Majestic Wine PLC said this week that it will sell some assets, close stores and review its dividend to focus on its growth engine, Naked Wines, as it seeks to fend off competition from discount markets and online rivals.
Majestic, which plans to rename itself Naked Wines Plc, bought the online retail business in 2015 and has since more than doubled its size. Naked Wines sales are expected to be more than £175 million this year, or about 35% of the group's targeted sales of £500 million.
Majestic plans to increase investment in Naked Wines by £6 million per annum to about £26 million in 2020.
"We believe that a transformed Majestic business does have the potential to be a long-term winner, but that we risk not maximising the potential of Naked if we try to do both," CEO Rowan Gormley said. He founded Naked Wines in 2008.
The unit uses a subscription model and aims to deliver quality wine for less money by crowd funding independent winemakers in exchange for preferential prices on exclusive wines.
Majestic, which has over 1 million customers in Britain, the United States and Australia, has been struggling in recent years due to tough competition from discount supermarkets Aldi and Lidl UK, and online rivals offering cheaper wines.
"Drastic And Unexpected"
Liberum analysts called the strategy change "drastic and unexpected", saying they were waiting to know if the new digital channels will generate better returns than vouchers and other routes that have been primarily used historically.
Majestic also operates Majestic Retail - the largest specialist wine retailer in Britain; Majestic commercial, which supplies wine to business; and Lay and Wheeler, a specialist fine wine merchant.
It expects to take largely non-cash restructuring charges of up to £10 million in 2019.
The company also said it expects to achieve its sales target of £500 million for full year 2019 and adjusted profit before tax around the current consensus level of £11.1 million, lower than the £11.7 million it mentioned in its Christmas trading update in January.
Majestic has also been trying to grow its business outside Britain as the country readies to quit the European Union, with online sales accounting for about 45% of its business and 20% coming from its international business.
In November, it said it would import an extra £5 million to £8 million of stock to ensure it is covered against any problems with deliveries following Brexit.
The company posted a statutory pretax loss of £200,000 in the six months to October 1 compared with a profit of £3.1 million a year earlier, hurt by higher costs and investment to attract customers to the Naked Wine business.