Naked Wines eyes up massive US growth as it transforms business

Naked Wines is eyeing up massive expansion in its US business, following its decision to sell of its UK retail arm, Majestic Wine, and rebrand to concentrate on the online wine subscription business.

Concept of American wine industry.

Speaking to the drinks business this week, group CEO Rowan Gormley said the company was likely to dramatically increase its US operation, which was likely to account for more than half of its sales.

In November parent group Majestic revealed US growth had risen by 19.3% and made up around half of the total Naked business, contributing around 15% of sales to the wider Majestic Group. Speaking at the time, group chief financial officer James Crawford said the US was the “growth driver” of the Naked business, and in time, the wider group. 

This week the company shocked the market by announcing it would sell some of its UK retail stores and rebrand the company as Naked Wine in order to focus on growing its online and international business. Around £26million will be invested in expanding the customer base over the coming financial year, up from £20 million last year, it said. 

Sales at Naked wine are expected to exceed £175 million this year, having netted around £600m since the two companies merged in 2015.

Gormley said it had become clear Naked Wines had the opportunity to be a very substantial business but to fulfil that the group needs to focus its investment and time into growing  Naked. “Although we believe strongly Majestic can also be a winner, we don’t have money and resources to do both,”  he said.

Equity research analyst at Liberum Wayne Brown told db success in both sides of the business was “mutually exclusive” and using the value within Majestic to invest behind the US would leave a Naked Wines business with the US as the primarily growth driver.

“I am confident Naked wine will become a very good business, it’s grown well and generates a decent return. I’ve always been a fan of that as a strategy, what surprised me is that you have to sacrifice Majestic Wine in its whole – it seems very harsh.” he told db.

Cracking the US market is notoriously hard for traditional retailers, however Gormley pointed out the company’s online subscription business, in which ‘angel’ investors provide funding for independent winemakers from around the world to bring them to market, in return for wines at ‘wholesale’ prices, was not a traditional retailer.

“We buy grapes and make wine, so we’re a winery and the regulations for wineries are much less restrictive for wineries than retailers,” he told db.

Peel Hunt’s analyst Pritchard told db earlier this week the whole business strategy moving forward was contingent on the viability of the US market working out for them, but after a series of false starts, it appeared to have got “the quality of consumer they’re after”.

“If that works it will be very interesting for them, if it doesn’t, well, it will be interesting for them in the other direction,” he told db.

However Gormley pointed out the growth opportunity didn’t lie exclusively in the US.

“Our Australian business grew 20% last year and the UK grew 10% too, so we are experiencing growth in all three markets,” he said.

Further details on the development of the Naked business are set to be revealed in June.

In the interview, Gormley said the “radical” change in tack was being made now to give the business more options, as he insisted the name was unlikely to disappear from the high street.