee. So it’s only a matter of time until someone else comes along and copies us.16

Company History

Rowan Gormley and twelve friends (including Derek Hardy, who became NWC’s chief technology officer or CTO) had worked together on previous ventures, including Virgin Money and Virgin Wines, businesses that were part of Sir Richard Branson’s Virgin Group. Virgin Wines ran out of money due to excessive spending on adver-tising and was sold to Laithwaite’s in 2005.17 By October 2008, Gormley decided that the time was right to go out on his own and try something new. Wanting to try another approach to selling wine, Gormley and his team were adamant that they did not want to be a me-too wine retailer, so they created a list of hot trends in the wine industry, brainstormed ideas, and settled on three foundational principles:

1. We’re not going to screw our suppliers (winemakers). We’re going to finance them, so they can focus on doing what we want them to do, which is make brilliant wines.




2. We’re going to invest inside the bottle, on the stuff you can taste. And we’re not going to waste our money on fancy packaging, “brands”, distribution, etc., which you can’t taste.

3. We’re not going to pander to wholesalers, distributors, wine critics, etc. We’re just going to get rid of them altogether.

NWC’s Business ModelNWC’s mission was to find the world’s most talented, undiscovered winemakers and set them up in business, and this was supported by a marketing message: “For wine lov-ers—so that you can enjoy the wines, make friends with winemakers, and save money.” In order to foster a business based on collaboration and relationships, the founders agreed on a “virtuous circle” concept: “we would seek out talented winemakers who wanted to sell wine under their own labels, but who lacked both seed funding and the commercial smarts” (in Gormley’s words) to purchase the key components of produc-tion—grapes, laboratory equipment, tanks, barrels, bottles, and labels—without help. Another priority was to acquire subscription customers who were willing to invest up-front in NWC and its winemakers—in return for wine. Wine delivery could take anywhere from three to twenty-four months depending upon the variety of grape due to differing aging requirements (white wines could be sold within months of harvest, while reds typically took anywhere from 18–24 months to mature). To attract initial subscribers in the UK, NWC procured high-end wines from notable wine regions in Europe, South America, and South Africa. In return, NWC’s subscribers—dubbed “Angels”—received high-end wine at lower prices than they could get elsewhere.

Hardy helped rally the team with his observation that:People will trust other people if they can see exactly what they are getting. We have to be Naked. People must be able to know that what they see is what they get. We need to allow people to speak directly to the winemakers; say what they think about the wines . . . we need to be a Facebook for wines!

NWC’s philosophy and business model were sufficiently compelling to convince Andreas Pieroth (co-CEO of WIV-Ag, a family-owned German wine business) to pro-vide about $5 million in seed capital above the founders’ initial estimated $1 million investment. Another $1 million came from other investors, including Jamie Oliver (a renowned chef and restaurateur), Amazon UK, and BBC Good Food.

NWC went live online in December 2008, just at the onset of a worldwide reces-sion. The founding executive team consisted of Gormley as CEO and Derek Hardy as CTO. Eamon Fitzgerald, an Irishman who had worked at Accenture and Decanter (a UK wine trade journal, much like Wine Spectator in the U.S.) then joined as chief operating officer (COO). Ian West, former managing director of UK satellite televi-sion network BSkyB, later came on board as “non-executive director who kept us all in check,” according to Gormley.

By the end of its first three years of UK operations in 2011, NWC had invested in forty independent winemakers, shipped an average of 10,000 bottles of wine every day, enjoyed 100 percent growth year-on-year, and acquired nearly 100,000 “Angel” inves-tors, who in turn paid over £2 million (about $3.2 million) per month towards future wine orders. To support the NWC model, a customer became an Angel by making a monthly investment. An Angel’s monthly payment was considered an investment—not a sale—as NWC used an undisclosed portion of that money to fund independent



winemakers and their brands. Angels in the UK invested £20 per month (about $32 USD), while Angels in the U.S. and Australia invested $40 and A$40 (about $25 USD), respectively. These recurring monthly payments served to build up an Angel’s account, and when an Angel saw an interesting wine on NWC’s website, he or she could purchase it at a wholesale price, 40 to 60 percent below retail, using the accumu-lated funds in his or her account. If an Angel’s account balance was insufficient, he or she could “top up” the funds to make a wine purchase. Those Web customers who did not want to become Angels could also purchase wines, but at higher prices (typically 40–60 percent higher). Angels represented 95 percent of NWC’s customers, according to company estimates, and non-subscribers accounted for the remaining five percent of online wine purchases.

When asked about this business model, Gormley stated:We set our prices based on costs. I’m a chartered accountant by training, you know. We built a kind of “reverse-engineered income statement.” If it costs $4.00 to make a bottle of wine, we will charge $5.00 for it. Grapes are purchased at market prices and physical distribution is about $2.00 per bottle here in the U.S. Those costs kind of set the floor—and then you have vinification (winemaking and aging) costs, which are about $800/ton here at our leased facility in Kenwood versus about $3,500/ton at a winery in Napa.

We’ve tried hard to use a “Southwest Airlines” model: instead of pricing seats like the plane was empty, we priced seats like the plane was full. We are a small business, but we run it like a big business. We’re a venture capital company for the wine industry. We raise money from consumers, our Angels, and instead of paying dividends to these “investors,” we give them preferential prices for wine. What keeps me awake at night is that in constructing and executing on this business model, we are annoying powerful people who use vicious lawyers to keep out other companies. And that’s quite scary.

World-renowned wine critic and author Jancis Robinson later commented in the Financial Times:

I see a parallel between Naked Wines and Laithwaite’s. They both have a business model that operates outside wine trade norms. Not for them the old system whereby a retailer buys from a wholesaler, who might buy from an importer or the agent of a producer. They don’t need to kowtow to any supermarket buyer but go straight to the producer and offer wines unavailable elsewhere, thereby making direct price com-parisons virtually impossible . . . The real genius of the Naked Wines model is that it fully harnesses social media, a concept still foreign to most in the wine trade. Angels review purchases on the Naked website, so individual wines carry telltale numbers of purchasers and percentages of the likelihood of a repeat purchase. And once a producer takes the Naked cash, they must agree to dialogue with customers—or, at least, field someone who can write friendly English on their behalf. The website has a section that is effectively a chatroom for its suppliers and customers, most of whom agree how wise they were to invest in Naked.18

Global ExpansionBased on NWC’s early success in the UK, in late 2011 its German investors pro-vided an additional €18 million (about $25 million) to enable NWC to lease a facility in Kenwood (Sonoma County) California, and also an office in downtown Napa.19 NWC then launched new retail platforms in the U.S. and Australia, each with its own website.




NWC expected some time to elapse before consumers in these new country mar-kets would be ready to try inexpensive wines from little-known winemakers. To begin its U.S. entry, NWC formed partnerships with regional companies, law firms, and the U.S. staff of Nintendo’s PlayStation. In order to gain needed traction—credibility and visibility—NWC partnered with Groupon, offering savings on its wines with each purchase of a Groupon “deal.” Gormley explained how NWC was able to develop U.S. partners like Groupon:

Our biggest road bump is getting traction in the USA, which means getting people to break old habits. In the UK, we were always one-to-two degrees of separation from potential customers, but in the U.S., we didn’t know anyone initially. Yet, in the U.S. we realized that we could call a company and get right through to its president; some-thing not possible in the UK, unless we were school chums or related somehow.

Later that summer, in August 2012, NWC moved into the former Blackstone Winery in Kenwood. By then, 70 percent of NWC’s wines were sourced from U.S. winemakers. The leased facility was used for winemaking and wine aging, for a tasting room and special events, as well as for storing cased goods inventory for shipments destined to customers around the world. While the Kenwood facility had the capacity to crush 1,000 tons of fruit for its different winemakers, other wineries in California and around the globe were used to support NWC wine production.20

Customer Acquisition For NWC’s U.S. launch, customer acquisition turned out to be a somewhat differ-ent proposition than it had been in the UK. Americans seemed much more receptive to new ideas and much more accessible than the British, at least initially. “People in the U.S. were much more open, much more willing to try new stuff,” Gormley commented. In the UK, the most effective message was “How much of your money we would save; in the U.S., the message that worked best was a much more “philan-thropic” view, according to Gormley, that message was: “How doing something good or getting value benefits someone else.”

On the other hand, American customers resembled British customers in terms of taste preferences and choices of wines in more ways than NWC had initially assumed. UK and U.S. customers purchased mixed cases, and unfashionable or obscure wine varieties or varietals (such as Temperanillo) tended to receive the highest ratings from NWC’s UK and U.S. customers. Gormley noted:

What we have been saying to wine consumers is, “If you want to drink good wine, then you’ve got to try us.” We have a stable of the best winemakers on the planet, and because our winemakers tend to be exclusive, you’ll have to go with us to drink their wines. We don’t want our subscribers to become angry, so, if they haven’t liked a wine they’ve purchased, we will give them something back for free.

Our competitive advantage is that we are viewed as a place where winemakers want to work. We are never going to develop a monopoly on winemakers, mind you, but if we could have first-class winemakers making products for us to sell at very affordable prices, we could sustain our business. If we are able to capture just one percent of the entire global wine market, that would be sensational, and at that point, getting to five to ten percent of the market might even be conceivable.

In May 2012, Gormley told a reporter from WineSearcher.com:




It wasn’t until I started in the wine business that I realized how difficult it was. My first foray at Virgin Wines was absolutely disastrous. It was at the height of the dot-com boom and it was so easy to raise money. I really thought the name Virgin, wine, Inter-net—put those three things together, how can it go wrong? And, of course, you put those three things together and nothing happened. I’ve probably spent more than any-body on the planet trying to sell wine to other people online unsuccessfully . . . when we set up Virgin Wines, raised several million pounds, and blew it all, we thought, “Shit, we don’t have a business!” The best thing I ever did, unquestionably, was setting up NWC from scratch with twelve colleagues who left Virgin Wines, and getting it right.21

NWC’s public relations efforts resulted in a favorable June 2012 profile in Forbes and increased traffic to the NWC website.22 In October 2012, NWC was named the UK’s most innovative wine company for the second year in a row at the International Wine Conference, and in December 2012 NWC was named “Online Business of the Year” at the UK National Business Awards. For the 2012 holiday season NWC developed promotions with Brookstone and Golfdiscount.com, whereby customers who spent $99 qualified to receive a $50 NakedWines.com voucher that could be applied to the purchase of any wine from NWC’s website.23 A December 12, 2012 article in the San Francisco Chronicle opined that, “NWC’s concept—an amalgam of crowd funding, wine club and wholesale store—could alter the U.S. wine industry value chain.”24

Crowdfunding winemakers

Some industry observers expressed confusion about the differences between NWC’s model and the traditional wine club model, in which a typical wine club operator or online wine merchant would “push” its wine products to consumers. Gormley noted that NWC had adopted a “pull” model, or rewards-based crowdfunding, not dissimi-lar to some programs like Unbound.co in the UK or Kickstarter.com in the U.S.25

Gormley explained how crowdfunding worked for NWC:Our desire for social integration meant that customers and winemakers—via crowd sourcing and crowdfunding—were also part of the ecosystem of the business. We’ve probably put together the world’s largest group of Internet-wine investors ready to back the winemaking talent behind the big names, give them a chance to create their own brands, and invest in top quality grapes to produce wines equal to the best at a fraction of the price. Angels’ future orders also provide us with the financial firepower to kick-start some exciting projects. And in exchange for an Angel’s investment, he or she receives exclusive access to the resulting super premium wines at prices that will annoy the hell out of our competitors—typically 40–60 percent off the listed website prices. If you got them all together in a room, our Angels might well say that they felt a real sense of ownership of the wines and the winemakers. We call our super-consumers “Archangels.” Archangels are an elite group that actually selects wines, prices those wines, and then funds winemakers. In Argentina, we put $100,000 on the table and invited 500 wine-makers to submit their wines for review, allowing our Archangels to choose the winners.

Archangels comprised a “Naked Wines 2.0” community that was closely involved in all aspects of the business. For example, feedback from Archangels led NWC to simplify the functionality of its websites. If an Archangel saw something incorrect on a website, she or he would jump in and let NWC’s marketing or IT staff know about it. Archangels tended to be vocal and active on NWC’s website, indicating that these consumers felt a sense of ownership and involvement.




Exhibit 2: Economic Analysis Comparing a Bottle of Napa Cabernet Sauvignon Sold through the Traditional Three-Tier System with a Bottle from NakedWines.com (based on company estimates)

Traditional Napa Cabernet Sauvignon

(U.S. dollars)

NWC’s NapaCabernet Sauvignon

(U.S. dollars)

Sales Price Basis Wholesale Retail

$23.00 $26.99

Cost of Goods Sold

Grapes 6.15 6.15

Winemaking 2.20 2.20

Oak Barrels 1.70 1.70

Cost of Goods Sold—Total 10.05 10.05

Gross Profit 19.95 16.94

Sales and Marketing Expenses 16.20 8.33

Producer Profit per Bottle 3.75 8.61

Via Three-Tier DTC

Sales and Marketing Expenses Paid By:

Distributor 13.13

Retailer 19.69

Non-producer Sales and Marketing Expenses—Total 32.82 0.00

Total Cost per Bottle at Retail Sale 59.07 18.38

Retail Price per Bottle to Consumer 60.00 26.99

Total Profit, per Bottle 0.93 8.61

Per Bottle Saving to Customers 33.01

Source: Rowan Gormley, Naked Wines, May 2013.

Gormley related some examples of how NWC had crowdfunded various winemak-ers to help them to build their own brands—while not being forced to leave their “day jobs” as winemakers for other branded wineries. Other winemakers joined NWC for a chance to experiment, where they might have been constrained in their “day jobs”:26

Carmen Stevens in South Africa was the finest black woman to graduate as a wine-maker in that country, but she just couldn’t get financial backing. We went to our customers, asked them to help, and raised the $150K she needed in just four hours! Bill Small, another winemaker, based in Marlborough New Zealand, now makes 300,000 bottles of wine per year for us. Our smallest producer, Bird on a Wire in McLaren Vale, Australia, makes 400 bottles a year for us.

Two other winemakers explained why they signed on with NWC: I never had the cash to start my own winemaking business. Now with NWC’s finan-cial backing of $125,000, I started up and now produce a variety of wines out of




Rioja, Navarra, and Galicia. Without NWC, my winemaking dream would have been nearly impossible. I had had no luck securing financing from my local bank, and they “thought I was crazy” for not having a foolproof business plan.

–Carlos Rodriguez, a winemaker from Spain27

Two of my passions are wine and sales marketing. I’ve partnered with another NWC winemaker to make Pinot Noir and Chardonnay wines. With the social environment of NWC, I’m able to show angels—by using blogs, videos, and other social media—how to make wine from the ground up and give them an idea of what it takes.

–Dalia Ceja, a winemaker from Napa Valley28

Gormley believed most winemakers gave away too much profit because of inter-mediaries’ costs (mostly distributor mark-ups).29 Using the back of an envelope, he estimated that Naked Wines was also generating higher profit margins than rivals by eliminating the middleman, or distributor. See Exhibit 2, comparing the costs and margins of two bottles of wine (essentially equivalent on the inside): a $26.99 Napa Valley Cabernet Sauvignon from NWC and a popularly priced Napa Valley Cabernet Sauvignon at $60.00 retail. A $60.00 Cabernet Sauvignon from Napa was considered fairly moderate in price, compared to a bottle of Screaming Eagle Napa Cabernet, sell-ing at $250 or higher, depending on vintage and vineyard.

information teCHnoLogy

During the company’s initial launch phase in fall 2008, staff didn’t have a lot of time to build information technology (IT) systems. Gormley wanted NWC’s e-business to be fully operational by the 2008 Christmas holidays—a peak season for wine purchases. NWC designed and built everything in-house, but the founding team did not believe in “reinventing the wheel.” A team of three developers were given only five weeks to build three sets of applications: the customer-facing website, a call center, and batch applications. Each of these used standard available tools, relying heavily on open source software and open source frameworks. For example, NWC used the PostgreSQL for its database, and Spring Social to integrate NWC systems with Facebook and Twitter. (See “Information Technology Glossary” for IT terms and vendors.)

Gormley recalled those early days: “We were quick to learn how to be a very nimble business; we didn’t sit around and debate.”

“Still,” Hardy quipped, “there were lots of long nights of pizza and Coca-Cola. Normal, I suppose. I had worked with Rowan at five to six other companies over the past 15–16 years and it had always been the same.”

When the decision was made by Gormley and his team to enter the U.S. (and Australian) markets, the nascent company soon found that outside help to supplement its internal IT resources and capabilities was required to accommodate rapid growth, unpredictable transaction volumes, as well as needed credit card security. Management decided to transfer all IT activities into “the cloud.”

“Cloud computing made it easier to launch applications and quicker to expand the venture internationally,” Hardy reflected. “The U.S. wine market was roughly twice the size of the UK wine market, so vastly greater demands on data volumes were expected,” he said.

Subsequently, NWC signed on with Amazon’s EC2 (Elastic Cloud) service to run its data storage and computation capabilities. Many highly visible companies had



already signed on with EC2, including Netflix, Instagram, and Pinterest. Amazon publicly committed to continuously improve its systems, and its size, stability, and experience were marks in its favor (despite some problems Netflix notoriously encoun-tered during the 2012 holiday season).30 NWC, obsessed about credit card security, contracted Adyen.com as a third-party provider for credit card payments and billings. As companies’ and consumers’ reliance on Internet services and mobile technology increased exponentially, sustaining access and availability and security were likely to remain on-going challenges for IT teams in many e-commerce businesses.

In Hardy’s view, moving operations to the cloud freed up NWC’s in-house resources so they could develop new innovative applications. The IT team continuously refined and rebuilt NWC’s platform as the company grew. This turned out to be an iterative process. Hardy recalled: “We continually looked at ways to give different functionality to consumers. We would put together prototypes and place them in front of either open or closed groups, see if they worked, and if they didn’t, we would try something else.”

Hardy was dismissive about outsourcing any IT development work. He felt that so long as his team could design databases and other IT systems in-house, the design would better suit NWC’s customized needs. Hardy also felt strongly that if NWC “tried something wildly different than before, then we would soon know how well or poorly it worked.” He said:

We knew from the start that we had to run what we call an agile development environ-ment. We have an internal saying, “Don’t debate—prototype”. So we built it first and then we would find out what happened. Our core team built the spine—most of our core development team members are still in Norwich, England—but we also have local development groups for each market, and separate websites for the UK, U.S., and Aus-tralia. The reason for doing so was that there are many localities in the U.S., multiple state laws, tax rates, and so forth, so we needed to localize.

Hardy took pains to ensure that NWC’s technology infrastructure had “a singular view,” enabling IT staff to be much more informed than those of rival wine e-commerce companies that typically used data architecture that may or may not have been com-pletely tied together. For example, NWC developed and bolted-on an internal purchase order system (POS), which tracked customers, transactions, and ratings across all three NWC country-based websites. Its POS could determine at a glance how much each wine had cost versus what customer rating it had received. “We put a lot of effort into our database design, making sure that every application conformed to that database. Doing so provided a very solid understanding of quality, price, ratings, repeat pur-chases, etc., but unfortunately has not necessarily given us the capability to predict customer attrition,” according to Hardy.

Data MiningManagement debated the potential of predicting customer retention or attrition via effective data mining, rather than speculating about future consumer behavior. Staff compared each week’s sales to the prior week’s sales. Staff asked questions, and elimi-nated wrong answers until they reached the correct answer. Gormley described NWC’s data mining processes in some detail:

We borrowed from the logic one uses to solve Sudoku puzzles, where one thinks logi-cally, rather than guessing. Eliminate the answers that cannot be correct and you end




up with the one that is correct. You eliminate, then commit. Trying to pick the “golden winner” first is not possible. We try to not guess. For instance:

• Did sales drop because wines were priced incorrectly, or was it because not enough customers were notified about deals?

• Were customers’ accounts tapped out? (U.S. Angels were billed $40 per month to their credit card on a recurring basis; wine purchases were debited from their accounts. Angels could also make wine purchases that exceeded their NWC account balances; the balance due was charged to their credit card.)

• Did customers open the e-mail promotion message that was sent to them, or was the subject line of the e-mail promotion message incorrectly worded?

While some companies might have adopted A/B testing of each product, using differ-ent variables to see what works, we also looked at the positioning of products on the web page, price, winemaker, the story behind the brand, and so forth. We believed with so many variables in play at once, A/B testing would have been a challenge.

Instead of A/B testing, NWC extensively tested promotional e-mail subject lines. NWC discovered that finding messages to interact with customers was a key to con-vincing the individual to open a promotional email. NWC found that e-mailing a customer with an apology in a subject line, for example, generated more sales than e-mailing a customer with a product on offer.

Key Performance IndicatorsNWC staff spent considerable effort developing metrics and key performance indi-cators that worked for them. Hardy wryly noted, “We didn’t spend $500,000 on a Customer Relationship Management (CRM) package; we wrote the code ourselves, so that it was tailored to our specific business needs.” NWC’s web analytics were grouped in three tables: 1) customers, 2) products, and 3) orders. The data team then used SQL to pull out basic data into an Excel file, then pivoted the data, and analyzed that data on a weekly basis, rather than relying on six-month-old analytic reports. “Our data team’s job was to build tools like these, not generate reports,” Hardy said.

Downloading and analyzing the data fell to the marketing team, headed by Adam Reiter. Reiter had been recruited in early 2012 from E&J Gallo, a company that spent thousands of dollars to do focus groups. “When NWC initially conducted focus group work, it led us down blind alleys. It had been very hard to do something like this with-out deep pockets (like we had at Gallo). At NWC, we learned more about consumer preferences for wines in about a day from the large amounts of customer data that we already had.”

NWC’s Napa offices were devoid of cubicles. Gormley and Hardy liked having IT staff mingle with the marketing staff, so everyone worked in the open, allowing less formal, less structured communications among the integrated teams. This philosophy and openness enabled Reiter to assemble a team composed of marketing staff and IT professionals. This multifunctional team was known inside NWC as the “Shepherds.” Each Shepherd had a goal: find any customers who might stop purchasing wines—such as a customer who had written three negative wine ratings, or a customer who had had two problem shipments. The Shepherd would place a phone call to such a customer, saying, “here’s your money back.” Gormley explained that if a customer did not like a particular wine “we believe it’s almost always a ‘style issue.’ For example, many do not prefer oaky Chardonnay.”




Hardy estimated that nearly 40 percent of NWC’s customers in 2013 had made their first purchases in the 2008–2009 period and that these loyal NWC customers placed about four orders per year. By contrast, “customers of traditional wine clubs typically remained members for about 18 months,” Hardy said. Another key per-formance indicator—NWC’s customer acquisition cost to revenue ratio—had held steady at 1:2 (or 50 percent), which Hardy believed was exemplary in the e-commerce space. Also, customers who rated NWC’s wines were more likely to remain custom-ers; those who did not rate wines were one seventh as likely to stay. One of the most intriguing results from internal data analyses, Hardy said, “was to find ways to induce customers to interact on NWC’s websites, such as ‘rate a wine’ or ‘win a free trip some-where.’ Over the past four years, we’ve learned that we need to prompt customers to rate our wines,” Hardy said.

According to Gormley, tracking how customers shopped for wines, and learning why some customers stopped purchasing wines, were things that traditional wine pro-ducers did not do well, if at all, despite the boom in growth of wine tasting rooms and visitor centers, wine club membership schemes, and direct wine sales to consumers from wine producers’ websites. He said: “Our next big thing to tackle is a customer-attrition prediction model, for which we will use open source software, mainly because it is all available for free and we get the benefit of someone else’s learning—for free.”

Mobile ApplicationNWC’s IT developer team built the company’s mobile app as well as a wine suggestion algorithm for the mobile app. The mobile app, built for both Android and iPhones, was deployed in June 2012 for Angels only. NWC’s app was designed so Angels could learn about and rate wines, and interact with other Angels as well as NWC’s contracted winemakers.

While anyone could download NWC’s mobile app, Angels solely had access to the app after signing in. Hardy stated, “Fifty-seven percent of our Angels now rate our wines—when we started out it was about 19 percent. People who rate, who interact, are better customers.” Hardy provided internal data, shown in Exhibit 3, consisting of the average number of wine orders, ratings, and posts from June 2012 to June 2013, and comparing metrics from customers who used the mobile app versus those that did not. Customers that did not use the mobile app used NWC’s website to view and place orders.

Exhibit 3: Mobile App Usage by Naked Wines’ Angels

8.23

18.29

6.55

3.925.49

1.21

Orders/Year Ratings/Year Posts/Year

Has Mobile App No Mobile App

Source: Derek Hardy, Naked Wines, June 2013.



future ambitions

By late June 2013, NWC reached the 150,000 Angel mark, with estimated average revenue streams of £1.7 million ($2.5 million) per month, creating cash flows that were credited against future orders from those customers. NWC had reached break-even and indicated it was on track to grow to some 200,000 Angels-investors by the end of 2013, by adding about 500 new Angels per day in the UK, U.S., and Australia. Those estimates included selling 400,000 cases of wine in 2013. Exhibit 4 shows NWC’s revenues and profits from its inception through 2012, as well as projections for 2013.

As Gormley joined his team for lunch, he reflected on where NWC had been and where it was heading:

Our big investor, the German family company, is in this for the long term, guys. We knew when we started that they had been looking for a new business model in the wine industry for a very long time. This is it. We are not building a business to flip to another buyer. Every single one of us [NWC’s entire staff] has equity. I’m fifty years old. I love living here [in California]. It’s a nice business. How many businesses do you know about where the CEO gets to sit in a chair outside in the sunshine doing business with nice people? This is as close as one can get to having fun—while making money.

Over lunch, Reiter thought out loud: “Our model could be easy for rivals to copy, though it would surely take a considerable amount of time before our competitors’ traffic could catch up to provide a sufficient amount of data (for mining and decision-making).” He continued: “However, our mobile app is restricted to Angels only, so we may be losing out on acquiring many potential new customers. Perhaps we need a basic app for the occasional customer and a premium app for our Angels.”

Hardy countered: “Adam, I respectfully disagree. The mobile app should be for Angels only, since we’ve put a lot of time and effort and money into our Angel-oriented database design.” Hardy then turned to Gormley:

Rowan, we need to make sure that every application conforms to that database. Doing so has thus far provided us with a solid understanding of quality, price, ratings, repeat purchases, and so forth. Unfortunately, our database has not yet provided the function-ality to predict customer attrition. So, my feeling is that we should focus our efforts on developing a database capable of predicting attrition so that we do not lose subscribers.

Gormley sighed, reflecting for a moment on these arguments and NWC’s current challenges:

What’s our mobile technology strategy to become so that it will take us beyond our competitors? How do we address the customer acquisition and retention issue? If we can capture one percent of the wine market, why had I set our sights at only five to ten percent; why not higher? Reaching a 20 percent share might take us to the same level as the Constellations and Gallos. Which one of these challenges should we tackle first? And then—where do we go from there?



Exhi

bit 4

: NW

C’s

Fin

anci

al R

esul

ts, P

re-la

unch

—20

13 (e

stim

ated

)

2008

% o

f sa

les

2009

% o

f sa

les

2010

% o

f sa

les

2011

% o

f sa

les

2012

% o

f sa

les

2013

e%

of

sale

s

Act

ive

Cus

tom

ers

(1)

5,71

938

,127

61,0

1481

,063

100,

248

200,

000

Cas

es S

old

(1)

7,00

012

2,00

021

5,00

027

3,00

032

1,00

040

0,00

0

Sale

s in

Dol

lars

(2),

(3)

$320

,630

$5,7

49,2

79$1

1,61

6,95

0$3

3,60

0,00

0$5

6,00

0,00

0$9

6,00

0,00

0

Cos

t of G

oods

Sol

d (3

), (4

)42

9,31

713

3.9

5,81

4,41

110

1.1

11,0

90,9

9195

.531

,650

,008

94.2

52,4

33,8

2293

.688

,974

,722

92.7

Gro

ss M

argi

n (1

08,6

87)

–33.

9(6

5,13

2)–1

.152

5,95

94.

51,

949,

992

5.8

3,56

6,17

86.

47,

025,

278

7.3

Fixe

d C

osts

(3)

Rent

and

Rat

es7,

000

2.2

84,0

001.

586

,520

0.7

181,

974

0.5

245,

057

0.4

363,

817

0.4

Sala

ries

49,7

1515

.562

7,99

310

.975

2,79

16.

51,

591,

037

4.7

2,14

2,59

63.

83,

180,

935

3.3

Oth

er24

,266

7.6

252,

764

4.4

346,

632

3.0

424,

819

0.8

500,

561

0.6

544,

994

0.6

Tota

l Fix

ed C

osts

80,9

8125

.396

4,75

716

.81,

185,

943

10.2

2,64

4,72

27.

93,

730,

568

6.7

5,70

4,90

45.

9

EBIT

DA

(189

,668

)–5

9.2

(1,0

29,8

89)

–17.

9(6

59,9

84)

–5.7

(694

,730

)–2

.1(1

64,3

90)

–0.3

1,32

0,37

41.

4

Aver

age S

ales

per

Cus

tom

er$5

6.06

$150

.79

$190

.40

$414

.49

$558

.61

$480

.00

Aver

age

Pric

e pe

r Cas

e $4

5.80

$47.

13$5

4.03

$123

.08

$174

.45

$240

.00

Not

es

(1) A

ll Ac

tive

Cus

tom

er a

nd C

ases

Sol

d da

ta p

rovi

ded

by N

WC

. Cas

es o

f 12x

750

mil

bottl

es.

(2) S

ales

repo

rted

in U

K £

and

con

vert

ed a

t a b

lend

ed c

urre

ncy

conv

ersio

n ra

te o

f £1

= $1

.60.

(3) N

WC

pro

vide

d da

ta fo

r Sal

es, C

ost o

f Goo

ds S

old,

Fix

ed C

osts,

and

EBI

TD

A fo

r 200

8-20

11, e

xcep

t for

Sal

es fo

r FY2

012

and

FY20

13, w

hich

wer

e ta

ken

from

pub

lic re

port

s cite

d be

low

and

then

mul

tiplie

d by

the

case

writ

ers u

sing

cost

perc

enta

ges p

rovi

ded

by N

WC

.(4

) Cos

t of G

oods

sold

equ

als f

unds

pai

d to

win

emak

ers f

or p

rodu

ct p

lus p

acka

ging

and

ship

ping

.e =

estim

ated

by t

he co

mpa

ny

Sour

ces:

Row

an G

orm

ley,

Nak

ed W

ines

, May

201

3. S

ales

dat

a fo

r 201

2 an

d 20

13 w

ere

com

pile

d an

d co

rrobo

rate

d fro

m th

e fo

llow

ing

publ

ished

sou

rces

: Kar

ain,

J. (

2014

). Th

e w

ine

busin

ess

is rip

e fo

r disr

uptio

n, a

nd th

is m

an is

doi

ng it

. Qua

rtz o

nlin

e, F

ebru

ary

18, h

ttp://

qz.c

om/1

8197

8/na

ked-

win

es-w

ine-

is-rip

e-fo

r-disr

uptio

n-an

d-th

is-m

an-is

-doi

ng-it

/, ac

cess

ed

July

10, 2

014,

Rob

inso

n, J

. (20

14).

Nak

ed W

ines

: Ang

els

at th

e ta

ble.

Fin

ancia

l Tim

es, O

ctob

er 2

4, h

ttp://

ww

w.ft.

com

/cm

s/s/

0/e3

e0f2

fa-5

972-

11e4

-954

6-00

144f

eab7

de.h

tml, a

cces

sed

Febr

uary

2, 2

015;

and

Rob

inso

n, D

. (20

14).

Nak

ed W

ines

mul

ls su

spen

ding

ent

ry in

to a

ngel

inve

stm

ent s

chem

e. F

inan

cial T

imes

, Jun

e 9,

http

://w

ww.

ft.co

m/in

tl/cm

s/s/

0/b2

6119

a2-e

eb1-

11

e3-9

5f9-

0014

4fea

bdc0

.htm

l#ax

zz3Q

iraTP

4H, a

cces

sed

Febr

uary

2, 2

015.



gLossaries

Wine Industry TerminologyAging—Wines develop different flavors over time. Typically, early release white wines, those that are fresh and fruity such as Sauvignon Blanc, are bottled within three months of fermentation. Late release white whites, with more complex flavors, are often aged in barrels and bottled within nine months of harvest. Red wines contain tannins, chemical compounds that give structure and mouth feel, and these wines ben-efit from longer aging, especially in barrels. Lighter-bodied wines such as Pinot Noir and Sangiovese will remain in a barrel for nine to twelve months, and fuller bodied wines such as Cabernet Sauvignon and Merlot will remain in a barrel from twelve to twenty-four months.

Bonded Winery—A winery that is licensed and responsible for all on-premise wine production, record keeping, as well as all incurred expenses for equipment, etc.

Bottling—The final step of winemaking is bottling. Like the harvest, bottling in small and medium wineries is typically an annual process. Medium and large wineries may bottle all year round.

Direct-to-Consumer (DTC)—Higher gross margins in the wine industry are possible by selling more wine direct-to-consumer, generally at the winery through the tasting room. Additionally, typical wineries may offer a “wine club” for periodic shipments of various quantities of wine are sent to consumers.

Premium Wine—Bottled wines may be categorized in various ways. One commonly accepted standard is “Value” priced up to $5 per 750 ml bottle, “Premium” priced from $5 to $8 per bottle, “Super-Premium” from $8 to $11 per bottle, “Ultra-Pre-mium” from $11 to $15 per bottle, and “Luxury” above $15 per bottle. “Table” wines have no defined categories, nor do “Reserve” wines, although the latter may be used as a comparative description to distinguish between price points in one brand or winery.

Varietal—A type of grape (i.e., Merlot, Cabernet Sauvignon, Zinfandel, Chardonnay, etc.). To declare a “varietal” on the label, at least 75 percent of the wine must consist of that variety of grape. Some wineries use almost 100 percent of the same varietal. Some blend a principal varietal (the one named on the label) with wines made from other varieties of the same color for better flavor balance. Others blend in “filler” varieties, which usually go unlisted, to get the most out of their supply of then-popular varieties, which are the ones touted on the label. If the label mentions a varietal, it will always be in conjunction with an appellation to inform consumers of the source of the varietal grape.

Virtual Winery—This type of winery is loosely defined as having a brand name, as well as its own management and winemaker, but producing its wine at bonded hosted or shared facilities.

Winery Size—The capacity of a winery is often rated in cases produced. A “small” winery will produce from 2,000 to 40,000 cases per year. Medium sized wineries range from 40,000 cases to 250,000 cases. Large wineries start at 250,000 cases, and increase in capacity up to the size of E&J Gallo, which produced about 72 million cases per year in 2012.



Information Technology TerminologyA/B testing—A/B testing, also called split testing or A/B experimentation, was used to compare two versions of a web page in an effort to see which one performed better in terms of increased customer conversion rates.

Amazon EC2—The Amazon Elastic Compute Cloud (Amazon EC2) is a web service that provides computing capacity in the cloud. It is designed to make web-scale com-puting easier for developers.

Instagram—Instragram is an online file sharing and social networking service allow-ing users to connect with others and share photos. Instagram apps are available for the iPad, iPod Touch, iPhone, and Android camera phones.

Netflix, Inc.—Netflix, Inc. is a video subscription U.S. company that provides both DVD rentals and on-demand streaming media via the Internet.

Pinterest—Pinterest is a photo-sharing tool, via website and mobile app, designed in a pinboard-style where subscribers can upload images in some theme or not. Other users can browse other pinboards and re-pin other images.

PostgreSQL—a highly scalable database that can accommodate a number of concur-rent users.

Spring Social—Spring Social is an extension within the Spring Source development community that provides the connectivity and authorization framework to interface with all manner of service provider application programming interfaces (API), such as Facebook, Twitter, Google+, and LinkedIn.

Sources: Robinson, J., (2006) The Oxford Companion to Wine, 3/e, Oxford University Press, UK and named company websites.

notes

1. From interviews conducted with principals of NakedWines.com in Napa and Kenwood, CA, in July, August, and November 2012; and March and May 2013. All quotes obtained from Naked Wines’ staff are from these interviews, except those cited elsewhere from trade publications.

2. Anon. (2013). “North American winery total passes 8,000.” Wines & Vines online, February 4, http://www.winesandvines.com/template.cfm?section=news&content=111242, accessed February 23, 2013.

3. Penn, C. (2013). “The WBM 30.” Wine Business Monthly, February, 42. 4. White, D. (2011). “Wholesale robbery in liquor sales.” The New York Times,

April 3, www.nytimes.com/2011/04/04/opinion/04white.html?src=twrhp&_r=0, accessed January 4, 2013.

5. Granholm versus Heald (03-1116) (2005). www.law.cornell.edu/supct/html/03-1116.ZS.html, accessed January 4, 2013.

6. In the aftermath of the Granholm versus Heald ruling, distributor consolida-tion markedly increased. In 2012, the “Big Five” U.S. distributors (Southern Wine & Spirits, Charmer, Republic/NDC, Glazer’s, and Young’s Market) held an estimated 53 percent share of the U.S. wine distribution market, rising nearly 14 percent in less than a decade, and their collective market share was



expected to increase substantially over the course of the next decade. Distribu-tor consolidation sharply limited the opportunity for a small, 1,000–20,000 case (12,000–240,000 bottles) wine producer, because a couple of good place-ments at restaurants would exhaust that inventory before the restaurant even had time to reprint the wine list to feature the wines. The days when busi-ness models were conducted on the premise that 80 percent of sales came from 20 percent of the products available were rapidly becoming numbered. See: Quackenbush, J. (2006). “Consolidation changing the wine business, industry experts say.” North Bay Business Journal, May 23; and Anon. (2012), Impact Newsletter, April 1 and 15, 12, www.commonwealthfoundation.org/docLib/20130517_LiquorWholesalers.pdf, accessed February 2, 2015.

7. Franson, P. (2012). “States get friendlier to direct wine shipping.” Wines & Vines online, December 11, http://www.winesandvines.com/template.cfm?section=news&content=108785, accessed January 4, 2013.

8. Anon., (2013). “2012 Direct-to-consumer shipping report.” Annual Report. Wines & Vines, April 17, 16.

9. MacMillan, R. (2013). State of the Wine Industry, 2013. Silicon Valley Bank. 10. Anon. (2013). “2012 Direct-to-consumer shipping report.” op. cit. 11. Anon. (2013). “2012 wine sales in U.S. reach new record: Record California

winegrape crop to meet surging demand.” April 8, www.wineinstitute.org/resources/pressroom/04082013, accessed August 20, 2014.

12. MacMillan, R. (2013). Op cit. 13. Garside, J. (2013). “Wine business Laithwaite’s toasts 18% rise in U.S. rev-

enues.” The Guardian, March 20 www.guardian.co.uk/business/2013/mar/20/wine-laithwaites-rise-revenues, accessed April 17, 2013.

14. Riddell, L (2012). “Wine ventures are on the vine—again.” San Francisco Business Times, December 21, www.bizjournals.com/sanfrancisco/print-edition/2012/12/21/ wine-ventures-are-on-the-vine---again.html?page=2, accessed March 15, 2013.

15. Savitz, E. (2012). “Amazon launches wine site.” Forbes, November 8, www.forbes.com/sites/ericsavitz/2012/11/08/amazon-launches-wine-site/, accessed Novem-ber 9, 2012.

16. Kickstarter—at www.kickstarter.com/—had become the world’s largest crowd-funding source for creative projects.

17. Robinson, J. (2014). “Naked Wines: Angels at the table.” Financial Times, October 24, www.ft.com/cms/s/0/e3e0f2fa-5972-11e4-9546-00144feab7de.html, accessed February 2, 2015.

18. Ibid. 19. Adams, A. (2012). “NWC Builds U.S. Arm of Business.” Wines & Vines online,

July 30, www.winesandvines.com/template.cfm?section=news&content=103604, accessed August 30, 2012.

20. Ibid. 21. Gibb, R. (2012). Q&A: Rowan Gormley, Naked Wines. WineSearcher.com, May

7, www.wine-searcher.com/m/2012/05/rowan-gormley-naked-wines, accessed January 4, 2013.



22. Swallow, E. (2012). “Startup aims to democratize winemaking.” Forbes, June 1, www.forbes.com/sites/ericaswallow/2012/06/01/naked-wines/, accessed August 30, 2012.

23. PR Newswire (2012). “Brookstone and NakedWines.com to give away $10 Million worth of wine vouchers.” December 6, at www.prnewswire.com/news-releases/brookstone-and-NakedWinescom-to-give-away-10-million-worth-of-wine-vouchers-182430111.html, accessed December 12, 2012.

24. Finz, S. (2012). “NakedWines.com strips out middleman.” SFGate, December 7, www.sfgate.com/business/article/NakedWines-com-strips-out-middleman- 4101023.php, accessed December 12, 2012.

25. Brignall, M. (2009). “Just a classic case of sour grapes?” The Guardian, Febru-ary 21, www.guardian.co.uk/money/2009/feb/21/consumer-affairs-wine-clubs, accessed August 30, 2012.

26. Ordanini, A. et al., (2011). “Crowdfunding: Transforming customers into inves-tors through innovative service platforms.” Journal of Service Management, Vol. 22(4), 443–470. The authors define the emerging crowdfunding phenomenon as a collective effort by consumers who network and pool their money together, usually via the internet, in order to invest in and support efforts initiated by other people or organizations. Their analysis concerns purposes, characteristics, roles and tasks, and investment size of crowd-funding activity from the con-sumer’s point of view.

27. Swallow, E. (2012). Op cit. 28. Phone call interview with Dalia Ceja, June 12, 2013. 29. According to Frank J. Prial, wine writer for the New York Times, it cost the maker

of a $50 bottle of wine sold at retail or in restaurants about $10.50 to produce that bottle of wine. Some wineries—called “estate producers”—solely made wine from grapes they had grown themselves. The largest wineries like Mondavi and Beringer owned vineyards but due to the production volumes involved, also purchased grapes either under contract or in the spot market from other grow-ers. Many smaller wineries, like Ravenswood, purchased all their grapes, paying $2,000 and more a ton for the best Napa Valley Cabernet Sauvignon grapes. Estate-grown or purchased grapes could account for up to 25 percent of pro-duction costs. The bottle, cork, label and the capsule around the bottle’s neck ordinarily accounted for little more than $1, except at the E&J Gallo Winery, which made its own bottles and printed its own labels. Other wine production costs included: barrels, which can cost $600 each, storage costs while the wine is aging, taxes, marketing, promotion, and labor. See Prial, F. J. (1999). “Wine talk; Why that bottle costs $50 in a restaurant.” The New York Times, August 11, www.nytimes.com/1999/08/11/dining/wine-talk-why-that-bottle-costs-50-in-a-restaurant.html, accessed February 1, 2015. For an infographic depiction of the cost of goods sold for a typical bottle of wine, see Dal Piaz, G. (2010). “The Truth about Wine Prices [Infographic],” July 10, www.snooth.com/articles/the-truth-about-wine-prices-infographic/, accessed November 7, 2013.

30. Chen, B. (2012). “‘The Cloud’ Challenges Amazon.” The New York Times, December 7, www.nytimes.com/2012/12/27/technology/latest-netflix-disruption-highlights-challenges-of-cloud-computing.html?_r=1&, accessed January 2, 2013.


Documents

NakedWines.com Disrupting the Wine Industry? · is case study was prepared by Professors Sandra K. Newton and Armand Gilinsky, Jr., Sonoma State University, as a basis for class discussion