Yet Another Value Podcast - Will Barnes from In Practise on Naked Wines

Episode Date: March 18, 2021

Will Barnes, co-founder of inpractise.com, discusses the investment case for Naked Wines. The company's been a huge COVID beneficiary, but despite a nice run Will thinks the market is underestimating the long term potential of Naked Wines and how advantaged the business is against the rest of the wine industry.Chapters0:00 Intro7:00 Naked Wines Overview12:25 How Naked Wines Angel model works15:15 Why isn't this Blue Apron 2.0?22:00 Naked's scale and business model gives them a cost advantage28:00 Would winemakers leave as they got bigger?32:30 Can Naked Wines grow beyond the angel wine model?38:45 Naked Wines' data gives them a moat45:35 Naked Wines' Postcard anecdote49:35 Valuation and how sustainable is the COVID boost52:30 Reasonable 2025 bull case57:45 Potential "level up" opportunities

All right. Hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have the co-founder of In Practice, Will Barnes. Will, how's it going? Good to be here, Andrew. Thanks for having me. Hey, thanks for coming on. Let me start this podcast the way I do every podcast, and that's by pitching you, my guest. You know, I actually met you through your site in practice, which I'm sure we'll talk about in a second. I've enjoyed talking to you. I've really enjoyed being a user. And I think one of the first premium beta, is that right? I'm one of the first premium beta. subscribers are there. So I've really enjoyed it. Normally, you know, I'd give a pitch and then I'd dive into the company, but given that in practice, kind of a startup and you're the co-founder and you've got a little bit of a different background than most of my guess, I thought, why don't you go, you know, a minute into your background, a minute or two, into what in practice is. Sure, yeah, I'll keep it short so we can we can dive into the more exciting stuff. But so I did, I did shortston on the by side, working at a family office after studying,

based in London, doing a lot of mid-cap, small mid-cap, private and public deals. And then I moved to, eventually working for a fund, and then eventually met my co-founder who was actually working at one of the large expert networks for Ferdbridge. And he was the first employee kind of commissioned to build out the content offering, which today is called Ferbridge Forum, which is the, I guess, executive interview products. similar to what we do today, where we had analysts internally that were interviewing executives, packaging them into a subscription and selling them online to the big P.E. funds, hedge funds. I actually started in, well, long story, no, sorry, long story short, and I met him.

We kind of hit it off, talking about manga and random psychology books. And I joined Ferbridge, actually started on the credit side of the business. And so I was working in distressed debts and European high yield to begin. We've done that for a few years, studying crappy businesses. I always like to say, I've had my time studying those businesses. And eventually moved over to look at public companies. And 2019, come late 2019, and we decided to jump ship and start in practice. And really what we do now is we look to study high-quality companies, you know,

We have a bias towards kind of mid-cap or small mid-cap companies in the US and Europe that we think can be, you know, 10x or higher over the next, you know, five to 10 years. So we, we study those businesses through conversations with executives. Right now, we, you know, most of the interviews that you'll see on there, the ones that we host internally. But going forward, we are rolling out a premium service, which you are a part of Andrew. and that would be more of a kind of complete service where, you know, you can go on there. You can request new projects. We will do both one-to-ones and group recorded interviews that we host internally, but many investors or multiple investors can attend to learn.

And then we're going to try and build this into more of a community of high-quality investors and experienced operators to learn about these businesses. Let me ask you one question, the kind of marketing for impractors. So I'm going to throw you a softball here, right? You know, I think if you're looking for expert networks like GLG and Third Bridge, those are the two, the two longest 10-year ones. But that's generally like a private equity firm with borderline unlimited due diligence is going to do one-on-one calls with executives that. So for most people, you know, maybe a couple of the funds in people who are listening can afford that. For most people, that's probably an ordinance.

But for you guys, right, it's a little bit lower price point. Everyone gets access. What separates you, you know, there are a couple of other competitors who are doing a similar startup where, hey, it's expert network calls, a couple hundred. or a couple thousand dollars for year, everyone gets access to transcripts. What do you think is kind of different about you versus the rest of the time? Well, just before we discuss that, I think there's an interesting point that you hit on because I think if you look, and I don't want to go too far down this rabbit hole, but if you look at the history of the exponent of industry and those businesses were built, for example,

Furbridge was started by two Bain consultants. So those businesses are structured, GLG, Ferbridge, Guide, they're structured in a way to mainly serve consultancies, you know, McKinsey, BN, BG, or. or private equity funds, mainly, which are, you know, they have a pitch that comes on their desk, they have two weeks to get their act together because they need to put a bid in or a month to cover together. So they need to do 100 executive calls and commercial DD to actually understand the asset to then make a bit. That model is not necessarily fit for purpose for someone like yourself or an equity hedge fund or, you know, a quality fundamental investor who doesn't have

to find out to, you know, what the valuation this company is in a day or two, you know, a week. So those businesses are somewhat not fit for purpose for the client base that we've gone after, which is typically a small to mid-sized, you know, equity long, short hedge fund that cares about understand these businesses. And so what we, what we focus on is really aligning ourselves with you, i.e. the customer and trying to really help you, you understand how these businesses work. And so not just going, okay, here's an executive, here you go and go and speak to him. We look to work with you, you know, what we do that now.

So, you know, we do much of the interviews where we solid questions from yourself and other users, and we host them internally to make sure that we can curate the narrative around the company and make sure we can explain them in a great way possible. And going forward, what we think is different is, you know, we want to build a trusted community where executives come to share their knowledge in certain ways, but also you guys and ladies come to the platform to communicate with other investors to study these businesses and to join group, more high-quality conversations with executives

that we host internally as a group as well with investors. Yeah, just one thing. I'll give you an advertisement and then we'll move on to the thing. But obviously I was reading your naked line transcript. You interviewed the CEO, I think in November. 2020. So I was reading that to prep for this podcast. And one thing I liked, it was, you know, even when you're, I've done some competitors where, you know, a hedge fund guy would be interviewing the executive. And a lot of it does seem to focus a lot more on a lot of the

competitive products seem to focus more on the short term. Like, hey, are you going to make this quarter? Are you seeing pricing pressure right now on that sort of stuff? And what I loved about the interview was, it was much more long-term focus. And everybody's got different things, right? Like if you're focused on a quarter, that's fine. For me, I generally focus on like, hey, what's the industry, what's the strategy, what's the long term of this? And I like that your questions were clearly you were familiar with the industry and it was much more, hey, how is this going to evolve over the next three, five, seven, ten years? So that's enough of an advertisement for in practice. I would say, let's turn to the company we want to talk about. This is naked wines.

It trades on the London Stock Exchange under W-I-N-E wine. And also, I believe it's in the U.S. under MJWNF, which used to be Majestic Lines. So I think the MJ is kind of a legacy of majestic lines. Nick, it's been a very popular name with a lot of very sharp, small-cap growth investors. You know, Elliot Turner, who's come on a couple times, this podcast, he's mentioned it several times. He's a very sharp investor. Everyone knows I very much respect to him. That's probably enough background on naked wines.

Why don't I turn it up to you? What is Naked Wines? Why are growth investors so excited about it? I think, well, I mean, in a nutshell. Naked Wines is a kind of vertically integrated e-commerce model that produces, distributes, and sells exclusive wines online. That's the nutshell, but I think what's interesting to look at this business is to go back and look at the history. It's founded in 2008 and then a reverse takeover of majestic wine in 2015, which is a brick and mortar retailer about two. 200 stores in the UK. Eventually naked spun that out to Elliot in 2019 for over 110

million pounds, which then just left the naked pure online business to be listed. But I think the history of Naked Wine is important to understand, which provides context to the culture and the values of the business and the business model design. So it was actually started in 2008 by a guy called Rowan Gormley, who we've interviewed as well. And his profile is interesting as itself. I think that's one reason why I came across the company. I read an article in the press in the UK from him, looked at his background.

And he, I mean, just as him as a person, he, South Africa, I believe, was an accountant, then worked for a UK private equity fund, Electra Partners, which is somewhat well-renowned in the UK. and then he actually met Richard Branson, who then wanted to hire him and hide him at Virgin. Rowan inside of Virgin's created Virgin money, which does have a $2 billion revenue today, I think, and then he went on to start Virgin wines within Virgin, right? And so that as a potential profile of an outsider is pretty interesting, right? So you've got this guy accountant plus PE background, so reasonable assumption to believe he understands

capital allocation. And then you've got Branson clearly saw something in this guy that was unique, hires him into virgin, starts virgin money, two billion revenue business, now he's on to wine. So like that kind of piqued my interest and like why I was in wines. I started digging around and then found that his communication style was pretty unique. If you go and read his old share of letters, they're really interesting and simple but powerful language.

And then, you know, there's actually, I think 2015, 16, wine actually. wine actually showed their cohort charts. And back then, I mean, no other business showed their cohort. So I was just like, looked at wine's numbers and their charts and cohorts and then just didn't realize why no one else done the same. And so that was just somewhat interesting to me. But in terms of how the business started, you know, 2008 founded in, you know, the middle of, I think it was December 2008, Rowan City started it, which was, you know, kind of Pete, you know,

financial crisis. Wine makers strapped for cash and they couldn't fund their new production as it ties up too much capital for too long. And obviously, the wine production process, long production cycles, I guess capital tied up, more incentive also for winemakers

to pick the grape early, which reduces the quality of the product. And so Rowan really, what he'd done was actually get the customers to fund the the great. So it was almost like a crowdfunding platform to begin with. And I think there's an FTA article years ago.

You can search for it. It's like, called the kickstart of wine kickstarter. Yep. So really what it was is that he, and what he realized, if you speak to Rowan as well, he said that, you know, what he realized was that when he pitched wine as a product, he got a certain level of engagement.

When he pitched a wine maker story, he got a multiple of the engagement. from consumers. And so what he learned, I think, and what he's built that business around is that, you know, there is, humans love stories, right? And his character as well,

and the way that he builds that business is around the human connection of the consumer and the winemaker, not the, not the consumer and the product. And that was really interesting because there's a huge behavioural element to the business that is really important, that angels,

and it all ties into how they're, you know, why they're called angels and why it's called naked, but it's the consumers are effectively fund in a human and their story to produce a product that they purchase. And the beauty of the model is, as actually the, from the business model, the design perspective, is that you have negative work in capital because they're funding out front, and the winemakers effectively sold the wine before they've even made it, which is what is the capable. So let's back up a second. So I think what happens is, and I'm just clarifying business model, um, that you have, on. So Will is a winemaker, right? He wants to go out on his own, but it is expensive to make wine,

right? Like you need to get the grapes. It's going to take months for them to develop. Once you get them, you've got to smash them, you've got to bottle them, all that type of stuff, right? So that's a very time and money intensive process. So if you're a small startup winemaker, that's tough. And there's a lot, as you said, there's a lot of incentives to cut corners, right? Pick the grapes a couple weeks early. The grapes aren't as good, but you'll be able to turn it in's wine and sell it quicker, right? So what Naked does, they say, hey, Andrew is a consumer. Will will put his story onto the Naked Wines website. And if Andrew likes the story, likes Will, he'll give Will, he'll pre-commit to buying a bottle or a case or whatever of Will's product. And because of that,

Will gets the cash up front so Will can take his time. He's, you know, he's no longer at the risk of, hey, if I make 100 bottles, what if I only sell five? What if I, you know that you've got demand for the thing, so you can take your time, make the thing. And the consumer gets, get this story. they get to, as you said, they did the kickstart of wine, and they can go to their friends and say, oh, this bottle, let me tell you about it. I funded the winemaker. He was a really interesting guy. Maybe he's former military, or maybe he was an accountant who just loved wine and started up his own wine company. Am I thinking about that correctly? Yeah, exactly. It's a, you know, simply it's a payment subscription model, right? So you have

customers that subscribe 20 quid or 40 bucks a month into the piggy bank, their wine piggy bank, effectively. That capital then is used by naked wine as as cash flow to finance the production of their winemaker's grain. So they say to the winemaker, we've got a scaled customer base, which is why scale it really matters. We've aggregated demand. That demand is funding their piggy bank. That piggy bank money then is what we use to fund your production of your wine for as long as you like. That means that the winemaker gets to focus on their craft specifically, gets to maximize the quality of the wine, gets to also take risk on new types of wine that they might not have to perform. And so then you get a situation where, you know, it's kind of win-win, right?

So the consumer gets to subscribe to a business that, you know, the company uses the capital to fund the winemaker to focus on the quality of the wine, which then flows through Because naked wine is a listed, like I said, it's a production company, a distributor, and a registered winery in the U.S., which makes it able to retail the product, it gets to capture margin at each part of the value chain, and then produce the product and give the product to the customer at a lower price for similar or better quality. So let me, let's first, like, I guess the first question when I hear this is competition, right? Like last night I went and I googled wine subscription service and I got, I think naked wines was the third, third one on the Google advertisements or whatever. The first one was wine.com. There was Sherry, Sherry Lehman, I think. And there's also like, I think Wink is a new subscription service that has something similar to naked wines and stuff.

So when I think about this, I mean, obviously the angel side of it is different than what a lot of these other things are. But, you know, the first thing that pops to my mind is a couple years ago, Blue Apron was this hot milk at stock, right? they came out and within three months there was competition on all sides and Blue Apron, you know, it's the classic, if you had credit card data, the moment that the moment competition came out, you saw that Blue Apron was in a lot of trouble. So when I think Naked Wines, I do, there's more regulatory stuff and we'll talk about the regular you start in a second, but my first thing is how is this going to survive competition? Why is this not, you know, if I invest in this, why am I not a year from now writing to my investors, hey, this was Blue Apron 2.0 and I should have known. but there's two well there's three things which also I kind of outlined the core tenets of an investment thesis really well the one is the

the value chain economics which we can talk about in a moment the second one is the scale benefits and the design of the business model so again Wink and these other wine clubs are wine clubs they're not naked wines completely vertically integrated model where they actually

work directly with the producers, fund the producers, own the grape contracts, wink pretty much just buy the products, re-label it, and sell it onto the consumer. Yep. So they're different. It's not exactly apples to apples in terms of the traditional wine club business and naked wines. I think that's an interesting point because a lot of people think, oh, this is just a wine club. But, I mean, wine club has been around for over 20, 20, 25 years, right, since the late 90s. And what they historically have done, and I think you know, we'd,

I spoke to Luke Jek's, the former international CEO of Naked and also Rowan about this. Because they also, remember in terms of what they learned about, they run naked, they run virgin wines, right? Rowan used to run virgin wines, you know, and site went on there and he'll end up leaving, but he really struggled that business for a few years before getting it right. And the reason why is because they wasn't integrated mainly with the producers and they had a lot of churn, right? And the reason why, because these wine clubs, you know, typically what they do is they go and partner with a company that has a large email list. And they say, right, I'm going to now sell wine to all your customers on the email list. And we can share and, you know, we can pay you a fee or a part of the margin.

And so we go and procure a wine from producers, package it up into a subscription and sell it online, right? Then you also get this adverse selection point or, you know, where it becomes attractive for that. wine club to then package stuff and relabel it in certain ways and then bolt them together to sell different wines to customers, which causes lots of churn. So what Naked does is they look to integrate with the producers, which smooths the production volatility, which reduces the unit cost and makes it easy to manage. And they made it into a payment subscription model where you can then go on and choose the wines that you like. And hopefully they're, you know, They're the ones that have, you're paying for a higher value, high quality products because

they're reducing the cost. But that's, I think there's three things to why this is different. I think there's the value chain economics, why wine is different to other categories, which we can talk about in the moment. There's the scale benefits, which I think is somewhat undervalued or underestimated and naked. And there's the behavioral element. But we can just talk about the, you know, the industry. economics is also one thing that I found particularly interesting, especially also if you compare

the UK and Australia with the US, which is very, very different, right? Where the UK and Australia, you have very consolidated retail. I think the big four in the UK is like 75% market share. Australia is even similar. So what you have there is a very price-driven market here in the UK, where most of the bottles are sub to seven pounds. Naked actually sells sweet spot wines, they call them, which is eight to 12-pound bottles, which is actually more expensive. really than Tesco or Sandwich, right? When in the U.S. is very different because of this free tier structure. Yep.

Right. So what you have is more power, I think, more at the producer level, where it's more consolidated. But if you just walk through, like, the economics, you know, of basically producing a $10 bottle of wine from the producer, and then how much would that actually cost the consumer? it's about double, right, even more than that, really, for a $10 bottle of one from the producer. And you can see in their old capital markets day 2016, I think you can see, and if you go and look at there's a listed winery, I think Willamette is called in Oklahoma, I think, in the US. And what they do is they, their cost structure is roughly 60% gross margins, so 40% COGS, 40% SG&A, and then 20%

percent net margin, roughly. So they're spending exactly the same 40 percent on both cost of goods and the production of the wine and the liquid and the quality of it and marketing and overheads. So the same amount of money is going into both of those. And that also weighs up if you look at the industry structure where if you assume that the producer has a 20 percent net margin or 60 percent gross margin, right? So they're selling a $10 bottle of wine to a distributor, like Southern Glazers, for example. Let's say that they have a 25% gross margin minimum, I think, on spirits they will have.

So then they sell the product to, you know, $13, $14 to the retailer. I mean, a big retailer or a small retailer will have at least 25, 30% even higher in wine, gross margin again. So then you get a consumer price for a $10 bottle of wine, a producer at like 20, 25 bucks, right? That's a lot of value that you're missing out there. And what Naked does, which I think is really interesting, is they are registered winery, they produce it, they distribute it, and they sell it, and they cut out that margin. So if I'm just thinking about this properly, if I, again, in our example, Will is the

winemaker, right? It probably costs you $10 all in to make a bottle of wine. And then what you're going to do is you'll probably sell that to a distributor. for $20, and that distributor will, you know, he'll get it to a retailer and the retailer will sell it to the end person for $25 to $30. And what Naked does is they say, hey, we've got, we don't need to pay for marketing. We're going to send it directly. We own our own distribution.

Obviously, there's some expenses in that, but we can cut out a lot of this superfluous stuff. And we can buy the wine from Will for $10. And then we can sell it to our consumer for $16 to $18 versus the $25 they would pay in the in the prior example. And they can do this because they've already got all the money. They've got all the subscription. They don't need to market to their current base, right? Because their current base is already paying them and everything.

So obviously there's expenses off, but they've cut out a huge amount of middleman cost. Am I thinking about that correctly? Yeah, exactly. And what they always claim is that like, and what Robin used to say as well is that, again, if you look at, again, the 40% cost of goods for the, for the producer, right, selling the $10 bottle wine. So let's say there's four, $4. of production value and liquid in the actual bottle that's selling for $25, $20, $25, right? So you've got a huge amount of the actual value of the bottle that's eaten up by the value

chain, like the distributor, the retailer, stuff that doesn't actually add value to the product. So over 80% of that is actually not creating value in this sense. This might be two in the weeds and tell me if this is a crazy, a crazy worry. But I do worry, like part of it, right? look everybody loves DTC stuff that cuts out the middleman and cuts off this huge waste but I do wonder if like like it is illegal I cannot get a bottle of wine and ship it to you in London or to my friends in Chicago right like I don't have an interstate alcohol license I believe I can't ship alcohol naked wines because they are a winery they can ship but what they're doing is they're going to other wineries and they're basically shipping the wine for them right so am I crazy that this is like there's a little bit of regulatory arbitrage that has some risk long-term or am I thinking about that wrong? And again, this is in the weed. So if I'm off, just-

It's a good question. I think they've addressed this before management. They say that, you know, according to the U.S. regulation, that they, you know, if you're registered winery, you can sell wine, right? So I think there's what it comes down to really is, I think the essence of the business really comes down to the fact that they don't need to sell the wine because they have a scaled consumer base. That's really what it is.

is that they aggregate demand. I mean, like any e-commerce business online, right? You have to have scale to aggregate the demand, to drive volume. And then what happens is really, you know, the second part of that is you get scale economy shared effectively when you have this scale. So you have over a million, you know, if you get over a million angels,

you can then, you know, basically sell higher volume per skew, right? Which for the winemakers then means you can increase your, you can amortize those fixed costs of, you know, longer grape contracts, procuring barrels or other dried goods, larger tanks that can reduce your unit costs that then actually you share between yourself, the winemaker and the customer. I think one great example that they said was, hey, if you're going to hire a great winemaker, right? If I'm going to hire Will, it's going to cost $100,000 per year, whatever, $100,000 per year. If I'm only making a thousand bottles, well, then, you know, will cost $100 per bottle. But if I'm making $100,000, now it will cost $1 per bottle. So you do get that scale benefit. And one winemaker can obviously scale a lot.

Do you think we've done a good job discussing the economics of the business? Because I kind of want to drive into opportunities, risk and everything. But if you think there's something we've missed on the business, I'm happy to go back and get that. I think that's, I mean, one question. question that I always had, you know, was really just the, how much does scale actually matter? Okay, yeah, please go. And it's, it's, what's quite interesting is also, we can talk about valuation stuff later on, but what I thought was quite interesting was, was really just kind of comparing wine to

other kind of vertically integrated models, like, I don't know, Carvano or, I mean, Hello Fresh, me, Blue Apron, all those kind of milk it provides good food. And it's interesting when you look at differences because, again, wine is a producer, effectively, a distributor and a retailer. And they also operate in an archaic free-tier system that enables them to capture margin at each point. Whereas the Carvana, for example, they have to purchase vehicles and off-lease vehicles, which they don't get that much scale advantage from the, others, just more of capital.

And then they have to kind of, you know, maybe they have more cyclical residual values in cars versus, versus wine. So it's just interesting to compare the differences. And even HelloFresh, right? So, for example, HelloFresh procures food from farmers, you know, then packages the food into into meal kits and sells them online. Whereas naked wine effectively has more of an emotional feel about the company, right? So you don't fund the farmer necessarily where you fund this wine maker individual.

I mean, you go on naked wine. You have like white makers have like nearly over a million, you know, half a million, up to a million ratings and 50,000, 100,000 followers and stuff. It's like there's a mini social network within naked wine rather than just I'm buying a hello fresh milk kit. You know, it's a very different emotional behavioral side of the business that I think is particularly interested in. Let me ask you about that social network, right?

So, Will last year, we naked wines, we funded you, we angel startup to you, you know, you did a thousand cases. This year you did 50,000 cases, right? Because our people love you, they can't get enough, they're putting in huge orders, right? One thing I worry about for naked wines, and this will come back to some of the other risks I'll talk about, but like, I've started, I've started Will up. Will built his system on naked wines. He built a brand. What's to stop Will from, hey, now that I've, now that I'm selling 50,000 wines, I've got,

all these loyal customers. What's this stop you from going direct or really big wine competitor comes in and says, your wines are great. It's great that you're selling directly, but you know how you'd really make money? If we bought you out and we put your wines in every Kroger or in America or something, right? So does naked wines have any ownership of that thing? Or is there a risk that, hey, they're always funding these small wineries and they can make a nice business of that. But every time a winemaker kind of gets big, they go out and do their own thing and naked wine. doesn't capture that upside economics, if that makes sense. So to my understanding, the way the winemaker relationship,

and there's different types of winemakers, right? Sometimes they can be small winery, sometimes they can be individuals from the big businesses like Constellation and such. But really the value comes, and going back to the wine production process, you need to fund capital up front to not only fund the process,

but then also to market the product at the end. So if they were to go on their own, they need to have a lot of capital to not only fund the production and they also market their brand internally online or wherever they need to so again and it comes back to scale again the fact that

the reason why naked works so well is because they have scale and they can effectively say to winemakers your wine is effectively sold before you produce it because we have this payment subscription model so it's I don't think that's more I think that's less of a risk in terms of wine makers

going elsewhere, we can get into risk in a moment, but I think they're more just down to execution as always, and not getting too far ahead of themselves, I guess, like Blue Apron, kind of did. So let's say, I mean, I think at this point we've laid out a clear picture of why this business has advantages, right? Like, again, it's more U.S. focus, and that's probably because I'm in the U.S., but they've got advantages because their cost structure is just so much lower than the kind a three-tier system where people go and buy it, that all the cost that builds up from when

I go and buy from the local liquor store, right? So let's assume that's what makes it so interesting, right? Because if you think about it, if you think about the difference between the UK and Australia, like naked has got to, you know, naked has over 300, 350,000 members in UK, which is a price-driven market owned by retailers. So the grosses here own the majority of the market and they're price-driven. So if I want to buy a bottle of wine, I can go and buy for five quid, four quid, six quid in Tesco. Naked wine is actually a relatively more expensive or high quality products in the UK.

Whereas in the US, it's completely different because of the structure of the market, right? You have, like I said, more consolidation of producers, more fragmented on retailers. Yep. And therefore, you have a free tier system, which means is actually naked could become, you know, which is part of the mistake they made,

in my opinion, they come into the US and say, I'll wear it cheaper than everyone. And everyone's like, well, I don't want to drink you then. But the fact is that the actual value proposition changes. And that's the other thing going back to comparing it with Hello Fresh, right? And so this is why I also find naked somewhat more attractive or very different than the likes of Hello Fresh and another vertically integrated models, because the value proposition is so much higher because they, because of the structure of the industry, because of the scale benefits. Whereas Hello Fresh, you know, the customers seem to be paying on convenience more, right? I pay to be delivered that every day or every week, whereas naked is you get a higher quality product for the same price or less.

I like what you said earlier where, look, Hello Fresh. It's nice if you're funding a farmer, right? But nobody's going to come to you and say, oh, yeah, you know, these tomatoes come from Will. And, you know, Will's this farm and I read a story and now I'm giving you Will's tomatoes. There's nobody's going to do that, but you can form an emotional attachment with wine and the winemaker and stuff. So I do like that. But let me come back to that risk I talked about from a different angle, right? Like when I think craft beer, you know, for a while, everybody loved craft beer.

All these craft beers were going to kill Budweiser, Bud Light, all that sort of stuff. And they took a lot of share, but the end game for every craft beer company was Anheuser Bush, Budweiser comes and buys you, plugged you into their distribution and professionalize you. And a lot of craft beer drinkers didn't like that. but if you were a craft beer that wanted to kind of, you know, grow bigger than a lifestyle business, that was the end game for you. With naked wines, you know, is there a risk that they're only going to be able to do these small, these small wineries that people really like to angel invest in these stuff? And that's nice and that's a great business and they can make a lot, but there is a cap on it because they're never going to be able to distribute, you know,

the 200,000 cases or they're never going to be able to meet the needs of somebody who, you know, I don't drink a lot of wine, who just wants to go get two buck chalk, or, alternatively, the person who wants to get the collector, you know, like, who wants to know this is a 2014 vintage. The collector model doesn't really fit with the angel, hey, prepay for your wine and I'll deliver to you in six months and you don't know the quality in advances. All that makes sense? The way I look at this is the size of the market and how to segment the market. So I think it's about $20 billion in the U.S. I think free to $3.5 billion is like above

30 dollars a bottle, which is the, you know, probably the most of the people on Twitter that we speak to, you know, and have a higher, more expensive taste, right, where the majority of the market is below $30. Now, you know, I think that in going back to the scale benefits, because one of the questions that comes up and one of the one thing I've spoke to management about is, you know, the free tier system in the US, that means your contribution margin could be much higher, right? Because you can affect it. capture margin at each part of the value chain, where you can't do that in the UK and Australia.

And I think there's an important point where you can go and move, even capture more margin or move up the price points right now, but if you believe that the scale economies work matter and that you can share them with the consumer and the winemaker, because like you said, you can get more, if you sell more bottles per skew, more volume per skew, you benefit from these, you know, you leverage your fixed cost more to amortize them over more bottles, which reduces your unit cost.

So you can get, you know, buy longer grade contracts again, procuring barrels and dry goods and that type of stuff. If you believe that, then you should be going after the $17 billion, right? You should be going after the core of the market, which means actually there's no, there's no somewhat limit on one of which producing cases, right? Because as long as you have the demand, you can just upscale and go to production facilities. And you're seeing that already. I think one metric, the management look at as well is the revenue per winemaker, right? And that's gone up over the years. Yep.

So they actually move winemakers from smaller facilities to bigger ones as they're skewed, as the demand scales, right? So it's not crazy to think in the long run that the individual winemakers can grow. but also they can start working with much smaller wineries as long as they're on the exclusive contract which naked tend to work with right because that would be a big risk to it they're just going like start selling other people's brands and become more of like a marketplace which would probably lose that feel of what naked actually is could they could they become a marketplace i mean i think that and again i'm focusing u.s but i think the regulatory structure would include them kind of becoming a marketplace like that right if they want to ruin their business

It's not hard to suggest they do that. I wouldn't, I mean, again, I guess it goes back to what you believe naked is because going back to the story of how it was founded, right? Naked is built on the human connection of the consumer and the windmaker. If you, and this is going to be the risk, right? Because management, as you aggregate demand, you can do a bunch of stuff with here, right? You can sell ads, you can sell other products, you can bolt on new things. You can, you do what you want, right?

Which is kind of the risk if you don't, if they're not focused on their values and what they believe in. So do you think two, three years from now, if I'm a naked wine club member, do you think there'll be a $250, $500, $1,000 bottle of wine on the site that I can go by? If they wanted to, but why would they want to? You've got, you know, they do $180 million in sales in the US and there's $17 billion in market value below $30. Like, why don't you, if you believe scale economies work in this business and you want to share them, then you can, why don't you go after that. And that's also one of the issues I have, not issues, but one of the questions I've managed, like, why aren't they going more aggressively in the US and spending more?

And that's, we can talk about that in terms of the history of naked in the UK. But if you do believe that there are a real scale of benefits in this business, then why don't you go after the core of the market, own the core of the market, scale your, your customer base to a million, two million users. You can always then go and go in the premium stuff. Now working on why in genius things are the kind of premium personalized premium service where you can buy a milk and more expensive bottles and they're working with jesse cats which is more expensive wine but i think they should it's always you know it goes back to this like something to Costco right like why because why go Costco obviously fixed their gross margin effectively and and the

you know their lost leaders of the merchandise at 12 low low gross margin and they they earn their cash flow on the memberships, right? I see naked in a similar way, right? Why don't you fix your contribution, repeat contribution margin at 27, 28%, right, and just go for scale. And then you can feed that scale through into the product, which makes it much more, more valuable, more attractive than competitors. And that's where the advantage comes from, right?

It's the scale benefits if you believe that exists, right? Let's talk about another scale benefit. So I think I've pushed on some risks, but let's talk, I think one thing, maybe even understated among investors is they're getting a lot of data and a lot of interesting. And, you know, reading the 2020 in your report, it was like catnip for growth investors, I would say, you know, they talk about the scale, they talk, our digital business is nothing short of revolutionary as a direct quote prior to us long time, I'm over short term. But I do think that data and scale, that scale data benefit they had is.

interesting. Can you talk about how they're using data to kind of benefit their business and everything and how that separates them from a lot of subscale competitors, competitors who don't have this data? I don't think they're using it as well as they could be, to be honest. It seems like, I mean, if you think about what you can do with that, and again, it depends on, you know, it depends on what you can do with that. Obviously, you have good customer data to understand what they want to purchase. But the issue comes in the business is like retaining those. So obviously, with any D2C business, you know, naked, Hello Fresh, they lose a large portion of their customers in the first year, right?

Yep. Which is also part of the reason why I think, you know, even I got this massively wrong with Hello Fresh, right? I looked at Hello Fresh three, four years ago and was like ran, ran when I saw their churn, right? And what I missed was that their retention, like, almost is super fans. And with the high order value, And the retention, you get a huge lifetime value in cash payback. Look, this is what people miss with Shopify, right?

People say, oh my God, the Shopify churn in the first month, first year, whatever, is off the charts. And that was actually a good thing, right? It was startup. Shopify is different than Hello Fresh, obviously, but it was startup businesses who are coming. And yeah, it's a startup business. A bunch of them are going to fail. But what's really important is a bunch of them are going to succeed. And once they do, look at the retention and the lifetime value on those that are going to stay.

But anyway, keep going. Yeah, and that's also like what the, I mean, I didn't have massively missed that with Hello Fresh because of the fact that the average order value, I mean, what is it, $100 that over there for a meal kit per week. And if you have someone that retains, you know, even six months a year, you've got huge lifetime value in cash payback and that. And so naked in terms of their unit economics and the way to look at that, I think, you know, one thing is that you can look at their old cohorts and see that the kind of retained contribution profit over time was very high. And that also shows that as these cohorts mature, effectively

they start to purchase more. And as you said, back to your data point is that the longer you have a customer, the more data you can leverage. And so the more data you have, the more you can personalize the experience, the more you can offer them better deals, the more you can retain them more. And I think what you were seeing as well with the cohorts, the sales retention is very, very high. And the contribution profit is almost 100% on those old cohort. If you're going to look at fiscal year 14, 15, the level of contribution profit is almost

the same, five, six years in, right? Which means that either these customers, obviously, love the experience, are produced a lot, very engaged superfans and also naked have the opportunity to now personalize the experience to them, offer them good deals, drive that lifetime value and keep them, drive stickiness with these co-hors. But that only happens if you can keep filling the funnel and keeping them. And so part of the issue that I had, back to your data point, is that they should be personalized the experience as soon as possible, right?

Because part of the issue of these things, you lose customers straight away. you might lose 50% of your customers in free, four months, right? And they call mature customers after the fourth or fifth month, which is the second purchase, the second case. So it's that six-month period, which is crucial. And that goes into like, how do you offer introductory cases? How do you personalize that? How do you know what, Andrew, you want to purchase?

You want to purchase red, wide, sparkling, et cetera. Like, how do you know that? And over time, they will be able to. able to better understand people in this region or if you, you know, if you click here or what you say, maybe we can collect data before they offer that introductory case. But it's filling the funnel and then converting that into the second or third case is really the, as we have any DTC businesses, it's really the really. Yeah, I just wondered because like, you know, naked wines again, it comes back.

It's Kickstarter for wines, right? So it's a little bit different than a meal kit where, hey, we need to put in a burger and, you know, But I do think there is, hey, we're funding wines that aren't going to be made for three to six months or something, right? So I do want in Matthias or your funding, you know, Andrew, I fund, and I tell, and this is the part of the psychology, which I think what's attracted me to the company was that there's a big psychological element here, an emotional element where, you know, most people, most wine drinkers don't understand how to explain the liquid wine as a product, right? But what you can explain is, Andrew, your life, where your grape is, how you, you know, produce the wine. The wine makers update the community on the process of their, of their production, tell them how to drink it, what to drink it with, you know, how to explain. I don't explain the product as wine. I explain your story at the table.

I guess what I was wondering is, does naked wine, do they have a date advantage? Because they've got, hey, here's 200 startup wine. winemakers in the past that have pitched their story, we can go and look and say, like, oh, here are the, here were the 80 most successful. This is what we look for in winemakers. So actually, they've got a sourcing advantage over a startup because a startup doesn't have that advantage, right? The startup actually has to go and source 200 winemakers.

And then they can say, oh, here's the 80 most successful. And yeah, they could probably kind of look and see what making. But I feel like Macon's got a big data advantage on that supply side. Or am I imagined? Well, and it's... It could be data, but it also just says scale, right? If you're a young, if you're a young winemaker or winery, naked can agree longer grape contracts and deeper grape contracts.

So instead of a startup going and saying, okay, I'll fund you for a thousand cases, naked will go, well, you know, I've got, here's 10,000 cases, because I've got a million angels. Yeah. And I've got data that says, yeah, yeah. I've got a couple more questions, but there was one. They had this really interesting. And I'm sure this is, you know, normal fare for most companies.

But they had this really interesting value of a postcard anecdote. And their, in your report, you and I were talking about a little bit. Do you want to tell that? I just think it's such an interesting. Where is it? What page is it on? I know you mentioned that. It's page 31 of their annual report.

I'm happy to do it. It was just so interesting. You know, it's typical fair for Googles and stuff, but you very rarely see this for a while. But I'm happy to go through it if you don't remember it off the top of your head. I'm just putting the page up now. I think this is the CEO's letter and he said, hey, we used to send a letter to all of our new subscribers and angels investors. And actually what we found over time is we switched to a postcard.

And we did that because a postcard's cheaper and we actually discovered our members like it more. And we only send the postcard to 90% of our members because then we have 10% of our members in the control group. And we can see how much the postcard actually improves the retention. And then we're also using that to get all sorts of different data. where, hey, females respond to this type of postcard more than males, or maybe, you know, a 75-year-old responds to the postcard differently than a 33-year-old and stuff. So I just thought that was a really interesting game. And that also, that's just a great example of the culture of the business.

And that's one thing that, you know, because I'm really skeptical of DTC businesses, you know, just generally because of the blue apron. the risk in them and also the lifetime value is just somewhat doesn't exist to a very specific point and it's very hard to manage and I think one thing that I was really worried about and always worried about with DTC business

is losing control of that lifetime value and the fact that you can go on extrapolating lifetime value is like recipe for disaster right if you believe the unit economics of your early customers are the same as your marginal customers you're going to be really in trouble And I think Blue Apron done that.

And you can also, you know, mismatch supply and demand, right? If you get ahead of yourself and acquire too many customers, you then can't buy inventory, source to, source the wine, sell the wine. And you end up seeing higher churn in your core customer base, your existing customers, because you can't serve them with the right product. So managing that is really, really, really challenging what I was worried about. And the reason, the part of it back to your postcard example is that when you see, speak to management, you realize that these guys are serious about like understanding data.

And, you know, it sounds stupid, but everyone might say that. But if you go and look at the way they test and iterate on even small things like, you know, I guess corkscrew versus top or anything in their product, they really look to design everything and test it properly. And even Nick as well, you know, has been the CEO now, he effectively built out all of the analytics division with another guy as well. So that, I think, is also what I also get worried about. Losing control of that is just the biggest risk. I think it's when it, because look, if this was Google versus Facebook, this is beyond standard stuff, right? Like, this is table six. But it was

really fresh. And I think this is why a lot of growth investors are attracted to this. A lot of wine businesses aren't going to do this, right? Or that's my understanding. I would guess a lot of wine business aren't due that I'm sure like some of the startup wine distribution. But what I like about making lines is they're marrying the heavy data analytics focus. And, you know, they're all their annual report is customer lifetime value, retention, how much are we spending in marketing? When things got risky at the bottom of the crisis, like just to be safe, we tried to pull back our marketing spend so that we were getting 5x lifetime value versus 4x on our spend and stuff. And actually, they're being 7 or 8x. But, you know, I just their cohort. And you can see their

cohort charts, which is that data focus is really, it's not unique for a tech company, but for a wine company, I thought it was interesting, refreshing. It was a really cool sort. So let me just give a couple more pushbacks on the investment piece and stuff, right? I think the major pushback aside from some of the ones we've already covered is the valuation, right? They give a standstill EBIT number, which I do think there are some questions on the standstill EBIT number because of some the assumptions on refilling the kennel, we can talk about that. But, you know, I think rolling standstill EBIT for the last 12 months is 26 million pounds. Current EV is 450. So you're actually not paying a crazy Stan still EBIT multiple if you trust their numbers. But I think the biggest

pushback people get, I give everything. These guys admit it. They were an insane COVID beneficiary, right? I think Stanstill EBIT went from $4 million a year ago to $26 million today because people were locked at home. They couldn't go buy wine. They couldn't go out to restaurants. A lot of people went to naked wines and ordered startup wine. And that's great. They've been a much bigger customer base. But a lot of people are worried, hey, the moment Andrew can go back to a restaurant, He's going to cancel his naked wine subscription because he can go drink wine at a restaurant or he can go kind of peruse a vineyard and stuff. So when you think about these guys from a COVID beneficiary standpoint, how much of this

business can they retain? How much do you trust that 26 million in Stan still eat it? I mean, I'm less interested in this year. I think it's the same of all these COVID beneficiaries, right? Like there's no doubt going to be some people that churn and they're going to lose. but I think it goes back to what you believe, right? Do you believe that there's, do you believe in the value chain economics are favorable for Naked's model?

Do you believe that the scale benefits shared effectively in this model? Do you believe there's a behavioral element that means that customers are going to be stickier to the model? So if you believe those three things, then if you go and look for 2025, it doesn't seem crazy that you can make the valuation work and have a very, you know, 30% plus IRA on this. But my numbers, I mean, even 2021, I think if you look at the, if you look at the, I mean, H1, so that stands to an EBIT number 26 million was 12-month rolling, right, with from H-1. So H-1 fiscal year or H-121 is, is March 2020 to, or sorry, September 2019 to September 2020, right?

So six months of COVID. Yeah, yeah. And but then the year before that, you had 10,000. million stands to EBIT. So they've done over, you know, potentially, you know, 15 million roughly plus in six months during COVID. And if you look at the, I mean, the core drivers of the stance to leave it, whether you want to use that or not. I mean, I just look at free cash fraud, to be honest, but, you know, it's, you look at the repeat contribution margin, the retention and the payback, which is obviously based on the CAG, but I don't think, I actually think you

could see a massive bumper year, these numbers coming up in next month or end of this month. But because, you know, if you think sales retention for the year is going to be much higher than, you know, 90% plus, really, and you've got higher frequency, bigger bulk purchases. I think you could see upwards of 35, 40 million, even plus of Stan to Lead Bit in 2021. Now, that doesn't really matter because, like you said, you can lose half those customers. But if you believe in those three things, the industry structure, the shared economies of scale and the behavior, if you look at 2025 numbers, which is kind of what I look at, the free cash flow there, I don't think it's crazy at all that you can get to, you know, north of 50 million, 55, 60 million stands to leave it on on 1.3 to 1.5 million angels. and that should give you 30 million roughly plus of free cash flow and you're still replenishing the base, right?

Okay, so you just, that was my last question. So reasonable bulkcase view, well over a million subs, approaching 1.5 million subs, 2025, 2006. You've got 300,000 subscription, subscription, Angel who's in the UK with 66 million population. It's like the US, I don't think it's crazy. You can get a million in the US at all. Yep. So you think 2025-2006, we're talking 1.5 million-ish angel investors.

That's going to translate into 50 to 55 million in Stansell EBIT and growing. Obviously, at that point, you're talking huge scale benefits, right? Because now you've got a subscription base up a million and a half when you're dealing with one. Like, you are the gold standard. You can make huge wine contracts. Your costs are probably super low. When you think, you know, one of the things with scale is people forget, hey, there's a marketing cost. so acquire, there's this marketing cost to acquire and keep subs. And when you're spreading that

over a million angel base, you know, I use the Netflix. Netflix has 75 million American subs and Viacom, I think, is around 10 or 15. Netflix, when they market, they scale it over seven times the sub base or something. So exactly, yeah. Same in naked. And I think the way I look at this is I've actually, my 2012 25 numbers have pretty much sales from the full cost is 68 to 75% growth from for this year, 2021, or for the fiscal year, 2021, I've just 20% there after the 2025 gets you to about 1.3 to 1.5 million in angels on the same frequency of purchasing per bottles. Because you can back out like a, you can back out the, the unit economics of a customer, also the, the DCF, if you will. But I've actually just assumed sales retention

declines much lower than one average of 76%. One year one payback is, you know, is it much lower at 65, 66%. CAC is around 200 per angel, which is about the same where it's at now, if not a bit higher, slightly higher. And that will give you roughly,

you'll be growing at 6, 7% angel base in 2025. So you'd be replenishing, but growing also 2025, I've given you like 55 million standstill e-bit, which then you can go and look at the cash flow, because I think there's some monetization. You can include plus the fact that networking capital, I think, is management guide for like 1 to 2% of the change in net sales as working capital. So you can back that out and you get about 30 million and free cash flow, which is. If I'm doing the math in my head right, and please tell me if I'm wrong, because it's tough to do math in your head.

head during the podcast. But, you know, based on those economics, I would think the share price right now is what? It's 700 pounds. Is that right? Yeah. So, I mean, well, the, I think the market cap is, what, 5, 10 million EV. They've got 75 million in cash. About 450. I mean, if I'm doing the math in my head, right, you're probably talking about a 1.2 to 1.5 billion dollar company on that number, maybe even higher if you want to get aggressive on multiple. But so you're talking the stock price over three-xing in the next four to five years if that bulk case is right. Is that about how you're painting now?

I think so. And if you think about the, I mean, this business has huge negative working capital and it has like a hundred million net assets, even low, right? So you're basically earning, you know, 30% return in invested capital. No, it makes sense. The numbers make sense. You know, as I was doing this, I was getting bullish on. the company, because I looked at a couple years ago, felt like I passed.

I know Elliot's. I mean, one of the things that I'm worried about in terms of the risks to talk about in more detail. I just, you know, when you think about the U.S. and the distributors, I mean, I think they're fairly concentrated with Southern Blazers break free, Republic National. I don't know what these guys are going to do, right? I think eventually they'll start fighting back. I don't know if they'll lobby for regulation or they might try and, you know.

That's the regulatory risk I mentioned earlier, right? like how can naked be selling other people's wines at prices lower than what we would what we could kind of provide a consumer so it's not other people's effectively it's there's right yeah let me you know everybody let's end on this so everybody talks about what i like to call level up opportunities right Netflix leveled up into making their own content and becoming the biggest player um amazon use amazon retail as the thing to fund amazon web services and leveled up into one of the best growth business of all time, right? When I think about naked wines, you know, my first thought was, oh, could they level up into

the alcohol distribution? I don't think that makes sense because of regulatory reasons, at least here in the U.S., but are there level up opportunities here aside from maybe that one? I mean, I think you mentioned at the beginning where it would be potentially premium wines, you know, to begin with. I think they're focusing on the sub-30 wine, so you can go into much more. more expensive, but also higher margin wines for them. And then I think they've tried, I mean, the CFO, or the old CFO, now the guy,

James Crawford, he runs the UK business. He used to work at Diageo, so he knows different, he knows spirits pretty well. I think they've also tried beer before, craft beer, but the economics are, the union economics don't really work because they're lower value for same weight and size. But spirits could be one they could try. I think, I think it just depends on like, Well, I wouldn't like to see them go too far into, like you said, you know, selling other products that don't keep the behavioral element of the business model intact.

So maybe just new products potentially. But I think just for me, just hopefully they can just nail wine. And I think that should be enough at this, but this price anyway. It's one of those things. The opportunity in front of them is so big. They almost don't need to attack and go after any other. But, you know, everybody loves, everybody loves a lot. I think it's hard, though.

So, I mean, one thing that come out of the interview with Nick, was that, you know, again, comparing Naked with other vertically integrated models is that Naked is effectively a production company, a distributor, and a retailer. That's pretty hard. It's almost like Carvana making the cars and then having their RRCs in last mile

and then, like, retailing them. So managing that is really, really difficult, managing the inventory, distributing the inventory in the right places to the right customers, retail and marketing. It's like it's, Getting that right, I think, is, I mean, that's what I'm worried about.

Just execution risk, I think is pretty high. It's difficult. Perfect. Anything else on your mind with naked minds we should be talking about? I think the one thing that I worry about is just the marketing ability of the company. Because like you said, if you look at the history of the UK and the Australia and the US, you have a price-driven market in UK and Australia. And in the US, you have a much higher average bottle price.

So Naked's brand equity in the marketing position has to be different. And I think that they made a big mistake in going in saying, we're cheaper than everyone. And you guys didn't want to drink it all, right? And so I think there's an element of how hard or how long would it take or how difficult is it for Naked to change. the US consumer's perception of the quality of their brand. And I think that's why, to be honest, before COVID,

I mean, Nakeda one wasn't growing that quickly, remember? Yeah. It was going pretty slowly. People were skeptical of it. I was skeptical of the product market fit. I still am skeptical of the product market fit to a certain extent. You don't actually truly know how well does this product fit the market. And then COVID has sort of brought that forward and give them a chance,

filled the funnel for them to people to test the product. and now it's really up to them to change the perception of the U.S. consumer and say trust naked, we deliver great stuff, it's not cheap, it's just high quality and an affordable price. Simms to Costco in a way, right? And trying to do that is going to be very, very difficult. You have to have the right marketing strategy, the right product in the right place, the right introductory boxes for customers, and not be persuaded by that higher contribution margin that's dangling from the more premium bottles that you could probably go and sew if you wanted to.

So that is what I'm looking at is really just what they do in the U.S., how they position themselves, how they market themselves, how you guys feel about the products and the stickiness and the retention there. No, I just love what you said where before COVID they weren't growing and then COVID obviously was the huge show. And it's just such an interesting case of COVID, it does seem like COVID took their business, For on the short term, it obviously took their business to the next level, but it seems like in the medium to long term as well, it took their business to the next level because so many people tried their product and were able to see, oh, you know, I'm buying a $20 bottle of wine from them, but it's not a $20 bottle of wine and buy my liquor store. It's more a $50 or $60 bottle of wine I'd buy from my liquor store. And it does seem like they've broken some of that down, you know, I do think like. And the other thing to remember, like, is also how the stock is trade as well. So if you look in it, if you look over the last four or five, years, five years, every time naked reported and they invested through the P&L, the stock would

crater, it would go down 10, 5, 10%, right? Even when it was growing, you know, 10, 15% angels and growth. And I think there is this potential culture change going on at Naked now where you had the old retail family, Majestic is the largest shareholder. You know, they're slowly liquidating their stake. You've got Nick Devlin now lives in Napa, CFOs now US. They're bringing on new chairman. So they are slowly transitioning to become more of a traditional e-commerce D-to-C play where they can also get the investor base that understands that they are investing through the P&L, not through the cash flow statement. The way you look at it is different. So I think now what you're going to see, what I would like to see potentially is they could go

after the market a bit more aggressively, potentially, rather than historically, there's been worries about, oh, they're not actually earning any money, and we want to see EPS growth and the stock craters every time they grow. So I think there is a transition away from that old brick-and-mortar mentality to this more vertically integrated model that naked really are. Perfect. Well, if it's good with you, I think we'll end it there. I again I'm a premium premium beta subbed I'm a premium beta to in practice I really enjoyed it there's a great naked wine interview with the CEO from November that I think I would encourage anybody who's interested in this to go ahead sign out to in practice and go check it out but

well it was great having you on next time you've got another interesting one we'll have to have you back on and appreciate it looking forward to stay in touch thanks for having me man great