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Naked/Majestic consumer-bases were a bad ‘fit’

Published:  13 December, 2019

The matchmakers behind the Majestic and Naked Wines merger have said that the ‘experiment’ was doomed to fail because of the inherent differences between the two sets of customers, and because of increasing consumer preference towards companies that have a unique USP.

Before the 2015 deal, Naked Wines had built up a solid fan base via its online ‘Angel’ subscription model where consumers pay a flat monthly fee in exchange for access to – and enabling the growth of – independent winemakers.

Majestic Wine meanwhile was a recognisable fixture of the UK’s retail landscape, with shoppers seen loading up cases of wine into their cars on the outskirts of many-a-British town.

At the time, bringing the two channels together “made sense for a modern retailer”, said Jonathan Buxton, head of Consumer Group at M&A specialists Cavendish Corporate Finance, which worked on the deal.

As the ultimate omnichannel retailer however, the Majestic/Naked model failed to fly.

Buxton said: “The deal we put together was very much around wine as a product to be shipped. There was a Majestic on every street corner and Naked was taking off like a rocket online. It’s actually illegal to leave wine on a doorstep. So being able to leave a note saying ‘we were sorry to miss you, please pick up your order from your local Majestic’ seemed like an ideal solution.

“In the end, the conclusion we came to was that they are two separate worlds and the brands were too strong on their own. They needed to be separate to flourish.”

In conversation with Harpers, Buxton went on to say that the he believes the deal came at a very specific time for the industry, when consumer tastes were beginning to change.

“Younger consumers don’t want to follow the same brands as their parents; and we are seeing companies becoming more specifically aimed at their needs, especially with social media and the internet helping niche brands to grow very quickly.”

As a result, he predicts we will see a trend towards further “de-merging and consolidation” over the next 12 months, as businesses hunker down and return to focusing on “fewer services at a higher quality”.

“It’s a tough market out there, so we’re going to see more consolidation. While the Naked/Majestic experiment didn’t work, I think we’re going to see brands with the same consumers and same fit coming together.”

Buxton and John Farrugia – also a partner at Cavendish – note an additional trend for more businesses returning to private ownership.

This was the case for both Majestic, whose sale to US-based private equity group Fortress was finalised on Wednesday (December 11) for £95 million, and fine wine specialists Lay & Wheeler which was sold to international private company Coterie in October for £11.3 million.

“It was only in August that the commercial and retail side of Majestic Wine, ironically the original buyer of Lay & Wheeler back in 2009, was sold by Naked Wines to US private equity group Fortress,” Farrugia said.

“It would appear that de-merging and going private is enabling these smaller firms to re-focus on their core retail proposition – in Majestic’s case the iconic bricks-and-mortar wine stores seen across the country.”

Buxton added: “Fortress has a history of taking retailers and getting them back on track. The UK retail sector is under a lot of pressure. If you’re private it means you can make a lot of radical decisions without the extra scrutiny of being in the public eye.

“I think it’s a good move for Majestic. They haven’t jumped in and reorganised through a CVA. It’s a viable business with a rational growth strategy.”

For the full breakdown, see this month’s December issue of Harpers.