Marriage of opposites

Bricks and mortar retailer Majestic Wine has acquired digital business Naked Wines, in a move that could see both businesses become much stronger. And yet, reports Richard Woodard, the issue of profitability hasn’t gone away.

Rowan Gormley, CEO of the merged compay.
Rowan Gormley, CEO of the merged compay.

The UK’s leading specialist wine retailer, Majestic, has acquired online rival Naked Wines for a total of £70m ($107m) – and installed Naked boss Rowan Gormley as the combined business’s new CEO.

Majestic will pay off £30m of Naked Wines’ debts, pay £20m to previous investor WIV Wein International AG, and contribute another £20m in Majestic shares, contingent on future performance. Majestic chairman Phil Wrigley described the deal as “transformational” and said: “The two businesses have significant strengths which are very complementary. Majestic’s distribution skills, a nationwide UK store network and customer service-orientated knowledgeable staff, are a perfect fit with Naked Wines’ unique sourcing and selling model.”

Two models 

The Naked Wines business model involves customers – known as “angels” – putting up money to fund independent winemakers – 130 of them in 14 countries – in return for preferential pricing on exclusive wines. By the end of 2014, Naked Wines had nearly 300,000 “angels” and sales of £74m. The number of “angels” has nearly doubled in two years, with sales mirroring that growth rate.

However, Naked Wines is yet to turn a profit since its creation in 2008. Its expansion into the US and Australia in 2012 has led to increased investment costs as the company finds new customers. Naked Wines lost £3.3m in 2014 (EBITDA figures), down from £5.3m the year before. The UK business has been profitable since 2012, with EBITDA rising to £2.1m in 2014, but Naked lost £4m in the US and £1.2m in Australia last year.

Nonetheless, Majestic insists that Naked is expected to be profitable within the next 12 months, despite another expected EBITDA loss of about £2m in the year to March 2015.

Gormley has said that the two companies will continue to be managed independently from separate offices, with their own buying teams – although he has also indicated that Majestic’s existing expertise in, say, Burgundy, could benefit Naked Wines.

Other mutual benefits may include the use of Majestic’s physical store base to enable Naked Wines to use “click and collect” services – this will be trialled initially – which is likely to drive down distribution costs for the business.

And Naked Wines’ online and CRM expertise will be employed to improve Majestic’s e-commerce capabilities, which have been criticised by some commentators as an area of weakness.

New direction

The acquisition may, however, signal the end of Majestic’s long-term plans to expand its UK presence to 330 stores (it currently stands at 213). Gormley has said he would rather direct investment into growing the Naked Wines business, investing further in finding new customers and fresh winemakers. For the same reason, he would like to increase international investment behind the Naked brand, rather than expanding Majestic’s physical store base overseas (the company currently has two stores in northern France).

Indeed, the need for further investment in Naked Wines was part of the rationale behind the deal. Previous investor WIV Wein International AG wanted a return on its early investment in the business, meaning that Gormley and the Naked team needed to find another investor to take the business forward.

Funding for the deal was achieved via an £85m, five-year debt facility, giving the business plenty of leeway for future investment, but for the moment, there are some short-term concerns about Majestic’s performance: it has warned that pre-tax profit for the year to 31 March is likely to fall to about £21m thanks to the impact of foreign currency movements and weak trading in March.

For an extensive interview with Rowan Gormley, visit

Key facts and figures

Majestic Wine

  • Leading UK specialist wine retailer, with 213 stores, as well as two more outlets in northern France, fine wine and gifting businesses, plus merchant Lay & Wheeler
  • Sales for first half of latest financial year (to 29 September 2014) up 2.8% to £133.8m, with UK like-for-like sales also up 2.8%; number of active customers up 2% to 643,000
  • Pre-tax profits down 10.5% to £8.5m, thanks to increased investments and difficult trading at Lay & Wheeler linked to the poorly received 2013 Bordeaux vintage
  • Previous CEO Steve Lewis stepped down in February, following disappointing Christmas trading

Naked Wines

  • Customer-funded, online wine retailer where customers invest in independent winemakers in return for preferential prices on exclusive wines
  • Launched in the UK in 2008, followed by the US and Australia in 2012
  • Sales in 2014 up 40.4% to £74m; number of customers up 34% to 293,000
  • EBITDA loss in 2014 reduced by 37.7% to £3.3m; UK EBITDA up 10% to £2.1m; US EBITDA loss down 24.5% to £4m; Australia EBITDA loss down 40% to £1.2m



Latest Articles