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Mutual appreciation society

The Wine Society’s unique business model is crucial to its ongoing success, CEO Oliver Johnson tells Patrick Schmitt

It was very telling that Tio Pepe chose mail-order mutual The Wine Society as the sole retail source for its special edition fino cask sample called “En Rama”.

The sherry brand is well known, but this limited release launched in May last year required an educated customer and special handling – an absence of fining or filtration had given the fino a short shelf life. However, for the many who had read about it, disappointment ensued: the entire 175 cases produced were sold through The Wine Society in just over two hours.

Thankfully, such was the success that the exercise, initiated to celebrate the brand owner’s 175th anniversary, will most likely be repeated this spring, and no doubt those who secured the inaugural En Rama are already salivating at the prospect and will be equally quick to order.

But this tale is important for two reasons – it illustrates the enthusiasm for the new among the The Wine Society’s 105,000 active customers, and the high regard the company has earned among its suppliers. As Oliver Johnson, company CEO since 2004, tells the drinks business: “You don’t get these sorts of projects if all you talk about is price.” Continuing, and referring to other Wine Society own label lines, such as its Pauillac from DBR Lafite or Hermitage from Jean-Louis Chave, he adds: “But what you do get is first choice of the casks, and the members are more interested in that than 20p off the price.”

Johnson, a Cambridge economics graduate with a career centred on sales and marketing roles with car brands, recounts a heart-warming story of a Wine Society customer who is unusually loyal, hungry to explore new tastes and regions, happy to provide feedback and driven by quality over price, if acutely aware of value.

He’s also amazed at the levels of customer satisfaction at the Society. “I’ve never seen numbers like it,” he says, comparing it to his experience at Mercedez-Benz, while admitting that the business will be “doing more exclusives and parcels because it’s what the members want”.

The use of the word “members” – not customers – of course alludes to The Wine Society’s mutual status: it is owned by and run for the benefit of its users, who, to join, need do no more than register on the company’s website and commit £40 for a lifetime share. This gives it a particular and unusual position because
it means the business is run not to maximise profit or growth, but to satisfy its members. “We are not not for profit or not for growth and we do have a five-year strategy – which we call ‘outlook’ – and we have to hit the numbers of the plan,” begins Johnson, before adding: “But the single most important thing we monitor is how the members are feeling.” These include demanding and high-profile people, and he records, among these, Bank of England governor Mervyn King, who is “a keen member and very complimentary”.

However, changes have been necessary at The Wine Society, or to use its full name, The International Exhibition Co-operative Wine Society Limited, because it was founded after the last of Britain’s Great Exhibitions, held in 1874, when some leftover casks were discovered. In particular, Johnson credits Ian Ronald, now chief executive at John Armit wines, for “stirring things up”, and hence, by the time Johnson arrived in 2004, “the quality of the department was so good that I didn’t make changes”.

However, he has been tasked “with making the company more competitive, and now I would be very happy for us to be compared to another company on anything you like – communications, logistics, finance, you name it…”
Johnson has also overseen significant expansion in The Wine Society’s warehousing. Completed in September 2008 was an entirely new building that, he claims, is the heaviest warehouse in Europe and the highest in the UK – with nine pallets-worth of wine stacked to over 15m.

It has taken the company’s storage capacity to 634,000 cases, and cost £5.5 million, including a new bottle-pick machine. With the new building, the Society now has four warehouses at its Stevenage headquarters, holding just under 500,000 cases, 200,000 of which are “members’ reserves”, and Johnson says he knows where to put warehouse five and six as the company owns the freehold to a neighbouring bus garage, currently leased by Arriva. “We own all the land and buildings and have no debt,” he boasts.

As for the updated technology, he adds: “The new automated system saved 25% of the cost of processing cases and the capacity is much greater,” stressing that the Society’s 1,500 lines are all available by the bottle.
But Johnson’s pride is really apparent when service is discussed. He points at a screen showing the number 1072. “That’s the number of calls taken today,” he explains, and it’s only midday. “The target is to answer all calls in 20 seconds and there are no menus – we have a ‘first call resolution’, which means we don’t ring back or pass the call onto someone else, unless very specific advice is needed on food matching or delivery.”

Meanwhile, when it comes to the latter, as much as 70% is performed by The Wine Society’s own drivers, using its branded vans and depots across the UK. “They are our drivers, not a white van man lobbing something over the fence. It is one of the services we can offer because we are not maximising on profit and our members value service.”

Johnson also talks of the Society’s customers as a community, and hence when demand outstrips supply, the mutual attempts to spread out what’s available as widely as possible, not just satisfy the highest-spending or most long-standing member. “For example, for en primeur, if there’s too much demand for a particular wine we cut the maximum order from 12 to six bottles or even three. And if there’s still not enough, we’ll have a ballot to give everyone a better chance.”

For this reason Johnson notes that The Wine Society may not be suitable for the fine wine investor looking for large quantities of specific labels, and says, in any case, “we are interested in the drinkers”. This in fact helps the company’s allocation for blue-chip Bordeaux.

Johnson explains: “Because we don’t trade the wine and we generally sell it to drinkers, the growers like us, and we have such long relationships with growers in Bordeaux we punch above our weight.”

While The Wine Society is almost entirely a mail order and online merchant, it does have a small retail arm in Stevenage where locals can browse bin ends or members can pick up orders and save a small sum on delivery. There’s also a cross-channel operation in Montreuil which has survived the recession and weakening pound when others haven’t – both Tesco and Sainsbury’s, as well as Oddbins, pulled out of Calais last year.

Speaking of the French outlet, Johnson says: “It’s not so much about making money but responding to members’ demands, and our members like to travel and buy wine in France, and Montreuil is a pleasant town.” He further records: “With the strength of the euro we were worried, but the business has come back so strongly; the numbers are good.”

But Johnson shows no evidence of complacency, and adds that he meets his staff three times a year to “remind them that unless we are good the customer will buy from elsewhere. They don’t have any contract to buy from us – they do need a motivation.”

And the future? The Wine Society may be an impressive growth story, from a lunch meeting 130 years ago to a £70m turnover today, but its plan is not to take on Tesco, or even mail-order leviathan Direct Wines, which has some five times The Society’s turnover.

“It’s sort of counter-intuitive not to grow as fast as you can in the same way other companies automatically try to,” says Johnson. “It’s a macho thing, but when we talk about being bigger, yes of course there’s a right number of cases to spread the cost over, but if we were twice as big, we’d need twice as much warehouse space and twice as many staff and we might lose our character and some of our wines, because the supply is too small.” However, before continuing to weight up the advantages of expansion he adds: “And the shareholder who owns us doesn’t want us to grow too big.”

The Wine Society is really nothing more complex than a set of customers who want to safeguard quality and diversity when it comes to wine retailing in the UK, while ensuring a high level of service. Their approach should be applauded and this institution cherished.

Taken from the February 2011 edition of the drinks business.

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