Stripping off the status appeal: Provenance driving growth of Aussie independent wine sector – Naked Wines
Naked Wines specialises in connecting independent winemakers directly with consumers via an online platform based on a subscription model.
According to Marketing and Sales Director Paul Connell, today Australians are far more interested in the provenance of the wines they are receiving as opposed to the branding, status and knowledge.
“Wine quality is still of utmost importance, but there is now much more emphasis on the story behind the wine and its provenance, not the status and brand of the maker, and the importance of wine knowledge is decreasing,” Connell told FoodNavigator-Asia.
“People just need to know what they like about the wines, that’s the most important to them, very different to traditional ‘wine snobbery’ [where knowledge is the number one factor]. Consumers are a lot more passionate about the produce, how the wine is made, who made it and not the label or the marketing.”
The rise of this trend is opening the door for more independent winemakers to stand out as opposed to mass produced products, a big change for an industry that goes back centuries and is estimated at some US$2.8bn overall.
“As a nation, Australia is passionate about its heritage e.g. as a fruit and grower nation, and especially since COVID-19 hit it has been seen as a matter of national pride to keep the small business marketplace alive,” said Connell.
“That said, the impetus to buy independent and support local has gone beyond being just a trend now, and I believe it will continue even post-COVID, which is a good thing for independent winemakers here.
“The important thing is to continue providing quality wines at prices at are affordable and reachable by the general consumer – we did see a lot of wine consumption shifting but no overall increase in consumption, which shows that consumers may be looking for better wines but not to drink more or overconsume, which is a good thing.”
Further validating Connell’s beliefs that independent wines are on the rise are Naked Wines Australia’s recent financial results, where the firm revealed a 42% year-on-year increase in sales to hit A$84.2mn (US$60.8mn) in FY2021.
The firm also saw a 44% growth in repeat customer contributing profit (profit from sales to repeat customers) from A$12.6mn (US$9.1mn) to A$17.9mn (US$12.9mn). The overall amount of adjusted EBIT (profits before interest and tax) came in at A$1.7mn (US$1.2mn).
“We’ve experienced some three years’ worth of growth in the last one year,” said Connell.
“Naked Wines’ business model is such that subscribers pay a A$40 (US$28.90) subscription monthly and not just get high quality wines at affordable prices but also become part of an online community directly connected with the independent winemakers.
“For that price, you might get just two bottles of wine, not necessarily of high quality from a store, but on the platform it would get about four bottles of high quality product.”
Naked Wines Australia Managing Director Alicia Kennedy added that these funds are used to invest in the independent winemakers to support them and give them the freedom to do their best work and create even better product.
"The business has seen greater interest from consumers as they take on an understanding of how current 'big bottle' retail conditions and major market forces can negatively affect the bottom line of smaller independent winemakers,” she said.
"Being independent means your margins are often squeezed, with little wriggle room, and you are more susceptible to rapidly changing market conditions, with less of an ability to quickly bounce back. This is when independent winemakers need really honest, reliable support from an ethical purchaser that isn't using these conditions to take advantage of price."
Connell also told us that the rise in Australian consumers’ online purchasing has helped to propel the firm’s growth further.
“One thing COVID-19 has done though is expedited consumers’ comfort with buying products online and made e-commerce much more normalized in Australia,” he said.
“In Australia, there is currently a big duopoly in wine retail as the biggest bottle shops are mainly owned by two firms - Woolworths and Coles - in terms of corporate structure. But a lot of wine sold in these bottle shops are mass produced and built for retail, not made by expert winemakers.
“Many consumers want to support local independent firms, but it is difficult for them to tell the difference between these and private label products based on the labelling – [buying from our platform] allows them not only that confidence but also access to some products not available anywhere else.”
China tariff challenges
Some very big challenges still lie ahead for the firm though – China is one of the Australian wine industry’s biggest import markets, and its move to implement new wine tariffs last year hit the market hard, especially the smaller winemakers.
"When you have a bigger business, or are owned by Coles or Woolworths, you have more breathing room financially and there is a greater ease in weathering these big disruptive market storms," said Kennedy.
"For independent winemakers - who are already operating on small margins and being constantly squeezed by big bottle major supermarket chains here in the domestic market – impacts such as COVID or China's import tariffs have the potential to be a slow death to their businesses."
Naked launched an initiative called Stop The Squeeze for the industry in response, a A$5mn (US$3.6mn) rescue fund to purchase small winemakers’ product at fair prices to provide income certainty as well as prevent the wines going to waste.
“We’re also looking to help local winemakers potentially unlock overseas markets as well via the platform as we are present in several countries – Australia, the US and the UK - as one of the biggest direct-to-consumer wine platforms today,” said Connell.
“We will focus on continuing to disrupt the wine industry in our three main markets for now, but we are confident that this model can grow to be larger and more common to change wine retail everywhere.”