A new development for Majestic Wine

Majestic wines has announced it is acquiring its online rival, Naked Wines for up to £70 million. As part of the deal, Naked Wines founder Rowan Gormley will become Majestic Wine chief executive, however Naked Wines will continue to operate as an independent brand and will retain its own senior team. Richard Perks, Director of Retail Research at Mintel, looks into the move in more detail…

Majestic Wines has made an agreed offer for Naked Wines. But there is more to it than that because the Naked MD, Rowan Gormley is to become the new Majestic MD – filling a gap left by Steve Lewis’ sudden departure in February.

On paper this looks like a good move. Both sides have needs that the other can fulfil. But it is risky as well.

Majestic

Majestic has been looking for a new chief executive. In buying Naked, it is actually buying a man – someone it must have come to respect. After all Rowan Gormley has built up a £74 million turnover business in just 7 years – no mean feat. That business is still loss making, but only just, and that may reflect the costs of the rapid development.

Rowan Gormley is a wine man and Naked itself should provide a new avenue for growth for Majestic. After all, it is already about a third of the size of Majestic.

Naked

But if Majestic needs Rowan Gormley, then Naked needs Majestic and the funding that it could provide. There were reports recently that Naked was thinking about opening high street stores and that led us to wonder if the business was reaching the limits of growth for its crowdsourcing format.

High street stores would give it greater visibility, allow it to develop own brands (after the manner of The Wine Society) but also, perhaps crucially, give it greater visibility. We have often commented that the major drawback of an online only retailer is the need for a huge marketing effort to ensure that customers are constantly aware of the brand. But Naked is also running into the problem that to gear the business up and make the jump to being a much bigger operation, it would need major investment.

Will it work?

As we said, the deal looks great on paper – potentially a win-win situation. It’s easy to come up with counter examples. The two businesses are very different, but at heart they both aim to provide quality wines at competitive prices to the mass market. They succeed because they have built up customer trust in the quality of the service they provide. One could argue that the small producers built up by Naked could go on to be major suppliers for Majestic, but it may well be that the two businesses will continue to do best if they operate at arms length.

We think that this deal does make sense and that the chances of success outweigh the risks involved. It will certainly be interesting to see the two develop.

Mintel’s Director of Retail Research, Richard comments to the national and trade press on retail and consumer issues, advises clients, writes retail reports, presents webinars and maintains the retail databases. Richard joined Mintel in 1999 and previously headed the Retail team, overseeing the content and strategy of the retail reports. Before joining Mintel, he worked as a City analyst and as a journalist.