‘Unfortunately, the supermarkets’ stranglehold on the UK market proved too powerful for us to compete with and we have not experienced the anticipated growth rate.’A likely ruse it is. The supermarkets did it! They strangled Lot18 and I'm guessing the deed was done with a rope in the produce section by Colonel Mustard! Seems very suspicious to me. I called their CEO Philip James for comment on Friday but at press time there was no response so we are on our own to solve the mystery. What's the real reason behind Lot18's U.K. closure? Elementary my dear Watson.
In the SVB State Industry Report this past spring we said,
"Most of the Flash sites have a culture of discounting. Their businesses were built on the ability to source inexpensive product in an over-supplied market. The problem is, buying cheap wine is going to become increasing difficult in a market that is moving to shortage. If those companies have a culture of selling on price alone, they will be disadvantaged."
- the US and world economy is softening a little more than we'd hoped which could increase wines available for discount
- sales rates of fine wines have been slowing mid-year.
- near perfect growing conditions might lead to a little more wine at harvest reducing the predicted wine shortage this year, and expanding the supply of wines available to flash sites for discounting.
|Courtesy Wines & Vines Industry Metrics|
|Robert Joseph aka Moriarty|
Quite simply, the large numbers of Millennials don't necessarily mean opportunity with fine wine purchases today, especially in the wake of the Great Recession. The vast majority of wealth is still with the Boomers.Total wine sales in the US to Millennials are estimated between 10%-17% depending on the database you pick. The SVB Wine Conditions survey this year of a population of over 500 US wineries who use CRM suggest the market share is about 14%. But recently released information from ShipCompliant shows Millennials represent only 3% of on-line purchase activity. One would think Millennials; the most digitally literate generation ever should have a much larger market share than 3% of on-line sales? What are they doing with those i-Phone's if they aren't buying wine? Why do they show with such a low share of on-line purchases? My guess is price and speed.
What we do know, is the Flash Site business model is one that evolved on two precepts: 1) people like a bargain, 2) there is extra wine in the market. While its true people still like a bargain or more accurately they prefer value, the second precept is vexing because it is a temporary and now evaporating condition. You can't build a long-term business model on a temporary condition. In checking around with people I know and trust, I am led to understand that the flash sites are under increasing stress today and smaller players are the first to feel the most pain. That makes sense in a new business model and it wouldn't surprise me to see some failures in the next year. But contrary to anything you read in here, I'd expect the larger and better capitalized businesses like Lot18 to be in the best position to adapt and survive. I'd also expect some more entrepreneurs to find their way in this direct to consumer retail and on-line business with new ideas and evolved sales techniques. That's not a declaration of the end of flash sites at all but does suggest the blurring of lines between e-tailers and flash sites. There is a business need and a consumer want and with time, the wants will be satisfied. One recent US entrant is Naked Wines who have a slightly different model but started in the UK and have crossed the pond this year. The model will not only survive, it with thrive but on learned and evolved sales techniques other than selling on price alone.
So Watson, why did Lot18 close their UK Offices? Lex parsimoniae. Occam's razor: sometime the easiest explanation is the best one. From their press release we read they "have not experienced the anticipated growth rate." The fact they had some recent departures, moved off some vertical luxury extensions, and closed a small under-performing office suggests they are adapting and evolving; focusing down on their core business. In any start-up, the early hires are seldom suitable for larger team environments and as new learning is found and expectations evolve, new talent is required to match new understanding. The fact Lot18 is actually evolving and willing to make these tough decisions means they are thinking about the markets and adapting. That's a good thing because in the end, we need good wine e-tailers in the 5th Column to help this emerging aspect of the wine business.
Case solved Watson. It wasn't Colonel Mustard or Mrs. Peacock and the weapon used was vaporous. Who done it? It was the Supermarket in the UK using a stranglehold on the marketplace.