CEO: Wine.com “is doing fine”
A financial blog posted that the private equity firm backing wine.com is “dumping their failed investment” in the company. Wine.com CEO claims the company “is doing fine” and has grown revenue to $75 million although he cites the “challenging” space that is wine online retail.
The blog, Growth Capitalist, reports that Baker Capital has retained Credit Suisse to shop their stake. One prospective buyer took a pass they report. The blog confirms the top-line figure but says that the company has yet to make a profit, so “bankers are left with little more than a nifty domain name to sell.” Venturebeat.com picked up the thread and says that the company’s “most reliable revenue model” involves the sale of gift baskets.
CEO Rich Bergsund hit back at the sale rumors, saying that the company hasn’t received outside funding since 2007 and has been cash-flow positive since 2009. He did elaborate on the difficulties endemic to the space: “wine is a challenging category online, due to regulatory constraints, shipping heavy glass bottles, extreme weather concerns and adult signatures required for delivery.” His full reply follows after the jump. On Venture Beat, Bergsund denied that the company was worth little more than the domain name–if it were true, he joked, he’d be the first to buy it.
by Rich Bergsund
July 2, 2013
Hi folks,
I’ve received several calls and emails today about a blog post full of false information about Wine.com. I’d normally ignore something like this and get on with my day, but my team has worked too hard building Wine.com to not respond.
Is Wine.com for sale?
We’re majority owned by a private equity fund that makes money by buying and selling companies. So we’re basically always for sale and that has always been the case. Beyond that, we never comment on specific M&A or funding activity because that’s private business.
Is Wine.com struggling?
There’s no question wine is a challenging category online, due to regulatory constraints, shipping heavy glass bottles, extreme weather concerns and adult signatures required for delivery. So the answer to this question has three parts:
Part 1 – pre turnaround
This company was founded as eVineyard.com in 1998 by Mike Osborn, who runs our Merchandising to this day, and has developed deep, trusting relationships with our hundreds of suppliers and wholesalers.
There was a lot of failed investment activity in online wine in the late 1990’s (see timeline below), but eVineyard was on the sidelines in Portland, going slower, trying to figure out the right business model. When the original Wine.com combined with Virtual Vineyards and WineShopper, then all went out of business in 2001, eVineyard bought the Wine.com and WineShopper names.
Yesterday’s blog post provided quotes from people running the company from 2002 to fall of 2005 (the blogger from Growth Capitalist didn’t call me, by the way). As of fall 2005, the company was losing $15M of EBITDA on $35 million in revenue, and had a break-even point of over $200 million in revenue.
So yes, you bet Wine.com was struggling.
Part 2 – turnaround
I joined Mike and his team in 2006 because I saw a category that consumers wanted to buy online, healthy customer and supplier relations and a great team that had been mismanaged. We got to work on our cost structure, reducing our break-even point from over $200 million in revenue to $45 million. Then we went to work on our customer experience – adding to our wine assortment, improving our pricing & value, making delivery more convenient and reliable, and adding tools and content to give customers confidence in their wine buying decisions. In fall of 2007 we took in our last round of external financing, $5 million, and have been self-sufficient ever since.
Despite the recession, we turned cash flow positive in 2009 and EBITDA positive in 2010 on $45 million in revenue. We closed our fiscal year in March 2011 with $1.9 million in cash flow on revenue of $56 million.
Turnaround complete – Wine.com no longer struggling.
Part 3 – growth
Now the fun part. We decided (with our board) to re-invest all cash generated from internal operations into laying the foundation for future growth. Wine is underpenetrated online, and it’s a $35 billion category in the US. What investments could we make in our customer experience that would create greater loyalty and growth?
We doubled our selection of 90 point scoring wines under $20, grew our fine wine & collectibles, added Bordeaux futures and our Collector Concierge service, revamped our gift sets & baskets, introduced same-day shipment, weather-safe shipping and date-certain delivery, launched our ipad app, mobile site and WineShopper daily deal site, and created our Steward-Ship loyalty program ($49 for a year of unlimited shipping).
Customers responded. Over the last four years, website traffic grew 2.4 times to over 15.6 million visits. Bottles sold and shipped nearly doubled to 2.7 million. Lifetime customer value grew 50%. And revenue grew 70% to $75 million. All while inventory turns increased to 12 times and net fulfillment cost per order dropped by 75%.
Double-digit growth continues today, and we’re more bullish than ever about our innovation pipeline.
If Wine.com is doing fine, what’s up with this blog post?
You’ve got me. The blogger didn’t contact me to check her facts, and only seems to have spoken with a couple unhappy people who I don’t even know who worked here nearly a decade ago. All I can say is the Wine.com team has moved on from whatever drama occurred under their watch. And we’re excited to continue to innovate, wow our customers and partner with our suppliers for many years to come.
Cheers,
Rich
Rich Bergsund
CEO, Wine.com
July 2, 2013
On July 5th, 2013 at 2:51 pm ,Daniel wrote:
These issues show a much bigger problem…the failure of the wine industry, in this country, to progress beyond prohibition. The laws are archaic and ultimately, the consumer suffers. So long as the large wholesalers maintain their stranglehold on the industry and the local governments, operations like wine.com, who should be thriving, will continue to “struggle.”
On July 6th, 2013 at 2:05 am ,Weston wrote:
Archaic wine laws? wait you talking about Canada, and BC with its 124% Tax rate ? or no probably not, gotta love wine tax in canada in general, 80%[ish for Ontario and Quebec] and a good 124% in BC
Cheers to Wine
tho to be fair kermit lynch wines are same price in canada as USA I have noticed, good ole agent making a killing in usa
On July 8th, 2013 at 8:16 am ,Dr. Vino wrote:
Daniel – I agree that it is very unfortunate that the differing state laws have largely thwarted or restrained wine e-commerce.
While the CEO mentioned the $75 million in revenues, it would be somewhat perplexing if they had limited profits. Unlike Amazon, which has huge revenues but razor thin profits (if any), wine.com is not a deep discounter. I seem to recall they did a “sting” operation on other retailers a few years back to prove the point that they are operating legally in all states while others are not. It would not be surprising to learn that business model had a high cost structure.
On July 9th, 2013 at 3:03 pm ,Bill D-G wrote:
I live in Ontario which makes it prohibitive to buy any alcohol from outside the province. As a result, I read only wine websites from Canada. No wonder selling wine on-line is a challenge. It shouldn’t be this way.
On September 20th, 2013 at 7:57 am ,Hugo wrote:
I agree with Daniel. These wine laws are so prohibitive…and wrongly so! It’s an old law that needs to be revisited because it’s bringing unnecessary hardship to hard working entrepreneurs out there that ought to be reaping bountifully.