Analysis: Majestic’s shock change of tack

The announcement that Majestic Wine is throwing its lot behind its online wine subscription business, Naked Wines and will divest some (if not all?) of its UK retail business has raised more questions than it has answered. db looks at some of the issues raised by today’s announcement.

 

Rowan Gormley, CEO of Majestic Wines

Why are they changing tack?

Many analysts have been shocked by the unforeseen change in tack in the company’s strategy announced this morning, in which UK specialist retailer Majestic Wine announced it will close stores and rebrand as Naked Wine as it concentrates on its online and international business. Bearing in mind CEO Gormley still insists the recently transformed Majestic business had “the potential to be a long-term winner”, some argue the latest move smacks of “throwing the baby out with the bathwater”.

Equity Research Analyst at Liberum Wayne Brown said there was no doubt retail was challenging on the high street and there was always likely to be an estate rationalisation strategy at some point, but he questioned why the group would completely reshape the business, when only three and a half years ago, it thought it was an excellent idea to put these two businesses together.

“Why was it a good idea then and why is it a bad idea today?” he asked.

The difference, he pointed out to db was that having merged the two businesses, Naked Wines has benefited from the cash flow from Majestic.

“As the statement clearly says, you can’t maximise the value of Naked wines now with Majestic in the same group, you can’t invest behind Naked Wines properly so in order to achieve that, they’re closing down as many stores as they can, selling on the business, selling the freeholds and probably using that last bit of value and cash to throw back into Naked Wines.”

Which is somewhat hard luck on Majestic, particularly as it had been loudly trumpeted as having turned itself around amid a difficult backdrop, following major investment in its stores. But as Peel Hunt analyst Jonathan Pritchard points out, “They’ve gone from making nearly £20 million in 2015 to £10 million profit this year, and that doesn’t sound great to me.”

Majestic’s CEO Rowan Gormley today insisted the recently transformed Majestic business had “the potential to be a long-term winner” – but the group “risk[ed] not maximising the potential of Naked if we try to do both.”

Essentially, the focus is too split for both businesses to grow, and the group has chosen to back its Naked Wines business, which has more than doubled in size since it was acquired by Majestic in April 2015 with sales expected to exceed £175 million this year, over the more challenging UK retail arm.

As Pritchard notes, “You could say this has been brewing for four years. Ever since Majestic was taken over by Naked, it’s been the slightly less favoured child in the relationship.”

Which rather raises the question: was this inevitable all along?

Click below to continue our analysis of the new strategy…

9 Responses to “Analysis: Majestic’s shock change of tack”

  1. Trundlesome1 says:

    What a contrast to when I worked there in the late 90s, early 2000s. A fast growing business under Tim How that seemingly could do no wrong. He always said to us quite openly that Majestic would be in trouble if the supermarkets became more competitive. It is a pincer movement. Aldi from one side and Waitrose and M&S from the other.

  2. Charles Crawfurd says:

    In my humble opinion a very strange decision to dump the Majestic name which has a far better image than Naked ever will. OK Majestic needed to cull the number of stores etc to meet modern trends and lower costs but that could have been done and made it much more of an on line retailer that could challenge the wine society et al. I am sure they will be the winners in gaining those top end customers rather than Naked. Tim How if he is still around must see this as a very sad day.

  3. KOP says:

    I’m not surprised at all at what’s happened – looking at it now as a former supplier and shareholder, the current management teams handling of the business is about as good as our Prime Minister’s feeble attempt to manage brexit. Time for a seasoned Professional to step in and clear the decks – DAN J where are you ?

  4. At what cost Naked Wine is growing? By giving wine away? Once the cash from Majestic will finish, Naked Wine will soon disappear. If Naked Wine worked when it started due to their marketing, now they are forced to give wine away to get new subscribers and still, are struggling. Majestic wine is fuelling Naked Wine false growth.

  5. And lets not forget that Naked Wine was the creature of the CEO, Majestic was already there. A previous comment mentioned Brexit, the CEO choice is like our PM wanting to pass her deal despite not having the support, so is the CEO. The two businesses together cant survive at least under that management, so the one that will go is majestic. If there was another CEO would have probably chosen Naked Wines

  6. MD says:

    The writing has been on the wall for sometime now for multiple retail specialists…that’s why Majestic is the last one! They simply cannot compete with the supermarkets. Shedding some stores and re-branding some as Naked Wine stores is not a bad idea but it will only be a temporary measure. Maybe they should consider a joint venture with a major coffee brand to increase footfall?

  7. Peter Hanna says:

    It’s sad to see Majestic go. It is another illustration of the difficulties of working on low margins. I’m afraid retailing wines, without other product range to support the low margin cannot work. We’ve seen the loss of Oddbins/Threshers/Vic. Wines and now Majestic. The model of being a National wine retailer is bust. It’s bad news for wine lovers, the Supermarkets have defeated the specialists, and to pile more misery on the wine lover is the news the Supermarkets are moving more to own label and presumably importing bulk wine and UK bottling. Being able to wander around the store and browse the wine range with the possibility to taste before buying will be a thing of the past. Sad news

    • Hugh Sturges says:

      Hi Peter

      There are always the independents, sourcing and supplying interesting wines, often owned by passionate wine lovers and most offering tastings on a regular basis. Support your local High Street.

  8. Tim Waters says:

    The model of being a national retailer in any field is bust. All costs are rocketing – rents, business rates, (minimum) wages and, more importantly, the growing commoditisation of products in light of ever-widening availability makes convenience a bigger deciding factor as to how and where to shop than quality or service. As a result, specialist retailers, as in those with focused product ranges, need an awful lot more to differentiate themselves and create a compelling reason for customer loyalty than the product itself. In the ‘old days’ enthusiastic and knowledgable staff’ kept retailers like Oddbins and Majestic punching above their weight – but it is no longer the ‘old days’ – even online retailers like Naked Wines are fast passing their sell-by dates. Some new ideas, please !

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