Virgin Territory

Earlier this year Virgin Wines floated on London’s AIM market following strong growth.

Sonya Hook talks to chief executive Jay Wright to find out how Virgin dealt with the spike in demand last year and what the stock market flotation means for the future:

Before the first lockdown was announced in March 2020, Virgin Wines was in a good place, having carved out its position as a leader in online wine delivery. Jay Wright, chief executive, confirms that Virgin had been recording double-digit growth in the period leading up to the pandemic months, even though the online space was already becoming increasingly competitive.

He says: “We have always been really determined that the business will grow the top line and the bottom line in tandem and make sure we are a profitable business as well as a fast-growing business. “We are always focusing on customer acquisition. We focus on building the customer base, while making sure that our Wine Bank and Wine Plan subscription schemes are growing and continue to do well.

“We have also launched beers and spirits into the mix. We have a really healthy gift business, which is about £5 million of sales, and that is growing extremely well. And we have a corporate B2B arm, which is a £6 million part of our business. All those different areas are important to the company’s growth, and they all obviously contribute towards that.

“We were in double-digit growth running into the pandemic and then post that it was transformational and certainly unprecedented from what we had seen before.”

At the end of March and through April the Virgin website saw a huge spike in search demand, up 1,000% in terms of traffic coming to the site. It levelled off in the following months, but Wright says levels are still much higher now than pre-pandemic.

Virgin also saw an influx of younger consumers, he says.

“It’s great that we have retained those customers. They have seen the convenience and great value for money and quality we can deliver.”

The company has also recorded increased demand for rosé and premium wines, particularly within the £10-15 price bracket, and Wright says the low and no-alcohol category continues grow. Virgin plans to expand this category across all product areas. 

One important factor in Virgin’s successful navigation of those early pandemic months was that it was extremely well prepared for an emergency scenario.

Wright says: “We went into Christmas mode, basically overnight. We have the ability to go into a 24-7 operation, so we switched straight into that. We also split the warehouse into three different shifts and reorganised it, so it was completely Covid-secure. We stopped picking and packing for just 24 hours and then started taking orders again.

From a customer perspective there was just a 24-hour delay, but otherwise it was absolutely seamless.

“We have disaster recovery plans, which meant everyone was really prepared. We have the technical infrastructure for our customer service teams to pick up their laptops and work absolutely seamlessly from home.”

The constant fine-tuning of its online expertise over the years also put Virgin in a strong position when the pandemic hit.

Wright says: “The customer comes first in every part of our decision-making process, and we have always wanted to find every single point of friction and every frustration a customer could have buying wine direct to the door and find ways to solve those problems.

“We have a less than 3% abandon rate; I don’t like anyone queuing. We try to make sure service levels are exceptional and 99.6% of orders placed before 4pm go out the next day. Accurate, swift, next day delivery all the time is our focus.”

2021

The success of 2020 led to the announcement early in 2021 that Virgin was unveiling plans for a stock market flotation.

Wright says: “We were always planning on either doing a secondary private equity deal of some sort, or looking at floating the business as an IPO, or looking at trade options. Those were the three different exit routes really for us to examine.

“[Shareholder] Connection Capital, due to the funding of its structure, needed to exit at that point because it needed to create a return for its customers. Mobeus [another private equity investor] didn’t want to exit. It decided to stay with us a little bit longer, which was great, and I hope a real sign of the faith it has in the business.

“An IPO felt like the right structure for us to be able to do that because it allowed Mobeus to stay with us completely. It has a 42% ownership of the business, so it was able to retain its full shareholding. As a management team we were able to retain the majority of our shareholding too, which was great. Connection was able to exit completely, which is what it wanted to do.

“With private equity you tend to have quite large debts in your business and the IPO allowed us to pay those debts off in their entirety, so we are completely debt-free.

“All the profit we now make can all be reinvested in growth, so it allows us to increase our marketing and customer acquisition investments quite considerably, and that in its very nature allows us to grow quicker. And it allows us to be more aggressive in the marketplace.

“There are two additional reasons I wanted to do an IPO.

“We have a fantastic team and great team ethos, and this has contributed hugely to the success of Virgin Wine and you can share shareholding around much more easily in an IPO environment than you can in a private equity

world, so we have been able to ensure large numbers of our team can have shares in the business. Nothing will make me work harder than knowing our team can benefit from the success of Virgin, so it’s a real incentive for us all.

“In addition, the IPO allows us to go back to the market in the future and raise more capital should there be opportunities for expansion, more aggressive customer acquisition, or other acquisitions of some sort, so it opens up lots of avenues for us to grow in the future as well, which again would have probably been more limited in a private equity world.”

For the remainder of 2021 the company is looking further ahead than usual because Wright says there are “real delays” now with shipping and finding containers is a challenge.

He says: “We carry about 10-12 weeks’ stock at any given time, and we have increased that.

“We are quite lucky we are a very cash-rich business. We don’t have to worry about increasing another two or three weeks within the supply chain.

“Last September we added a 50,000sq ft fully bonded warehouse, so we now have more than 100,000sq ft of warehouse capability, so we have got real scale.

“Right now, we are looking ahead and thinking about Christmas. All of our Australian wines for the festive season were ordered six weeks ago, so everything is in play and they should arrive in September and October. We are just building in lots of buffers to make sure we don’t let customers down.”

Virgin in numbers:

  • Virgin Wines has a portfolio of 700 wines, 350 spirits and 150 beers.
  • In the year ending June 30, 2020, the group generated £56.6 million and earnings of £4.8 million
  • As of December 2020, Virgin Wines had approximately 147,000 members on its subscription schemes

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