Good Investing Talks - What are the pains of growth for Naked Wines? A talk with CEO Nick Devlin

Episode Date: February 5, 2021

With Nick Devlin, the CEO of Naked Wines, I had the pleasure to discuss the developments and prospects of the wine e-commerce company.

Hello Nick. Great to have you here. Hi, Tillman. It's pleasure to finally get the schedule. It's good to be here. Yeah. Finally is a good word because we had some back and forth with this appointment. I think after the interview I did with Rowan in October, we moved it twice and finally doing the interview today. What has happened to your schedule? And I want to give you some time to think about the last month because I think they were pretty packed for you. I give you a break to think about it and show the disclaimer for a second that we are sure on the legal side. And you can get back with the answer after a show to the disclaimer. So here we go. You will find the disclaimer also linked below. It says, always do your own work.

What we are doing here is a qualified talk and we want to help you getting information about the securities and companies discussed. But it's no advice and no recommendation. Please do your own work. And I also have to disclose here, as I did in the first video, with the former CEO, Roan, that I'm holding stocks of naked vines. So I'm a shareholder and also biased through this. So please read my questions and this talk also biased through this lens and always be critical. Thank you very much. now back to our conversation

Nick what has happened and why did you reschedule that often a lot's happened for naked wines during the period since October but actually the last couple of things that have involved research and this have been a little closer to home so I've got two young kids

some of you may know I've got a two and a half year old daughter and a six-month-old son we've been having some entertaining times trying to work out their childcare this year and you may actually hear them in the background because they're home today unfortunately as a COVID case for one of their teachers at their daycare

so yeah it's been a bit of family stuff has caused the diary to be juggled over the last couple of months and first congrats to the newborn son in the last year it's been quite the year I think naked wines seem like the easy child

that's a good good point to hear and what has happened to naked in the last month as like what I could observe and what I tended to observe is that you did grow a lot and maybe can walk us a bit through the impact of growth for naked and what this means what is the positive impact of growth absolutely tell man I think when from the very first day we founded naked as a business and Rowan and the team back in 2008, you know, we've always known that to maximize the possible impact of the business, you know, we needed to attain scale. And we've always believed that this should be a business that changes the way the wine industry works. We're passionate about

creating a fairer deal and a better platform for talented winemakers, small producers, and connecting them to as many customers as possible. And at a small scale, we can we can have an impact. We can change the lives of some of our winemakers, but we need to attain, you know, a real big, meaningful share of the market if we want to really fulfill that. And I'd love to see us be a business that changes not just how we work with winemakers, but actually change how the whole industry works. So I guess it's start with saying, you know, for us, scale has always been important, you know, not to grow for the sake of it, but because we think it's intrinsic to fulfilling our mission as a company. I think the last 12 months, it really has been a

It's been a step change or people use the term inflection point. I think the biggest change we've seen and probably most apparent here in the US market where I'm based has been just this eye-opening amongst consumers that there's a whole world of options to buy wine online and that that's a really normal thing, a really legitimate thing. And customers are now coming and looking at the business with a lot more trust in the category and therefore it's a lot easier for us to tell our story and help people understand how and why we're different as opposed to just having to reassure people about

is it just even legal and okay to buy wine over the internet? Do you understand this? You move to the yes to support Naked's growth there? Am I getting this right? Yeah, that's right. So my story at Naked and I guess the majestic group before that I joined a little over five years ago. should remember, I joined three weeks before my wedding day. So I think I probably joined on August

the 17th, 2015, if I can do the math quickly in my head. And initially, I had the privilege of working with Rowan, our founder in the UK. And it was the beginning of 2017. I moved out to the US. And we'd had some conversations. I'd been doing quite a lot of work with him looking actually at the returns profile of a lot of our investments. And I remember actually very much coming back from lunch one day and I looked at my phone. I had three missed calls from the chief executive. I thought, okay, you know, what's going on? And Rowan said, look, you know, Nick, you seem like a smart guy. You've done all this good work. How do you feel about maybe going out to the US and seeing if you can't do a little bit better? And that was the conversation of the

Park. I went home that night. I had a conversation with my wife. And, you know, January 2017, we were in Napa. Interesting. California did it is. Yes, indeed. I actually, I turned up and got a lot of teasing from the team because I turned up, and if you look it up, January 2017 was the point where California finally broke its five-year drought. And it rained every one of the first 13 days that I turned up at the Naked Wines office in California. There was water. We weren't in a very fancy office in those days. There was water coming through the meeting room, ceiling.

And I thought, what have I got myself into? But there'd be more sunny days, both in weather and metaphorically since. You made it very British, the move. You already mentioned the word scale. And I find this an interesting point to focus on. What does scale and the growth you had that led to scale mean for your business? And what is the positive impact of scale? And how does it make your business better?

I think this is one of the parts of the Naked Wine story that sometimes, you know, people have been a little slower to latch onto. But at its heart, you know, we are, you know, we're a physical product business. You know, we're involved in the production and distribution and sale of wine. And that's intrinsically a very scale. scalable activity. And so the two big types of scale economies that we see. One is on that logistics distribution side. So in particular in Australia, in the USA, we're moving a big bulky product over long distances through multiple warehouse sites. The more volume you drive and the more

scale, on a per unit basis, you're driving down those costs. And that's my favorite type of efficiency, because we're driving out costs that the benefits no one. We're driving up lifetime value of our customers because our profit margins are becoming higher. But for the customer, all they're seeing is actually a better experience. You know, we're able to operate our sites more efficiently, build higher service levels and support more differentiated delivery propositions. So it's a real win-win. I think the other area where there's absolutely scale benefit, you know,

comes back to us always thinking about two participants in the business, the consumer and the winemaker. So on the winemaker's side, as I see the business growing, We'll absolutely add more wines and more winemakers, but we intend to grow revenue faster than we grow the range. So we're driving volume per skew. And for winemakers, that means we're helping improve their economics. We're reducing their costs to produce per bottle. We're helping them be able to buy more fruit and get better fruit pricing and input cost pricing.

And we're helping them fill up their wineries, which means better utilization of their fixed assets. So all of that means, you know, they've got more efficient businesses, and we're able to share in that. So that one's going to take longer to come through because, you know, inevitably we're selling wine that was made normally 12, 24 months previously. But that's another area in which scale, you know, tends very nicely to, you know, to enhance the economics over the long term in a way that's favorable to us, but also favorable to our winemakers. And what does scale or what is the advantage of scale in the digital economy? because you want to get customers on Facebook on different digital platforms? Yeah, look, I think one of the reasons

that Facebook became so popular as a place for creating your new D2C company was that in some ways it democratized customer acquisition. You know, they have a bunch of good out-of-the-box tools and you needed an idea and a very simple integration and you could go and acquire customers.

But I do think there are, are still some benefits of scale in acquisition more broadly. And for us, really, it's around the way we think about investment that supports our customer acquisition activity. And the way I kind of put it is this. As a company, we're agnostic as to where we invest money. If we can see an opportunity to deploy capital and get a good, predictable and measurable return that exceeds you know, what we see as a reasonable threshold, then we'll take it. And one of the biggest benefits of scale is actually that it makes it more rational for you to go and invest in capability and I invest through your operating cost base. So to take an example, you know, if I'm thinking about creating a new digital product team to maybe enhance the customer experience for new customers, maybe give more curation and personalization in that experience.

If I'm investing at twice a scale and have twice as many visits to the site in a year, I could only need to deliver half as much upside per session to meet my return threshold on that investment. And I think that's one of the opportunities we do have and one of the things that the last 12 months have brought closer, the ability to go and rationally make investments in capability that our competitors are not at a scale to do. And I think that's very exciting. Is there anything else that allows you this scale to invest in others can't afford? I think, you know, to my mind, the biggest source of differentiation between naked and, if you like, maybe some of the companies that have tried to replicate aspects of our model.

And I think, you know, people mention, you know, different kind of competitive sets. But, you know, in particular in the U.S., it's probably businesses like Wink or First Leaf bright sellers in other companies who like us are regulated wineries selling direct to consumer it's the extent to which we have always as a founding belief believed in being very closely integrated with our production and our supply chain and i think it's an indirect benefit of scale but it it gives you the ability to commit and extend those time horizons so to work you know to commit to longer contracts with producers and a confidence and an ability to sign, you know, moving from three-year grape contracts to five-year grape contracts. And I think some of those things

are really important because ultimately, you know, that's how you can drive high-quality wine. And we talk a lot about wanting to give consumers better wine for less money. And really, that's the heart of everything we do. You can put a lot of different, you know, different elements around it, but I'm a, I'm slightly an old-fashioned retail guy, I believe that, you know, you can't have a differentiated business that wins in the long term unless your core product you sell is advantaged. And the way, the way I believe you do that best is by helping the people who really understand how to make high quality wine make their businesses better and more efficient. And they can't do that without certainty. And they can't do that without being

able to plan over a multiple year time horizon. And you know, that's things like working with the same suppliers, the same vineyards, same grapes, in a year over year, and then you add the secret source from Naked, which is where else do you get to sell your wine and get direct feedback from hundreds of thousands of customers to help you make the product better? And that's the magic formula, but it only works, and this is really important, it only works when you allow your suppliers to use consistent sourcing and you give them that multi-year commitment time horizon you already mentioned it in a half sentence but maybe let's go on the positive impact of scale for customers a bit more in detail you mentioned that better selection and better price

and maybe also better delivery what to add yeah I think the things that our customers should look forward to in the in the years ahead absolutely I think the first one again it's all about the product right to some extent so it definitely doesn't, it's going to enable us to support more winemakers. And that is going to mean a wider breadth of assortment. It's also going to enable us to continue to raise the bar on the producers we work with. You know, we want to be home to the very best winemakers on planet Earth. That's the goal. And the reason scale helps there is two things. You know, the proposition to a new winemaker just becomes that much stronger. You know, without us taking any greater risk,

And the way really I think about risk is, you know, what percentage of your total buy or commitment on wine does any one winemaker represent? So with taking no more risk on a new winemaker, you can offer them much more volume initially. That means, you know, you make their economics that much more efficient and you can afford to compensate them that much more. So obviously, you know, that makes the pitch, you know, more exciting for a winemaker. So, you know, more breadth of assortment, you know, even higher quality of new winemakers coming onto the platform. And I think also an opportunity to broaden the range, not just in terms of the number of products or the countries they're from, but stylistically an opportunity for us to add more richness and in excitement to our assortment. And we've got a ton of amazing wines and I'm proud as hell of the wine we sell. But I think we can do more.

And I know this is a business that's kind of tragically overused in terms of analogy. but I think there is, you know, an example to be drawn here with the way Netflix thinks about content. And the benefit Netflix has as the largest creator of unique content for digital streaming is that it can go and invest in high-quality production in areas that are relatively niche, because in absolute terms, it still has enough customers to consume that content. And I think we've got an opportunity to build to the kind of scale where we can do the same thing in wine, where, you know, whilst we're always going to make more cabernets than we are, you know, Amphora aged, you know, skin contact Pinotree from Georgia, say,

we actually will have a group of customers who we know are interested in and a more obscure product. And that means we're able to have the confidence to go and fund and work with some winemakers a little more off the beaten track. So I'm really excited about the potential for scale to open up stylistic diversity as well. So I think they're the wine benefits. we've always been a company that believes as we improve our economics and our winemakers economics, that gives us the ability to share that back and provide outstanding value to customers. So I think that's a given. We will always provide that to customers and they will benefit from that as we scale.

But then the third category really is around the improvement to the digital customer experience that I think we can drive. And that comes back to as we scale, it's more rational for us to invest in, our capability, our cost space, that can drive an improvement of the customer proposition. And that could mean things like it could be, you know, unlocking a two-hour time slot delivery window, which would be great for customers here in the USA where you need a signature for your wine. It could be improving the way we surface our recommendations, which we've got great recommendation capability based off, I think, 29 million customer ratings we've taken since we started. But I think we could come up with.

better ways to surface those to customers and help explain them and credential them. It could mean as finding, you know, better ways to move customers who it's right for into new digital products like our Wine Genie product, which does the shopping for you, because we know that for every one person who loves shopping for wine, there's a bunch of people out there who find the shopping a bit of a pain, but love drinking the wine. Do we also see improvements on the website and I want to use the opportunity to show the website here as well, the US website. Is there anything in the pipeline?

Absolutely. So I think a lot of where that comes to life, you know, those improvements, and I'm talking about, you know, the digital customer experience we deliver, you know, it comes in enabling us to give a more personal and a more curated feel to the website. Actually, I think what you're seeing here is a lot of the work we've done in the course of the last year where we've created the same. the content the new customers see and we've created a lot of things that help explain to customers why the naked model is able to deliver better quality wine for less and help customers understand

a little bit more the type of wines we see as benchmarks for some of our product. I think we've got one of our one of my favorite winemakers actually a great Oregonian Scott Kelly is we're talking about some of his wines on here if you scroll down a little bit we do a little bit of a comparison And we've got Matt Parrish, and here we go, we've got Scott. And this is, you know, this is at the heart, I guess, for another thing that's dear to naked. You know, we believe passionately in all parts of our business in measurement. And one of the questions they get asked a lot is, well, given you're the exclusive

seller of all your wines, you know, how do you work out what the fair price of those wines are? And you can see a little bit here how we do that. You know, you've got Scott Kelly's Oregon, well, I'm at Pino, sorry, which we sell for $20. and you know how do we work out a $30 market price you know we look at some wines that have got externally you know similar ratings on a platform like Vivino and what are they selling for in the market so this is some new content you'll see lots more new content but I think also for our existing angels there's an opportunity to drive more diverse customer experience that's more related to their own purchase behavior and preferences

let's go away from the website and also talk to you again as a father because with kids you know there's also a certain pain in growth if you get your teeth they are crying and sometimes also in the later stages of growth they have pain what pain does naked wine feel as it is growing I think like any business, we were not configured expecting the scale and the rate of growth that we saw this year. I always have very strong conviction that over time, you know, we would see the migration of spend online that we've seen this year. But the pace of that acceleration, you know, absolutely like everyone else, we were caught, we were surprised by that. And I think that's meant that some of the biggest challenges have been operational in the past 12 months.

On the one hand, you've had creating an entirely new operating model. You know, we've got something like 200 customer service agents. We call them our customer happiness teams. They've got to be keeping, you know, more customers than ever happy. But everyone's been working remotely from home for the last, I don't know, now 10 months. So that was a big challenge. But you've also got in terms of the core infrastructure. of the business. You'd not be doing a very good or responsible job as a management team if you

are sitting around in all your markets with enough surplus capacity to deliver, you know, whatever the first year, you know, the first half year, you know, 80% growth. And for that to happen so quickly. So we've had to respond and work very closely with our partners to expand our operational capacity, in particular kind of fulfillment. So the, the people, pick, pack and dispatch to customer has been one of our pain points. And then we've had to, we've had to work quickly to work in partnership with our winemakers to expand production. And if the first challenge immediately was how do we pack boxes and how do we get back to customers and how do we deal with more questions than we've ever been asked, I think wave

two becomes how do we work with our winemakers and with new wine makers to make sure we've got enough wine to go in the boxes. And that becomes the second challenge on the horizon. So absolutely, people ask me a lot. Is there a limit to the number of wine makers we can work with or in the amount of good wine out there? And there's not at all. But the reality is it's a real organic product. And so there is a lag. And so they've been probably the two biggest challenges we face. with the growth this year. Making customer happy as one topic you already mentioned as a challenge of growth. And I want to, as this is a format we are producing for YouTube, also invite you to

react on two comments I did get on YouTube. You see them here from Carlo and from Angry Asian Dead. You can read through them because they were critical on naked wines. and I want to invite you to reply to this comments as the CEO. Yeah, I'm very happy to. The way the Naked Wines model works is that customers buy an introductory offer, a couple of different types of offers. Some of them are an enrollment into a membership,

an ongoing you pay $40 a month in the USA. It's £20 in the UK. It's $40, Australian for our customers down under. We make it very, very clear how. that works. And you'll receive, I think, something like seven emails before first payment is taken. We try and reach out to customers who kind of don't engage with those. All that money remains in your own account as a member and can be immediately refunded back to you at the point of contacting the business. Whether you want to contact us, I don't know if you can contact us on

YouTube, but whether you want to contact us on our Facebook page or whether you want to send us an email or whether you want to call us up. And we make that incredibly simple because there's no benefit whatsoever to us of holding onto money for people who don't want to be customers. You know, to get the technical accounting side, all it's doing is sitting as a liability on our balance sheet.

You know, we're not booking that as revenue. It's of zero benefit to the company. And I think if you compare naked to other wine subscriptions or other subscription models out there, I'm incredibly proud of the flexibility we give to customers. There are very few models that say, well, if you've made these subscriptions, but you don't use them, you can have all of the money back at any time. Actually, in March this year, we wrote to all of our customers, sorry, March last year. It feels like the year hasn't really changed.

We wrote to all our customers that, hey, you know, this pandemic's happening. We don't know what's going on in your life, but it might be a time of uncertainty. You know, can we do anything to help? Would you like all the money refunded off your account? Just let us know. So, you know, I feel very proud of the way we treat customers. And in any walk of life, I think you'll always have a few people who are disgruntled. But I, you know, I feel very comfortable about the way we operate that and, you know, the transparency we provide.

Thank you for your reply. I will post it under the comments that people can react or see it as well. I want to. Yeah. I think in your comment, please, you know, include our address for our customer happiness team, which is chat at nakedwines.com. you know, if anyone feels like they've got, you know, got any unresolved issues, we're happy to hear them, right? And we want to make sure that, you know, angry Asian dad is, you know, happy Asian dad. And, you know, the new dad, I feel is pain anyway. So let's try and sort

this problem out. That's great. I want to also use this for a question about the general strategy because I also searched for Naked on YouTube and friends also pointed out that there might be a lack of your presence on YouTube as well as on Instagram. That also might be interesting. For me, it was interesting to see that this comments came under this video and that they found their way. I think my content is okay, but it's not the best and brightest content. So I was a bit surprised that it came this way.

And it leads me to the question, what is your strategy for YouTube and Instagram, for instance? Do you want to be more present on this platform? do you want to work with influencers to get your message across because there's a certain, you can name it enlightenment, I think, process where you want to help customers to understand your model. Is this something you want to do in the future better? Well, I think in general, it's worth saying that there's an opportunity for us to increase the number of channels in which we're driving.

I cut us a couple of things. Some people talk about brand awareness, and I think we are a brand that's still got an awareness opportunity. But really, it's the quality of awareness. So not just have you ever heard of Naked Wines, but can you tell me something about the business? You know, what do we stand for? What's our point of difference? And I know, and I think, you know, you've kind of talked about this with Rowan. You talked a lot about acquisition economics and the kind of return on investment model. No secret. And I think one of our great strengths is a company that we're, we've got a very strong performance marketing heritage, direct marketing heritage. We've got real

capabilities and things like lifetime value measurement and attribution, which mean we've tended to be very focused on acquiring customers through, you know, really clearly measurable activity. I think there is an opportunity to broaden out from that. They're a point in all brands' gross journeys that become, you know, real scale and well known that they have a broader marketing mix. So I think the opportunity is definitely there. You know, whether it's YouTube or whether we do OTT video streaming or whether it's somewhere else or whether you see it's on TV, much more agnostic to that. But definitely one of the things we're looking to do is explore those different ways of getting our brand messages out there. And it's one of the reasons

that as a company, one of the things I set up and we did from last year, and I certainly intend to continue, is having what we call a marketing R&D fund, R&D for research and development. And the idea being that we commit a portion of our spend each year to exploring new ways to reach and communicate with customers. Is there also a project plan to lower the rate of potentially angry customers? Because I tracked a bit of your reviews on different sites like Trust Pilot and it's going down in the last months, but there were at a certain time, some customers that didn't get your model, were frustrated and pointed that out.

on the platform. So do you have a data-driven approach maybe to lower this rate of customers? I think the first thing to say is that, you know, there's an extent to which the number of people who, you know, you can leave some of those reviews is a little bit of a function of absolute scale. And, you know, as they, you know, we try very hard, but you get, you're one of the big drivers of that is you get a percentage of people who, you know, place an order with you and choose to use a made-up email address and then it becomes very hard to get back in touch with those people. It tends to be the biggest driver when you root into some of those reviews. So absolute scale drives those. Maybe we're guilty of not being cynical enough sometimes on things

like TrustPilot and you can pay TrustPilot a bunch of money and you then send reviews from your happy customers. Look, you know, maybe that's. Maybe that's something we should just do. But overall, whether we track it internally or whether we do market research with third parties, we consistently see a net promoter score for naked in the 60s, which I'm incredibly proud of. And I think it's the fairest reflection of the quality of experience we give and the quality of service we provide. So at the end of the day, I'm always going to spend more time worrying about making sure that the members we've got, we're treating them absolutely as well as we can.

and we're giving them a great experience. I don't want anyone to kind of feel like they've had a bad experience with Naked. So, yeah, we're always looking at ways to can we make that disclosure even more transparent? You know, what can we see in terms of behavior that maybe suggests someone hasn't read or picked up on stuff? And how can we anticipate an issue before it happens? You know, that's in our DNA. So we'll always keep trying. But I, yeah, I very much focus on making sure that the experience is delivering on the core tenets of the proposition for our members.

I want to go a bit more into details about the target group you're having. And we had a very interesting debate on Twitter with some of the investors who's also long on naked. It's Bill Brewster and he mentioned the quality of wine and compared you to wineexus.com. It's incredible unlike anything I've had from naked yet, but it costs four times the average bottle on naked and took five weeks to get there. there compared to one to two days, you have naked. What is also coming from this observation? What is the target group you're targeting? Are you targeting more the urban, distinct wine lovers and who are willing to

pay higher price or is it more naked is going for the mom and pops who want to have an easier wine experience who don't want to be treated? from above what is how you're building this yeah let's say look wine quality is a very interesting debate to get into we can probably have some fun here um and you know so i i i haven't you know maybe when the pandemic's over bill and i can can share a couple of bottles of wine and and you know we can we can chat i think he's happy about that option but let's let's start i think with you know with the market right and um in particular if you think about the addressable market for naked in the USA.

You know, we see the business having approximately a $20 billion addressable market. And the way we think about that, there's a $40 billion market. That's all wine sold off trade in the USA. Some of that we don't think is addressable. And the bits we don't think are addressable are six states where currently we are not allowed to ship to, pretty obvious. The wine that is sold for under $10. a bottle at retail because we don't want to be in the cheap commodity wine business. We are not

the lowest cost producer at scale. It's not a game we're going to win. We don't want to compete with Gallo. Then there's wine that's consumed by infrequent drinkers. And simply put, if you're not buying wine, you know, multiple times a month, we don't think you're likely to be a good long-term subscription wine customer. And that's quite a lot of people, but actually a relatively small percentage of the total bottles consumed in the market. And that's kind of three things we take out. The fourth one we take out is more subjective and we've got to it through research. There are some consumers who meet our three other tests. They buy wine regularly. They spend over $10 a bottle. We can ship to them. But when you ask them, they fundamentally see wine as a

commodity. They're just inherently disinterested in it. Yes, I drink it. It comes in a bottle. And we think those kind of people, you know, the proposition at naked and learning more and hearing the stories and the passion behind people who made it, that's probably never going to be for them. So if you take those four adjustments, you go from a $40 billion market to $20 billion. And I promise I'm getting to your question. So from that $20 billion market, you've got about $16 or so, 16 to $17 is at retail price $30 and under a bottle, and $3 to $4 billion is at retail price.

$30 plus wine. So unashamedly, you know, we think the most important market for us to deserve is that is that market under $30 a bottle. It doesn't mean we're disinterested in the market at $40, $50, $60 a bottle. And we can talk more about that. I actually think Naked's model delivers exceptional value at those higher prices. But definitely in terms of the primary focus of the business in where we spend most of our investment dollars optimizing the experience. It's around providing, you know, unbeatable value and a great, simple, easy-to-navigate experience for consumers who on average are spending, you know, $15, $20, $25 in their grocery store or liquor store and can buy wines of the same quality for $10, $15 or $20 naked.

Is there, geographically speaking, in your customer group a certain focus that you say it's more the center of the U.S., it's more the West Coast, the east, the east, coast. How does this go about? And what are the age demographics of your main customer cohorts? So we're a very, we're a very national brand. Actually, you know, we do well in red states. We do well in blue states. We've got lots of customers on the coast. I think New York City is our biggest DMA, but we do very well in rural counties in the middle of the country. So maybe naked wines is one of the few things Americans can agree on. I think, you know, in terms of focus on age and demographic, it tends to be, you know,

is an affluent customer base in line with overall wine consumption, but certainly that's something that you're thinking about the current consumer environment is positioned the business very well. In terms of life stage, our best customers we find, you know, either kind of at the kind of family at home or post family at home. And I think there's a little bit of the just growing up experience in wine where you get to a certain stage and you think, oh, do you know what? I enjoy having a glass of wine before my dinner or with my food. I'd love to learn a little bit more about it. A lot of people feel this sense of insecurity.

I have it all the time. I meet other executives who, you know, got these amazing high-powered jobs and you think maybe the most confident ever, and then you hand them a wine list and suddenly they feel really nervous. But a lot of people have this experience at a certain stage in life. Do you know what? I'd really like to feel much more confident. And naked, we take pride in taking taking the quality of our product incredibly seriously. We're very passionate about it, but we're passionate, but we don't try and take it too seriously. I think maybe it's the right way to put it. We believe wine should be enjoyed. We believe it should be fun. We really believe that the easiest way for most people to get into what I think is an amazing product and an

amazing world is through the stories of the people who made it. And it's a lot easier and more people can engage and get benefit from the story of Bill and Cloudia Small, who've been able to set up their own kind of great growing business, and you've got Cloudia working in the vineyard out in Marlborough and you've got Bill making the wines. You know, their story is a lot easier to engage with than a bunch of technical descriptors about whether or not the wine tastes of gooseberry or lemon grass or, you know, exactly, you know, what the relative acidity level is. So that's how we think about the business and how we think about community.

any of people. And I think it resonates with a lot of people. You think, frankly, at times, you know, the wine industry can be a little up its own posterior. And, you know, I'm a paid up, you know, some people have called me a wine snob. But I mean, who wants to, who wants to read email after email about what clonal variety of Pinot Noir something is? And, you know, I'd much rather know, how's it going to feel? What's it going to be good to drink with? And tell me something about why this person made it. After talking about the customers, I also want to switch to producer side and look at the long-term trajectories your producers are in.

One topic there is climate change. And I want to show some pictures. I took in the summer. Some people know that I like walking in the winyards because in my backyard, there they are. And this is the loveliest you I have here in Stuttgart. Here's the headquarter of Daimler. So it's quite interesting to see this, and this is all wine region. But this summer it was dry again, and we saw this kind of soil, drawed in the soil.

Climate change is a challenge for the wine sorts here. You have to plant new wine sorts as some of the winyard owners are doing here. This is a challenge for the productivity. Also, if you look at this tri-soil, go back in here, if they're heavy downpours, which might get bigger with climate change, they might cause soil erosion, which also might have a negative effect on the wine and there's also heavy storms which also might damage grapes. How is climate change for your producers a topic and what is naked wines doing about this topic? and wants to help producers with this issue? I think, you know, I feel this one very personally, you know, in the four years since I've moved to Napa, California,

you know, we've had extreme fire seasons each of those four years. And it's impacted, you know, people personally in the business. You know, we've had people who've, you know, lost relatives in fire, as we've had communities that people have grown up in, you know, very heavily impacted. I think everyone in the business has probably been evacuated from their house at some point. So, and you see the same for our Australian colleagues. You know, it was a record fire season back in, you know, 19 into kind of spring, summer 20. So it's definitely something that feels personal.

It's definitely a real issue. And I think if you work in an industry that got its foundation in agriculture, you know, it's got to be something you take seriously and you care about. As a business, there are a bunch of different things we've done, and I'd probably break them down into different areas. We spent a lot of time thinking about how we can help with recovery and support. Probably one of the things I'm proudest of. I think Rowan talked about the $800,000 we raised in response to the 2017 fires.

and actually one of the things that's been delayed by by COVID but I'm due to go out to the Anova Foundation. It's a school in Santa Rosa where which was the community most devastated by those fires and half a million dollars of that went to went to an organization that runs a school for autistic children and they're actually about to be able to break ground on their on their new sites and I want to go and see the construction so you know that's one of the things we did It's been an ongoing commitment in the business. I think we raised around $150,000 to support some of our winemakers who've been directly impacted by the Australian fires last summer.

And I actually got some good bonus points from my daughter. We handed over a check for about $128,000 to the Kenwood Volunteer Firefighters Association just earlier on this year. I even got a, in return, I did get a photo of myself with a big fire engine, which got me a lot of bonus points. So we do a lot of stuff on the recovery side. I think we also think about the ways in which our business can help and the way in which we can minimize the environmental impact of our business

and help our producers with theirs. So one of the things that we look at, the way in which we transport wine around the world, and actually we do a lot of wine that we ship in container and what's called a flexi tank. You can massively reduce the emissions footprint into the wine by doing that and bottling it close to source. It also retains freshness and flavour. People have done in the master of wine world have really geeked out on comparing

New Zealand's Savonion Blanc that's bottled in the UK versus bottled in New Zealand. You get a fresher, more vibrant, zippier wine as well. So that's one of the big things we do. We're also working to lay out at the moment a baseline for the end-to-end environmental impact to every bottle we sell. And I'd love to see us over the coming years, sustainably drive that down as we grow and look at the ways in which we can continue to offer support to our winemakers to make investment in their businesses. You know, whether that's helping them with defensibility or response to climate change. You know, for example, you can educate different ways in which you can trellis your vineyards, use the

canopy to manage more sun exposure, think about resistance to drought, things like that. or whether it's helping them with initiatives that are looking at maybe building more sustainability into their wineries. I was at one of our biggest wine partners, the Lange family in Lodi in California, a couple of months ago. And they've been able to move to over something 50% of their power generated now by solar power. So there are lots of opportunities. And I mean, probably as an industry, we have not been as progressive as we could be. There are notable exceptions. Familia Torres have been massive pioneers in the wine industry

in driving the conversation on sustainability. But I think as an industry, we can and should do more. You've also seen the capital market stay of Hello Fresh. And I think their part on the sustainable reporting was quite interesting. And they showed how they are reducing waste into production and how they are creating efficiencies into production. is naked's model something that could do the same like for the easier planability you have less waste less resource consumption because you know what your customers want at a certain

point data driven is there a chance I think I think that's an interesting question the one benefit we don't have is I don't think we can argue that customers traditionally waste 25% of their wine certainly not Brits anyway We haven't got exactly the same opportunity, but you're right that we have some assets. And I think we have a capability which is an ability to engage customers in the conversation and a culture that always believes in engaging customers in making decisions and being part of a solution. So one of the things that we pioneered in, I think it was a controversial topic in our marketing team, but in our big Christmas case in the UK, we put in for the first time,

a boxed wine. And it was three bottles of one of our favorite Portuguese reserve blends, Montaria Reserver. And it's a beautiful wine from Alan Pesio, made by guy called Luis Viera. And we kind of, we talked to customers. And we said, well, actually, do you know what, for the same, for the same cost, we could give you this box, which is three bottles of wine, as opposed to two. We can actually upgrade the wine from his entry level Montario to his reservoir. And the feedback we got on that was amazing. And we were a little unsure because this is a case that people are enjoying at a celebratory period of time and how will people feel about that? And I think we've seen off the back of that, there are a lot of customers saying, yeah, you know, we're up for working collaboratively with you. How can we

change our consumption patterns or behavior so that we can reduce the overall impact? The reason I pick that as an example is that your choice of packaging format is a big driver of your end-to-end emissions. And I think that could be an area where we could have some innovation. we've got we've talked quite a lot about our never miss out feature so we've got I think now a quarter of a million people signed up to an auto recurring subscription of at least one product would make it one of their favorite wines and you could easily imagine a world in the future where maybe an option becomes on that well how would you like to receive that and if if you chose maybe instead of taking six bottles to take maybe two you know two boxes of a wine

the technology has really improved a lot you know preservation of and quality is good. It's not a format for long-term aging, but most people are not aging their wines for a long time, right? And actually, you know, a whole bunch of wines are their best, well, their fruit is vibrant and fresh, and they've just been released. So that could be a great option. And, you know, maybe down the line, there's even an opportunity where we say, well, if you do that, maybe there's some cost reduction for us. And we could put that towards some of the work we're doing in general as a business to try and drive sustainability. That's the kind of idea that I'm excited by, because I think it's aligned the way we've always thought about the naked ecosystem.

How can we work closely in partnership with winemakers and customers to change a bunch of things that people have just assumed the way wine has to be done? And I think there are real opportunities there. One topic you already mentioned, this is no wine. Sadly, I ran out of wine. We're in the pandemic. So I don't have any wine anymore, but this is. I wondered, I wonder whether you were toasting our share price performance from 20. 20 that gentleman. Maybe. But I want to make a point about the heavy bottle you're having here.

Like you already mentioned this in another talk. I was hearing from you. These bottles are quite heavy to ship. And there's some correlation between a heavy bottle and a good wine. Is there something you could unlock? Yeah. Well, look, this is back to my, when I was in college, I was actually a member of a debating society.

He was to argue this all the time. You're right, there's correlation, but there's no causation. So lots of great wines have got heavy bottles, but obviously a heavy bottle to say the obvious doesn't make the wine any better, doesn't make it keep any better, doesn't make it taste any better. I think this is the reason why communication and customer involvement is really key to driving sustainability. Because, and we found this, I don't know if Rowan talked about this,

But when we first moved naked to the USA, you know, initially we just said, okay, you know, well, we should, we should obviously only spend money on things that absolutely are the liquid that customers are tasting. And therefore, you know, let's have the cheapest bottles we can find that are lightweight. You know, let's enclose the bottle with a screw cap. It's a great preservative and it's cost efficient. And the consequence was we were able to sell at amazing prices and lots of people were, oh, well, this can't be any good. You know, almost we're not even willing to taste the product. The other side of this story, when we had a tasting room in Napa, one of the things we used to do was hand people a glass of wine when they came in and you'd give

it to someone and maybe tasting it and you'd ask them what they thought. They'd say, oh, it's great, really like it, spicy, quite complex. Yeah, I really like this. And you say, well, would you be interested in buying? And say, absolutely. And then we told them it was actually one of our Anatasia Portuguese blends. And at the time, I think we're selling it for $7 a bottle or something. And you say, okay, great. Well, actually, it's only $7 a bottle. And then they'd say something like, oh, well, actually, did it have a bit of a short finish?

And actually, I don't know if it was that complex. And so people's entire perception was changed by you telling them that it was an amazing value for money. Maybe that's just an insight into the male psyche. I don't know. But so the reason I tell these stories, absolutely, you know, there is a challenge or I'm breaking down some hardwired perceptions amongst wine consumers. And in particular, I think, probably are their most acute amongst American wine consumers, which are that you get what you pay for and that there are certain things which you automatically expect or associate with quality.

So I think if you want to, if you want to challenge the thing on the, on the format and the bottles, I think what we've learned is you can't just put your wine in life of bottles. You need to take customers on a journey. You need to involve them. You need to explain. blame why you're doing it, and you need to help them understand that, you know, that doesn't mean, you know, that there's no wine of high quality. I think what's helpful for us right now is we're at a much better place on our journey to do that. You know, when you're working with a winemaker like Jesse Katz or Daniel Barron, it's, it's, you've got a, you've got a very clear and easy to understand, you know, thing to communicate to customers, but these are

amazing winemakers who've made iconic wines and they're putting forward a wine that they're incredibly excited and proud about. And if, you know, we maybe choose to package that in a different way, then, you know, that's easier to understand. So that's certainly one of the benefits of growing up. But, you know, back to my conversation with Bill, you know, we've got a bunch of wine in the US that, you know, is from some of the most prestigious vineyards in Napa and, you know, we'll stack up to anything. And ultimately, I believe, yeah, we could sell some of it for $80, $90, $100 a bottle. And maybe in the short term, that would be the easy thing to do. But I think, think the really the bigger opportunity for naked is being the company that does help dispel

some of these myths for American wine consumers. And if you can get that aha moment, you mean there's a bunch of stuff I'm paying for that I can't taste. You mean, you know, look up a company like, you know, what's a good example? There are not many private, small traded wine businesses, but Willamette Valley Vineyards is one you can go and look up. By the way, you know, not an investor in them. They make nice Pinoir Noir. I don't want to say anything disparaging about them. But look at their accounts. And, you know, their cost of goods relative to their SG&A line, you know, tells you everything you need to know about the economics for most medium-sized wineries in the US. They're spending more money on things that aren't the product.

So, you know, we want to be the business that changes those perceptions. And I think that's the real exciting opportunity, as opposed to just going along with them. For the last two minutes of all conversation, I want to get a box. because there are other Europeans trying to conquer America with products people like and I wanted to ask you about HelloFresh a bit because you're both thinking out of the box and both coming from Europe but trying to conquer the American customer market is there anything you can think of already in talks where you're cooperating with HelloFresh or is it just the inspiration the model of HelloFresh gives you?

So Hello Fresh is a close marketing partner of us in actually in all three of our geographies. Probably in absolute terms, the partnership is largest in the US because, you know, that's now their biggest customer footprint. But we work with them in all three markets. We find there's a good affinity and overlap between the customer bases. And so if you offer an introductory offer or discount, either to a naked customer for Hello Fresh or to a Hello Fresh or to a Hello Fresh customer for naked, we see really good response. So, yeah, we do work. We do closely with them on customer acquisition today. And is there in future something planned like a Hello Make-It

where you also get wine and good food together? Look, you know, not going to get drawn on what the partnership might look like in the future, but there's definitely, you know, there's definitely a, you know, a good synergy or overlap between the kind of target customer audiences. And that's, you know, as a business, we're always interested in working collaboratively creatively with businesses that we think are well run, have good quality product, and I've got similar customer bases. Thank you very much for our interview.

We are just on time with your schedule. It's always busy. So thank you very much for taking the time and being here for the interview and being so open to answer every question in an interesting way. Thank you. Hi. It's a pleasure, Tillman. It's been great talking to you.

And I'm sure we'll get to do it again at some point. That would be great. Thank you. And bye-bye to our audience. Bye.