Good Investing Talks - Is Naked Wines building a mousetrap? A chat with Rowan Gormley

Episode Date: January 25, 2021

In this conversation, the former Naked Wines CEO Rowan Gormley sits down with me to discuss the history of his company.

Hello, audience. I'm happy to have you back on my YouTube channel. Today, I'm having a great guest, and we are recording. Asi is currently in Italy on vacations, I think. You will tell us more on that in a second. So there was no live stream possible, but I'm happy to give to a recording with Rowan Gormley of Naked Wines. Happy to have you here, Rowan. Very good to be here. Thank you. Thank you for coming, especially so spontaneous. I think we texted on Monday, and today we're having the interview. It's one of the quickest interview confirmations I had. It's a great thing about being retired. You have time. That's great.

We have two similarities in life. I've also grown up, or you have a relationship to a town that's called Boxburg in South Africa. And I grew up in a town that's called Boxberg in Germany. So the towns sound similar. So it's quite funny. I looked it up, Boxburg. In South Africa, it's named after one of the founding fathers. It's a quite interesting story. Did you grow up there? I think it's much better than our Boxburg, because the place where I grew up is a shithole. Yeah, it wasn't Joburg and it looked like one of the industrial suburbs and yeah. Grissy mining town.

The region I grew up, Boxberg, it's also a wine region. We have some winiards there and they produce wine in this region. It's in Franconia near to Wittsburg and they also have this box boital to build another thing that's related to this box thing. And the other similar theory we both have is that we are shareholders of naked wines. Very good. So I wanted this closest at this point and also show you the disclaimer that we make sure that we have things settled on the legal side and everything is clear for you. You find a disclaimer also below this video.

It shows you everything we do here. is no advice and no recommendation, especially if I hold chairs as well, it's also no recommendation for you to do anything like this. We're just having qualified talk and giving you background information so you can do your own work in an easier way, but you still have to do your own work. So thank you very much for listening to the disclaimer. Then I also want to use the option to step into our talk. You retired 2019 as German or CEO, but you're still involved in the company.

What reason was the reason for you to retire? I think, you know, many startup CEOs don't make good CEOs of mature companies. And the qualities that make you good at making a company going in the first place, can become an obstacle when the company becomes mature and you need a different style of leadership. Somebody said to me a good CEO should be like a good football coach. They don't run onto the field and score all the goals for the team.

They hire the right people, give them a system and then they get off the field and shut at the ref from the side. And it is in my nature to be on the field. And I came to the conclusion that for the next phase of the company's development, It needed a different set of skills, and that really means a different person because this leopard wasn't going to change their spots. So how did your life change since then? Well, very dramatically. So, again, a very good advice I got from somebody was, number one, make sure you have a superstar CEO to take over from you. So you're not worrying about what's going on, which I did.

His name's Nick Devlin, and I'll tell you more about him later. And the second thing is have a project. Have a project that you can absolutely throw yourself into. And my project is called Polly Polly. And she's a 40-foot-long catamaran and she's sitting in Grenada at the moment. And so the minute I stepped out of the CEO office, we flew to the Caribbean and we went sailing for six months. And because I didn't really know how to sail very well, the learning curve is very steep. and that just means all my attention was focused on staying alive

and not on what was going on at Naked Wines and it was very good to have that very involving project to give you an absolute clean break one to the other amusingly when we had the first results calls since I left and the guys were talking me through the numbers and they were saying well of course you remember what this number is and I was thinking I don't I can't remember what that number is.

And I think that's a very good thing because I just don't worry about it because I just don't need it because it's in good hands. That's great to have found this kind of successor for the job you did for a long time. But you're still holding around 5% of the outstanding shares. Is there any reason or plan to change that?

Look, I have tax bills to pay and, you know, the various personal financial issues I have to deal with. But when I look around at places to invest today, especially post-COVID, the naked investment universe has expanded in a COVID world and for many other companies that are shrunk. and so no I think that it remains a good long-term investment for me you already mentioned other interviews I'm linking them here above because there are many great interviews or some great interviews with you out there that are great to watch and they don't want to talk about the same things that are already mentioned here so you can find them above linked and have a look at them You named in this interview said Richard Branson was one of the people who shaped you and your life.

Are there other business stars or entrepreneurs you admire and that also influenced you? Yes, absolutely. Very early on in my career at Virgin Money, which was a startup Virgin did together with what is now called Aviva. I was very lucky to meet a person called Jane Ann Gardia, who is a very smart and able woman, but also had an understanding of emotional intelligence that having grown up as an accountant and then work in private equity,

I just had no concept of. And I think understanding, I learned a lot more about people and motivating people and understanding people from Jane Ann than I ever would have learned, you know, going to business school. I think before then, working in private equity, I worked for a guy who was an old-fashioned private equity guy in that, you know, someone would be invited to lunch, we would drink two bottles of claret, eat a great big chunk of roast beef, some glasses of port, a brandy,

a cigar. the deal would be written on the back of the menu and the entire transaction was two sides of paper, you know, and that's how he did business. And he was massively successfully. His name was Michael Stodot. But, you know, I think what both Michael and Richard Branson had in common is that they were great believers in their gut feel and great believers in finding the right person and backing them. as opposed to just endless analysis and more and more data and, you know, supporting information. And I think that's a very good, in an entrepreneurial startup environment, eventually having the confidence to trust your gut

while testing it at the same time is an important characteristic. So yeah, those are the people who have helped me along the way. But of course, most of the help has actually come from the people I've worked with, directly rather than people I've worked for and you know the naked team today is there are an awful lot of the same people who started the company 12 years ago that's something I'm very pleased with do you have a rough or a gut number of the people who are still in the company from the beginning so the 17 people who

launched the company on day one I think they're 10 still there but after 12 years So that's a good length of time. It is. To narrow my second last question a bit down, were there also people from that run internet businesses, that run digital businesses that influenced you and where you said, oh, that's good, we should maybe copy this, what he's doing or her is doing?

You know, when you say digital businesses, I think business more broadly, I think, you know, part of the philosophy of naked wines, we started as a small company. But one of the things we worked out very quickly was that if we priced our product like we were a small company, we would always be a small company. And at the time, I happened to read a book written by Michael O'Leary, who's the guy who built Brian Eyre into what it is today. And he just said exactly the same thing. And he said, we decided to price the seats on Ryanair like the plane was full. And therefore, the plane became full.

If we priced like the plane was empty, which it was, the plane would remain empty. So, you know, I think that's a, those kind of, they're not digital businesses necessarily. But looking at people outside of that, I think, has been a big influence for me. I think in terms of authors and books, probably. the most influential is predictable irrationality by, I think it's Danny Reilly. And it's really a book about how people behave in a way that they can't necessarily control in response to certain triggers. And I think anyone who's want to build a business and figure out a model or anyone who's

wanting to recruit customers should really read that book because it helps you understand why people respond to certain things and not to others. And most of all, I think it helps you understand the power of authenticity, which is in a marketing world an underappreciated quantity, I think. I have this word authenticity often in your talks. How would you define it or describe it because maybe it's hard to define? Well, certainly in the world of wine, an awful lot of the world of wine is bullshit. And it is people trying to take...

what is just in the end of fermented grape juice and make it into some magical thing in order to be able to charge a premium for it or increased demand or whatever, right? And for me, authenticity was really two things. One is just telling the truth. But the second thing was constructing the business in such a way that what was good for the customers

was good for the staff and was good for the suppliers and good for the shareholders. So authenticity normally falls apart when people go, well, we can either do what's good for the shareholders or we can do what's good for the customers. And I really wanted to have a business where it was and. And that forced us, especially in 2008, into really focusing on a business model, which was completely different to what anyone had done before, which involved us crowdfunding winemakers and solving their biggest problem at the time, was they couldn't get loans from banks. And that was our solution to how do we construct a business

where we get good wine at a great price, which we can pass on to the customer, but in a way that the winemaker is happy to do it. And it was by constructing this crowdfunding model. So to me, authenticity starts from having a business which actually permits you and encourages you to be authentic. As soon as you have a business which requires you to tell lies to somebody, it's very hard to keep authenticity together.

Sure, it does. You already built with your answer to bridge to the topic I want to cover next. It's the wine market. Where do you see flaws of the wine markets and when you say they are really doing this till today in 2020? Why? I think the most, so first of all, there's a global floor in the wine market and secondly there's a very

US base floor. The global floor is that a lot of people in the wine business are still trying to make it very complicated and trying to make it into something that it's not.

And I think it's you know, I can only speculate as the reasons my personal feeling is that it's a kind of a refuge for people because it enables them to sound grand when actually they're just selling liquid, right? And I think what people don't realize is it actually puts customers off.

It actually drives people away from the market. And that's absolutely not the same thing as dumbing down. There is magic in wine. But the magic often comes from the fact that some human being has had to sacrifice the enormous amount to make this product. They've had to work

their nuts off to get it exactly the way they want it. They probably had to refinance their house and borrow on the credit cards to get it exactly right and all these kind of things. And it's an artisanal product that you can have to deliver to your door. So there is magic there, right? But the magic doesn't come from the words the wine industry uses. So I think that's a worldwide flaw and is a great opportunity for naked wines because by simply telling the truth about wine, we immediately make ourselves different to the competition. And by talking to customers in the way customers actually talk and think, they can see

we're much more like them, whereas the rest of the industry look, frankly, up their own answers. And I'm using we here, but that's we in the past terms just for clarity. I think the US thing in the owner, so it's okay to use a Wii. That's very welcome. That's how shareholder should be. I think the US thing in particular is that there's a great perception in the US that you get what you pay for. And at a $100 wine is twice as good as a $50 wine and four times as good as a $25 wine.

And that's really not true. And when last I looked, if you bought a $100 bottle of Napa Cabernet and a store in New York, there's $16 of Napa Cabernet in there. And there's $94 of stuff you can't taste. So you absolutely do not get what you pay for, especially in America where most of the money is going to middlemen, commission, wholesalers, distribution, inventory, all kinds of things that add nothing to the flavor of the wine. And, you know, we encourage our customers to experiment, and Naked Wines has an unconditional money-back guarantee, and a lot of people say, don't customers abuse this? and the answer is, no, they don't. But it's very important to have it there so that when we go, here is a bottle of a grape you've never heard of,

made by a person you've never heard of, in a place you've never heard of. But it tastes just as good as a $100 bottle of Napa Cam, give it a go. Customers are going, I'll try it. And if they agree, and 99.7% them do, they don't claim. If they don't agree, we haven't lost a customer. So I think the American market is the biggest opportunity for Naked wines in two ways. One is it's the biggest and fastest growing.

But the second is the relationship between price and quality is so poor. And your ability to be able to deliver much better wine for the money is better in America than it is anywhere else in the planet. So you would say Naked is a bit like Jeff Bales in this point. like your margin is my opportunity to a certain degree and maybe if it's so why do you see also opportunities in this market to use the same like your margin is my opportunity I'm sorry I'm not sure to understand that question I'm sorry Jeff Bezos is famous for the quote your margin is my opportunity and I think it's also reflected in the way naked wants to do business because

there are many opportunities in this market to improve. Sorry, I beg a point. So I think the easiest opportunity is the ability to reduce price. I think that the other flip side of that opportunity that hopefully naked customers see, but many people outside of the wine industry don't, is that a relatively small amount of money invested into the product can produce a significantly better quality product. So I'm not sure Jeff Bezos ever calls up his suppliers and says,

look, if I asked to pay you 25% more, what could you do for us in quality? But that is a conversation naked has with its supplies. And the result is that we have a number of wines, which over the years have got better and better and better, because by investing in quality, the winemaker is able to, in relatively small amounts of money that add like 50 cents or a dollar to the selling price, you can get an absolute step change in quality in the underlying product.

I think the third area for Naked is that in a post-COVID world, there are the number of winemakers whose traditional route to market has been completely disrupted is high. So when all the restaurants were shut, a lot of restaurants were not just not buying wine, and they were sending wine back and saying, A, we can't pay for the wine we've already sold, and B, we want a credit for this.

That's left a lot of people in a cash squeeze. And so I think Naked's ability to pick up A-list winemakers and help them out of a situation, not of their making, is better today than had COVID not come along. So that's where I see the opportunities. Like, how did this process speed up of having the chance, to get A-List winemakers, like, how was it before COVID? Was it high to get this A-List winemakers on your platform?

Look, 12 years ago, when we launched the business, there was no chance. And winemakers are conservative people as a rule. And the business has run the same way for the last 2,000 years, which is you don't sell to the public, you sell to somebody who sells to somebody who sells to somebody who sells the public. and everybody was used to this system and they complain about it

but because it's the devil they know no one never challenged it or changed it so when we first approached winemakers you know highly successful A-list winemakers just frankly weren't interested and we managed to get very good winemakers but pretended to be people

who'd run into a problem of one sort of another and needed a hat what's changed over time is that a number of those A-list wine makers have said to themselves, you know what? I hate spending my life on an airplane, going to some restaurant in New York and hand-selling two cases of my wine

to a 21-year-old sommelier who thinks that they know something about wine because they did a three-week course. I would much rather be in my cellar or in my vineyard, doing what I love, making the product taste amazing. And so naked's pitch to them as being, we'll do that. And do your wine through us. You will make the same or better money,

but you will get six months of your year back that you don't have to spend on the road selling. All you have to do is talk to our customers who are the people who are funding your wine. And the people are actually drinking your wine. So it's a significant lifestyle improvement for a lot of wine makers. And this has been successful for another,

of years in increasing the caliber of the winemaker pool of naked. What COVID has done is all of a sudden there are a number of winemakers who maybe they were thinking about it before, but now they've got an added economic incentive because they've got a cash flow squeeze because their traditional supplies on taking the product. That's interesting. To help me with the time frame, when it started, you get this A-list. wine makers on and how much years is it from here like six years ago or no no it's it's it isn't a before and after you know what happened is in year one we probably got one a list wine maker in year two we maybe got three and then we got ten and you know and it's just all that's happened is

the velocity has increased but there was never a before and after COVID may turn out to be a pre-COVID, post-COVID world. I want to go deeper into this topic, also with focus on the customers a bit later, but now I want to use the chance to go back to the wine market level, because you already mentioned the U.S. and U.S. is, as you said, a huge opportunity for naked wines. And in the U.S. wine market, you have a special structure. I think it's called the three-tier structure. Can you maybe explain it a bit for the people who don't know it?

Yes. So the three-tier structure dates back to prohibition in 1929. One of our investors described it as the love child of the Mafia and the Puritans, because on the one hand, the Mafia were the people who had distribution at the end of prohibition, and the Puritans were the people who wanted to restrict the sale of alcohol. And what the three-tier system says is that there are three tiers. a winemaker, a wholesaler, and a retailer, and you can only ever be one of those three things. And the idea was to stop wineries from controlling retailers and locking people out.

The system has been completely abused by wholesalers to create mini monopolies or duopolys. And right now there are a very small number of very large wholesalers who control an enormous amount of the market, charge very healthy margins, do very little selling on their own right. The winemakers slurs to go and do all the selling, but they take a big commission, they hold onto their cash for 180 days or even longer, and these companies are making billions in profit, right? And they're the reason wine in America cost twice as much money as it should do. Americans pay, you know, probably in comparison to Germany, two and a half or three times

as much as they should, because German consumers get an amazing. So you have this weird industry with its three tiers, which hasn't changed in nearly a hundred years. It's been chipped away, but it hasn't changed. And now since maybe 15 years, the market is very slowly opening up and going direct. Now it's difficult for most companies to penetrate this market. as a retailer. It operates only as a winemaker. So whereas all the legislation is designed to protect winemakers and to stop retailers and wholesalers from abusing. Because Naked

is a winemaker, it's in a very privileged position. So the fact that this market is completely out of balance and anti-capitalist is interesting. The exciting thing for Naked is, The Naked model happens to fit exactly into the legislation and allows Naked to sell a wide number of wines in, I think, with something like 92% of the US wine drinking population, can be reached in 48 hours. Whereas the competition can either sell a very narrow range of wines or a broad range of wines, but at a high price. make it's the only people who can have range price and easy access all three of those but in my research I also read that you have some blockages in some states because you can only ship to a certain level there is that true that is true there are a number of states which you can't ship to at all like Arkansas but you know Arkansas share of the total

U.S. wine market is so small. It doesn't matter. Alaska and Hawaii, the logistics are complicated. But the great thing about America is that 92% of 300 million people is still a hell of a lot of people. It would be nice to have 100, but better to have 92 of 300 million people than 100 of the UK 65. Are you fearing a problem with your position in the niche that you have these abilities to process in a different double than the others do, that you might get some setbacks because there's lobbying from the other wine sellers that say you have to change legislation. And if this happens, maybe go ahead with the first question.

I ask another one that. Again, just to emphasize, this is my view as a shareholder. And this is speaking on behalf of the company. I think it is inevitable. You know, America does business, does competition by, through lawyers. So it is inevitable that incumbents will look to the lawyers and regulators to see what they can do to limit naked wines. I think the key thing is, though, that the way the legislation is structured is it's not negative legislation. In other words, it isn't legislation which fails to ban something.

It's legislation that positively allows something. Okay, so it's positive legislation rather than negative legislation. And what that means is that actually the legislators intended for wineries to be able to ship direct to consumers. And that's what we are. We're a winery shipping direct to consumers. So I think for them to unpick that would mean such a fundamental reworking of the whole American alcohol system

more than has happened in the last hundred years it seems to me to be a pretty remote possibility okay that's a clear stance of the shareholder in that point in your time as CEO you also decided you had an retail business physical stores and an online business decided to sell this retail business like why did you do so and did this omni-channel approach fail,

or what was the reason to sell the retail business? So, first of all, just to be clear, we didn't design the business to be omni-channel. It became an omni-channel business because a company called Majestic Wines Bought-Naked. And Majestic was, you know, 85% physical retail and only 15% online. It was 100% UK.

So Majestic bought naked, because at one stroke it meant it was rebalanced online offline and it was rebalanced international versus UK. We worked hard to improve the performance of the offline stores. And actually after, say, like-for-lake sales had gone backwards for four or five years before, we got like-for-lack sales up by 19% over the succeeding four years. So, in fact, we had some success. But what I could feel like was that the energy required to make that work.

If we could put that same energy into naked and specifically naked US, the payback was going to be so much bigger. And we considered a number of options around restructuring or reorganizing. But in the end, we felt like the simplest, clearest option would be the best because that could allow a small management team to focus on the specific, the biggest opportunity, which was naked wines US. So it really, it wasn't that we looked at the majestic business and said that's a bad business. It was more that we looked at the naked US opportunity and said that is so big, we can't afford not to go after that. And therefore, that's where the energies need

to go. So we landed up getting out of business. And your other interviews said you have on the one side of data-driven approach on the other side, the gut feeling also plays a role. What was data-driven in this decision and what was the gut feeling? Look, the data was very clear. Consumers are moving to ordering from home. And in a COVID world, you know, I think, thank God we made that decision when we did because running 300 stools post-COVID world is a tough proposition. It is. The data about the long-term pattern for online.

this offline was clear, the gut feel piece of it was that we could reorganise the company to make a better use of that. But the energy required to do that was unlikely to give us the payback that we would get from the US. Now, I'm a great one for testing, for having gut feel and then testing it. The sad thing about some of the biggest decisions you ever make is you can't test them because, you know, you can't sell a company on a trial basis and then take it back again if it doesn't work. So in the end, you had to go with your gut on this one. But I think the data was sufficiently clear that we knew that if we were to succeed with the majestic business, we would have to beat the odds. To succeed with the naked business, we could go with

the flow. That's interesting. Let's go deeper into your business and look at the customer side and also the producer, the winemaker side. What is naked for both of them, like for the customer and the winemaker? I hope that naked is the company that does all the boring shit in the middle. And rather than being the retailer, the customer is buying from the winemaker. but there's a piece of the transaction. Well, the two parts of that transaction. One is the winemaker needs funding.

That comes from the customer. And the second is the customer needs wine. That comes from the winemaker. But there's some boring bits in the middle, like shipping, handling, customer service, regulation, cash flow, all these kind of things. Someone needs to look after all of those in a way that interferes with customers and winemakers

as little as possible. And that's naked, too. And for wine, many of our winemakers, the reason to come to naked was a lifestyle improvement rather than a financial change. A number of them have landed up making more money as a result of coming to naked, but they have better lives because most, you know, winemakers are a bit black. there's a saying good winemakers are bad salesmen, good salesmen are bad winemakers and most of the wine makers

or certainly all the wine makers we target are good winemakers. Most of them actually really don't like selling, not massively good at it. They also don't particularly like administration and handling cash and dealing with all this sort of stuff. So about doing all of that for them, the winemaker can focus on what they do best,

which is making good wine. It's naked kind of wine bank and how much is it a community or social network? It's all of those things. Wine bank was one of the names we thought about, but it seemed a bit dull. We, you know, there is a very active community, but we don't want people to feel like you have to participate in the community to participate in naked. although something like 70% of our customers do participate in the community. The number of ratings, the number of customers who rate wines and give feedback on the wine is much, much higher than in a traditional digital business.

So it is all of those things, but I think most of all the expression we used in Naked was it's a virtuous circle where the better the job we do for the customer, the better the job for the winemaker, the better the job for the people inside the company as well. A little story, if I may. We had an exercise a while ago where we said we needed to define our values and all the rest of it.

I'm always slightly skeptical of these things because generally what happens, everyone gets in a room and comes up with motherhood and apple pie and gets laminated and stuck on a wall and it gathers dust. The behaviour doesn't change. And one of the values was we treat our winemakers with dignity and respect.

And everyone was very proud of this. And so my challenge was two things. Firstly, why should we be proud of treating our winemakers with dignity and respect? Surely, that's a given. We should be embarrassed if we ever fail to do that. Ashamed, if we ever failed to do that. But secondly, has anybody asked the winemakers, what they want and so we did and of course what the winemakers said is yeah we want dignity

and respect absolutely but mainly we want sales mainly we want growth so please please please the best job you can do for us as winemakers is grow your company so right okay that's a nice simple agenda do you have any data on the engagement of your wine community yes so seven out of every 10 people have rated a wine or followed a wine maker or commented on a wine. My stats are out of date now, and I'm sure the company has issued updated ones. But as far as I know, there was something like 7 million customer ratings on the wines, which is a bigger body of wine knowledge than any, you know, on a poor wine basis than anyone else I know.

So you'll have wines with 50, 60,000 ratings, which you really have to. struggle to fund a product in Amazon with 50,000 ratings. So it is a highly engaged community. But like I said, we never wanted it to be a kind of club that you had to be a member of the community to participate. And, you know, there are a lot of customers who lack the fact that there are other customers who talk to winemakers and giving their opinion and everything else, but are very happy to just buy the wine and drink it. And that's all they want to. I have somehow the feeling that your mission is also to make both sides happy. What are you other ways you're making your customers, your winemakers, happy?

Well, one of the key things for our customers has been an interesting thing about how people feel about wine. is that the same people who, you know, maybe earn a $50,000 salary and would spend $3,000 in a holiday and $25,000 in a car and $200,000 in a house. You put them into a restaurant and give them the wine list and they worry about spending $30 in a bottle of wine. So there is this weird thing about wine that people regard it as something you're supposed to know about

and most people think I should know more about it than I do and I'm slightly embarrassed that I don't. So a big part of what we've tried to do with wine and how we communicate it is to reveal the truth about wine and the magic of wine without making it pompous and wanky. And that I think helps customers to feel like, okay, so I don't have to go in order

at the most expensive bottle of wine in the restaurant to demonstrate that, you know, I'm a macho man. It's not all about price. And discovering something that's off the beaten track that other people haven't found is actually more satisfying than finding out which wine is Robert Parker rated 100 points and paying too much money for it. So there's a, you know, good liquid for the money, fundamentals part of the proposition. But the other part of it is no longer feeling. silly about the wine you buy, feeling good about the wine you buy. For our winemakers, I think it's twofold. One is going from a situation of perpetual financial uncertainty

to one way actually your life is very predictable and you can plan because you have a much greater degree of financial certainty. But secondly, this rebalancing of your life away from, I really want to make wine, but I have to spend most of my time in energy selling in order to do that to, no, I can just make wine. Getting that lifestyle balance, right. And then I think for our staff, for the, you know, the third part of the equation, it's about trying to create an environment where you can grow as a person. And, you know, I'm very proud that you look today and you see people in senior positions around the company. who came from the unemployment center, you know, 10 years ago.

They may have been a trombone player or an actor or a dancer or something like that. So, you know, a talented person, but in a field where employment's hard to find, it came and started with us in a very junior role, but we created an environment where talented people can shine and rise and all over the company. There are people who've proven that to be true. I think for my personal stance, what I observed, like your employees also have to mission to educate people or your product needs education. How much education does it need?

And also, is there, maybe let's go with this first question. How much education is needed? We actually use the word enlightenment from education because education almost implies you have to get a textbook. and its work, whereas Enlightenment is more like a, really? Is that, ah, that's really good. That's fantastic. Good to know. So, you know, a simple little thing might be lots of people know burgundy, red burgundy to be a great one. It is. What a lot of people don't know is it, it's just Pinot Noir. So it's Pinot Noir, which happens to be grown in a lovely place by people who are able to

invest in it because it gets a premium price, right? But Pinot Noir also grows in the Russian River in California. It grows in Otago in New Zealand. It grows in the Elgin district in South Africa. It grows in lots of different places. The missing ingredient is not the soil or the climate or something like that. The missing ingredient is money. And so what Naked does is it produces the money that enables a producer in these areas to make the wine as good as it can be.

And therefore, you can produce burgundy-like quality for a fraction of burgundy-like price. that's enlightenment okay telling somebody this wine tastes of strawberries rose petals

and bicycle saddles that's obfuscation that's trying to make something that is trying to make

it more complicated than it is so that to me is the crucial difference I should be making the product to people

like I get that that's really simple as opposed to oh god that's really hard I'm never going to learn this

so enlighten and might also link a bit to our customers, to our viewers and customers. Because here, many value investors, value investing is also a concept that you might get at a certain point, you might never get. This is also something that happens with Naked that some of your customers don't get the concept

and they are just not your customers then. That's right. And likewise, you know, some investors do you get the concept and some don't? And I've sat in front of highly intelligent, capable investors with great investing track records who say, but you're not making any money. And the more I explain at any point we can choose to make money, but because the payback on investment and new customer acquisition is so strong, instead we choose to do that. And if Naked was a traditional retailer, that would all be going through the balance sheet. not through the P&L, the company would be wildly profitable and growing, and you would get a super

premium rating. Because it goes through the P&L at Naked, it looks like, you know, we're making some kind of mistake. There are no brick and more. There can't be none, but there are very few brick and mortar retailers who earn $4 for every dollar they invest in opening their stores. Naked earns $4 for every dollar invests in your customer acquisition. So it doesn't matter. matter if it goes through the P&L or the balance sheet. The money is the money. So that's it. Some people get it, some people don't. One point of critique that was also mentioned were the bad customer reviews in reference to naked wines. Maybe what is the explanation for this? Also maybe linked to the things we already discussed because it might be also a phenomenon

Like it was coming up this year, especially in the U.S., that there were many bad customer reviews at Rose Coutique. So if you look at Naked's customer reviews, they're absolutely polar, bipolar. They're either very good or very bad. The very good come from people who have been customers, who are customers. The very bad came from people who found at Naked Wine's Voucher somewhere and came along and, you know, for instance, you open a parcel in America and you find a $100 wine voucher.

It says very clearly this entitles you to buy a $160 case of wine for $60, saving $100. But the number of people who go, I would just like $100 a free wine, please. And when you say, no, no, read the voucher, they then leave it a bad review. So, you know, maybe there's a better way of recruiting customers, which doesn't generate these bad reviews. But what you don't find is significant numbers of bad reviews, about quality, price, any of those things.

It all tends to be obsessively focused on this. I got a voucher. I wanted my $100 of free wine, and I didn't get it. The other thing is I didn't realize I was signing up to a subscription, even though it says in about five places in the customer journey, you're going to be putting in $160 a month or whatever the number is. You get a confirmation email, you know, it's explained over and over and over, but some people don't see it and then when they discover that money has come out of their account,

even though the money is automatically refunded to them if they wanted, they leave a bad review. So I think take a look at the reviews. and you'll see they're very different in tone. I will link a collection of reviews in the text and in the show notes. How is your policy of reacting to this kind of reviews? Look, when an existing customer, you know, says, I didn't like this wine. we will very often

proactively refund them for the wine if whether someone reviews us or not if the wine isn't delivered on time we will refund them for the delivery if the wine gets lost along the way we'll just reorder another case and ship it out so our policy is always

solve the problem right up front whether the customer complains or not don't wait for a complaint as far as customers who complain because they haven't read the voucher. I'm not sure there's anything we can do about it. You know, we put it in really big writing,

we put on both sides the voucher, we put on the web page, I'm not sure what more there is you can do. You once said that not selling is the best strategy. Can you maybe tell a bit more about this? What does it mean? Do you live this concept? Yeah. So, you know, we're a company, I keep using the expression we make it as a company that believes in evidence-based decision-making and tests everything it possibly can. And that's a very good strategy. What a lot of direct marketing companies that test things do is they test things in the short term, not in the long term. So they will run two strategies, for example. One is to say this is a great wine. And the other,

is to say, this is a great wine with free steak knives. And guess what? Free steak knives beats great wine. So they go, all right, well, let's do two free steak knives, maybe three. Let's do six. Let's do steak knives and champagne glasses and a saber. And eventually, the company loses the plot, right? It becomes about something other than the product we're selling. We found naked in danger of disappearing down the circle because marketing teams everywhere are trying to do the best they possibly can because a means to increase sales in the short term,

why not take it? And so in the end, we said, look, we need to really prove conclusively. This feels wrong. The data says in the short term, it's right. We need to prove conclusively in the long term, it's wrong. Okay. So what we did was we took the communication strategy. We split it to two streams. We called one love and one sales. The sales stream was heavily about buy now, buy now. Here's a deal. And the love was about this is great wine. Because the person who made it, listened to their story. And we expected that sales would win in the short term and we hoped that love would win in the long term. Love won in the short term and the medium term and the long term. but it required courage to step away from things that, you know, on the day, look like they're working.

And instead, folks are going, no, no, we hear some principles, they've just proven to be true, and we're going to stick to them. Another example would be one of the best performing emails of all time at Naked. The subject line was an apology from Naked Wines. and it was in the very early days we had a wine which was one of our original favourites and customers loved it and we had one batch that was bad

and we couldn't tell exactly which wines were bad and which ones weren't because they're all mingled up together and all we knew was that a wine that had consistently fantastic ratings suddenly had very bad ratings so in the end we just wrote to every customer had the wine and said, we owe you an apology. There is a bad batch.

We don't know if you've got good wine or bad wine. So don't send it back to us. Just drink it. If it tastes bad, chuck it in the sink. If it tastes good, good luck. In the meantime, we've refunded your money. We have the new vintage in stock. It's sensational.

It's all good. Please reorder. See what you think. One of our best performing emails of all time. You know, could have been a customer disaster. turned out to be a customer success. Sometimes this happens. Maybe with the end of our time,

I want to focus on an important part of the business, the employees. You already mentioned that for many employees, make it as a chance to make a good living and grow of the company. What other role has naked for the employees? I hope Naked has been a very good university for a number of employees. And what I mean by that is we evolved a number of ways of working, the goal of which was to decentralise power and to put more people into positions where they could possibly drive the company forward.

And in doing that, build their career and their prospects and everything. everything else. We did it by building a very robust problem solving culture based on test and learn, where the principle was if someone has an idea, if all you have is an idea, we're not very interested. If you have an idea you can prototype, then we're interested. If you can have an idea, then you can prototype and test it and show us some data that says it works. We're really, really interested about it.

And so there are people all over the company who've come up with ideas, prototype them, tested them, produced the data, and that's become part of the mainstream of the business. And that kind of very disciplined test and learn culture actually enables people to be more creative. So a lot of companies think you can be either creative or analytical. actually if you are really robustly analytical you can be very creative because you can test crazy shit you can test on a small base and not going to break the company if it goes wrong but if it goes right you really knock the ball at the park and so when you have this robust testing culture people can

experiment more and what I think happens if I want to know to happen is instead of in companies where everything is decided by debates in committee where no one really knows if it's the right answer or not in a company like Naked where if you think green and I think blue, we do both, if green wins, that's what we're going with, right? People get to find out when they're right and when they're wrong. And so they get to build their own instincts and build confidence in what they know they're good at and learn to stay away from the things that they know they're actually not very good at.

And so what I hope is there are a number of people have come into Naked that have learned the way of doing business, which will be good for them wherever they work. But hopefully you're naked. You also mentioned the mission of doing good or some phrase like that. Maybe can you explain it a bit as well and add more color to it? Yeah. So first, for, naked like a number of other companies, has a social program.

And I think they are fantastic. And I think that it is great that, you know, for example, we feed 3,000 schoolchildren in a tough place in Cape Town. in South Africa through one of our winemakers there. And that's fantastic. But I think it's fundamentally different to, you know, a big oil company saying we're going to do a lot of harm to the planet, but we're going to give a whole lot of money to an art gallery to buy respectability to instead have the concept of doing good at the heart of the business model.

And to me, the concept of having, of doing good at the heart of the business model is, it's not just about squeezing what you can out of your suppliers and your employees. and your customers. It is about constructing the model in such a way in that the faster the company grows, the better it is for all of those people. But I think enables you to go back to your very original question to maintain authenticity. That's an interesting answer. As last question, I want to ask you about the churn rates you have for customers, producers and also employees. How would you describe them? I think that's probably getting into the realms of company level information and the management

of the company should speak to that. It is a number that's been consistently reported in Naked's data for years and is stable and good. As far as customers are concerned, as far as winemakers are concerned, the level of churn, the level of involuntary chain is so low, it's hard to measure. And for employees? My data would be slightly out to date. But the fact

that 10 are the original 17 people who started the company are still there, tells you something. So it's a culture that's built for a long term. We wanted to build a company. People didn't have to leave to grow. That's very, very. good and interesting impression for the end of our own to you. Thank you very much for taking the time here. It was great to have your on and I still have a lot of questions. I think we should discuss how we answer them and which setup because I think you also showed that you have a clear role now as retiree and maybe we find another setup to discuss the questions where I would be very happy about. And I also want to give an invite to the viewers. If they have more questions, send me an email, write me on Twitter, post them below in the comments.

So I can get them and collect them and we find them set up where we answer them. But for now, I want to say a big thank you for taking the time and enjoy your holidays in Italy. Thank you so much. Thank you. Bye-bye.