When shopping for wine, most consumers head for the supermarket or wine shop. There, they may find something they like but encounter a wide range of prices for it.
A few years ago a British winemaker decided there had to be a better way to price and sell wine – better for the winemakers and better for consumers. That led to Naked Wines, which a few years ago set up shop in Napa, Calif., introducing the concept of “crowdfunding” wine.
Ryan O'Connell, a winemaker at Naked Wines, says it has totally changed the way wine is sold and it should change the way consumers look at the product.
Here's how it works: Naked Wines signs up “angel” investors in dozens of quality, independent wineries. Each investor opens an account at the Naked Wines website and deposits roughly $40 a month.
O'Connell says there are currently some 75,000 investors, creating a total annual investment of around $36 million a year. That money is then divided among the participating wineries.
“That gives us the ability to go out and talk to really good winemakers and say 'Look, you're having a hard time selling your wine, but we have a big customer base that's just waiting for authentic, good quality wine,'” O'Connell told ConsumerAffairs.
In return for that investment of $40 a month, each investor gets to choose $40 worth of wine from among the participating wineries who are sharing the fund. Only O'Connell says your $40 investment buys much better wine than $40 buys at the supermarket or wine shop.
Cutting out the middleman
Because wine available through Naked Wines is pre-sold, the independent winemakers don't have to spend much money on sales, marketing and distribution. O'Connell says that's what costs the most in a typical fine bottle of wine.
“It's supermarkets and big brands that use their muscle and size to strong-arm users and suppliers, to make them sell the best stuff they have for the smallest price,” he said. “Then they use their leverage and size to get the largest margin possible out of consumers.”
So, just how much money are we talking about here? Just exactly how much of a bottle of wine is the marketing and distribution?
“The fruit and wine making costs that go into a $16 bottle of supermarket wine probably is less than $5,” O'Connell said. “By participating with Naked Wines the winemaker doesn't have to spend a lot of time on the road and selling the wine, the winemaker doesn't have to find a gatekeeper, or butter up critics or experts and, most importantly, doesn't have to go through traditional distribution channels.”
Half price or more
Investors may sign up on the website, deposit their investment, then shop for wine. For example, a nice Argentine Malbec, regularly priced at just over $20 a bottle, is available to investors for $10. There are also hundreds of customer reviews for each bottle.
The wine is so inexpensive that some consumers, who judge a wine's quality by its price, are often confused.
“One of the things we have to overcome with new customers is getting them to just try the wine and realize they're getting the same quality that goes into a $50 bottle of Napa Cab for $15.99,” McConnell says.
Will we see more of this kind of pricing in the future? O'Connell isn't sure how far it will spread within the wine industry, but says we are already seeing it in business models like Netflix. Instead of going to a video store any time you want to rent a movie, you pay a monthly fee and watch as much as you want.
“When they have all these subscribers, and they realize they can create their own content, it's really close to what we're describing,” O'Connell said. “They're just not selling the proposition the same way we are.”