Majestic’s £70 million acquisition of Naked Wines seems to be paying off

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• Naked Wines was acquired by Majestic Wine in 2015.
• The wine startup has 360,000 users who pay £20 a month to help fund the production of new wines.
• The company was profitable in all of the geographic markets it operates in during the first half of its financial year.

Majestic Wine’s £70 million acquisition of Naked Wines — an online wine startup that asks its customers to fund the production of new wines — seems to be paying off just over two years after the deal went through.

Majestic Wine, which is listed, said on Thursday that Naked Wines helped its profits rise to around £6.8 million in the first half of its financial year. Majestic Wine broke even this time last year.

Naked Wines was profitable in all three of its geographic markets, according to the results, which cover the 26 weeks leading up to October 2. The company, which is less than 10 years old, had adjusted earnings before interest and tax of £4.72 million — a considerable improvement on this time last year, when it recorded a loss of £2.78 million.

Rowan Gormley, chief executive of Majestic Wines, said in a statement: “In this half, Naked Wines has demonstrated the quality of its model.”

Gormley added: “It has become a disciplined business committed to continuous improvement.”

Headquartered in Norwich, Naked Wines now has 360,000 customers who pay £20 a month each to get access to new wines. The majority of their subscription fee is passed on to wine producers.

Naked Wines managing director Eamon Fitzgerald told Business Insider that the £20 monthly fee is like a “top up or credit”.

“So that gives you access to wines you can’t get anywhere else,” he said. “They’re exclusive to us. And that gives you discounted prices.

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“The reason we can get discounted prices is we take all of those £20s and we invest in wine makers’ production. Typical wine makers have to make the wine first, store it all, then hop on a plane, go to a wine fair, try and find an agent, they’ll find a buyer. There is a lot of cost in the middle there. So actually what the wine costs to make and what the consumer ends up paying, the wine maker gets rinsed.”

Naked Wines is investing the majority of its user subscription fees into South African wine makers. But it’s also funding wine makers in New Zealand, California, Australia, and even the UK.

The amount invested varies, but there are some wine makers in New Zealand that have received around £500,000 from Naked Wines, while another producer in Kent received £150,000 recently.

Naked Wines has funded the production of 500 types of wine over the years, according to Fitzgerald. He admits it’s risky business but only two of the variants have spoiled.

Fitzgerald said that Naked Wines is now starting to expand into other products in an effort to grow its business further.

“The business model naturally lends itself to other products that we’re looking at so we’ve just launched a craft beer discovery club, which has 2000 subscribers now in a very short space of time,” said Fitzgerald.

Naked Wines is also offering craft gin, as well as olive oil and artisan meats.