£720m UK online wine market ‘unprofitable’By Patrick Schmitt
Just hours after the announcement that Majestic Wines has bought loss-making Naked Wines, an event in London has highlighted the challenges of turning a profit in the UK’s £720m online wine market.
“It is so difficult to make money selling wine online,” said Tim Wilson from the Wilson Drinks Report, as he launched an analysis of the UK online wine market in partnership with Inter Rhône this morning.
Providing evidence for the comment, he stressed that despite a reported 40% sales increase in online wine sales through Naked Wines during the last year, the business still made a 3.3% loss in 2014.
“In the formal sale document published this morning, sales for Naked Wines show an increase from £53 million in 2013 to £74m last year, but it is still loss making,” he said.
When asked by the drinks business what could be the reasons for the loss, Wilson said that he believed that the major challenge for Naked Wines and other online-only retailers was the cost of delivering the wines.
“The sales are growing, but Naked Wines are struggling with the costs of delivery,” he explained.
Looking generally across the UK online wine market, Wilson said that delivery costs for wine can be as much as £10 a case, but most retailers are offering free delivery on orders over £60, or charging around £7, which means, he suggested, that they are not even breaking even on delivery costs.
Consequently, he said that it was unlikely even the big grocers were making money on their online wine sales, although he stressed that this aspect to their business was “strategically important”.
Turning his attention back to the Majestic-Naked news, he said that due to the high delivery costs, Naked Wines “want to push some of their business through click-and-collect using Majestic stores”.
Wilson also said that as a result of the deal he would be revising his figure for the size of the UK online wine market upwards – before this morning’s news he calculated that the market was worth £700m, based on a valuation of Naked Wines’ annual sales of £50m, but now it has been revealed that the company was selling over £70m worth of wine, the total UK online market is worth a little over £720m, he said.
He also stressed that he expected that figure to increase, despite a stagnating UK wine market.
“The online wine market represents about 11% of the [total UK] off-trade, and there is every chance that could become 15% of off-trade over the next 3 years because of growth in the online wine sales,” he said.