“Sometimes people ask me, “why Naked?” But once I’ve explained to them that “naked” in this context simply means that all unnecessary costs have been eliminated, and you get, well, “naked” wine at its “naked” cost, then they see the logic behind this name.”
Let's be honest, if you're working in the city, trading equities at the age of 25, you'd be enjoying yourself right? Deciding which shares to sell and buy, which company to invest in, and who runs them would give a sense of empowerment even to the most humble of people. Rowan recalls how it was a period of “youthful confidence, undimmed by experience”. Why leave then? The job offered excitement, a sense of achievement, and a lucrative salary in the long run. It makes no sense to leave and accept a job at Virgin for less money.
However, it does when we look at what Rowan enjoyed most about his equities job; “ it gave me the ability to turn my ideas into action, and to see which ones worked and which ones didn't”. Needless to say, it wasn't the money, nor the status of the job that he liked, but the flexibility that accommodated the desire to explore different ideas, building confidence in his ability along the way. That is why, when Richard Branson offered him the chance to work for him, for less money, but with the opportunity to start his own business, it wasn't really much of a choice; “I always wanted to be an entrepreneur, and this seemed like a fantastic platform to do it”.
After joining in 1994, he led a series of successful ventures with Branson. It was Gormley's idea to take Virgin into financial services; “nobody trusts bankers, Virgin is all about trust, why not bring this asset of trust to the industry” (Gormley speaking to Branson). After this, he founded Orgasmic Wines which enjoyed success, and was bought into by Branson who then changed the name to Virgin Wines (I wonder why?). Gormley then resigned as CEO of Virgin Wines in 2008, and founded his Naked Wines scheme. The eye catching name and the fact that it sells wines begs the question; how is it different? What makes it unique, and therefore successful.
To fully understand the innovation behind this idea; we need to see where the idea came from. Being an avid lover of wines (just look back at the name of his first venture), Rowan spotted a gap in the industry's chain of production. In fact, the gap was the chain of production; “A supermarket bottle of wine that costs £10 typically has about £3 of wine in it.” The rest of the cost comes from storage, marketing and transport. Thus, naked wines business model is in it's unique selling point, cutting the chain to just a producer and consumer.
Securing investment from German Wine group WIV AG, Rowan set up winemakers across France, Argentina, Chile, Australia and South Africa. Naked Wines provides the winemakers with supplies, a salary, essentially everything they need to make wine. In return, rather than asking for shares, or interest, Naked Wines ask for Wine at as near cost price as possible. It is then able to sell the product much more cheaply, through eliminating these “dead costs”.
After initial investment, the internet is what enables this business model to work. It costs about £50,000 for naked wines to set up a winemaker, and the internet is used to raise funds from their customer. Naked wines ask customers to provide about £50 to set up a winemakers, and when the money reaches a certain point (where all existing customers have donated, but are still short of the 50,000), they will then tell their friends to donate, continuing until they hit the target. Thus, users have the option of becoming “Naked Angels” where they continuously donate £20 to sustain these winemakers once the last batch of wine has been made. This model also reduces risk because, as Rowan Gormley points out, the final product “has an already made customer base”.
However, focus on the user is taken even further, as the customers on the website can communicate with the wine producers and give feedback on whether they are satisfied. This allows naked wines to continuously streamline their products to tailor the customer's desire, creating a user-centric business model on the consumer end. The appeal of this model can be seen from several dimensions. Connecting consumers and producers in a social network lends it an invaluable community aspect. Members of the site can recommend wines to each other, as well as producers being able to network amongst one another. Any site member can visit the site, communicate with customers and create strong relationships. Another element is the funding of winemakers by the users, this gives them a feeling that, in supporting the little guy, they're doing something good. All these elements provide a huge marketing potential, and it's no surprise today it has over 62,000 people putting in £20.
Despite all this, the growth of Naked Wines has been far from smooth. They made a £1 million loss in 2010, and have been criticised by some for not being value for money, and “tricking” customers into subscribing for the £20 a month. However, it is easy to forget exactly what made them a success in the first place; the business model. It's only been four years since this company started, and it still has time to achieve success. Even if we assume that the wines aren't value for money, the feedback from customers would reflect that and only the wines that are will be made, creating an almost meritocratic model of quality control.
[Editor's Note] Milos Bezanov is a second year student currently studying International Politics at King’s College London.
