+

In vino veritas
- Plato Symposium 217

DiVino!
Rebecca Molinoff Sapana Agrawal!

Executive Summary

DiVino is an innovative new wine company that aims to disrupt the wine market in the UK. We will acquire customers with a social selling model: Our Wine Ambassadors receive commission on sales via their extended networks. Though wine is increasingly popular, most consumers say they dont know enough about wine to make informed decisions. We address this need in two ways: - In-home tastings hosted by the Wine Ambassadors - An online algorithm to offer personalised recommendations The wine market in the UK is worth approximately 10bn. We believe DiVino can generate approximately 5.8 mn in gross profit (after commission) within 3 years post-launch. We are seeking to raise 100,000 in exchange for 20% equity.

Purpose

3
!

Our mission is to help people purchase wines they actually like in a relaxed, social setting, whilst providing a flexible and entrepreneurial career for our Ambassadors

Overview

4
!

Wine Ambassador

DiVino offers a new approach to wine sales in the UK: A network of independent Ambassadors organise group Tastings for their extended network and receive commission on any sales they generate, either at the event or subsequently online. Tastings are typically held at the home of a Host/Hostess, who has been recruited by the Ambassador and receives wine credits for their hospitality. This gives the Ambassador access to an Extended Network.

Host / Hostess

Tasting Circles

Extended Network

The Problem

5
!

Many customers say they are unable to make informed wine choices. When they are unsure, they use discounts, labels, or habit to guide their decisions.
Shopping for wine is at best somewhat overwhelming and confusing and often quite stressful1 Its an exercise in mistake-avoidance Most buyers spend an average of 38 seconds on their choice and they base it almost entirely on the label2

However, discounts do not always result in cost savings (the promotional price is often higher than the average price over a year)4 and habitual purchases are boring for customers and financially disadvantageous to the retailer.

The Solution
1)!

6
!

DiVino revolutionises the purchasing process in two ways: Tastings: Allow people to sample wine with the help of tasting notes and a group of friends. Consumers increasingly value the recommendations of their friends and family over expert opinions Personalised Recommendations: Help people choose by recommending wines that suit their taste (based on their experience at a tasting or by filling out a questionnaire online) or that have been recommended by their social network (via Facebook etc.)

2)!

Research shows that customers are more likely to make a purchase, are willing to pay more, and show increased loyalty when they receive support during the decision-making process. This will allow DiVino to achieve superior returns and a sustainable competitive advantage.

The Solution: 1) Tastings

Tastings drive sales. How?: By reducing the perceived risk of the purchase, introducing new products and providing a bit of social pressure in a relaxed atmosphere.
Samples serve as a direct source of information to the consumer and have a greater effect on sales than indirect experiences such as advertising5 Customers who sample a product have an increased probability of immediate purchase6 In addition to increased sales, customers who sample a product have an increased level of goodwill towards the product and the retailer7

Evidence: A Wine Intelligence experiment at Waitrose demonstrated that, after receiving bespoke advice, shoppers will pay 27% more on average and have greater affinity for the store.8

Original Selection: Pouilly Fum (8.49) Ros Prosecco (5.32) Total: 13.81

After a discussion about her preferences, the customer tried something new and the retailer earned revenue.

27%

more

Final Purchase: Viognier (8.99) Sauvignon Blanc (8.49) Total: 17.48

The Solution: 2) Personalised Recommendations

An algorithm will learn the customers preferences over time; as they buy and rate wines, they will receive recommendations based on their preferences and friends ratings. (The Host will input tasting preferences for everyone at a Tasting. This can also be done online.) Interactive maps and other information about the wine region Information about the grape varietal and videos of the wine producer explaining how the wine is produced Food pairing recommendations for each wine, including the ability to input a favourite food or recipe and receive a bespoke wine recommendation

The app and website will also facilitate purchases by providing information and personalised recommendations:
!"

!" !"

!"

Why Now? Wine Industry Trends

!"

Increasing popularity of wine: 35% now prefer wine to other alcoholic beverages9 UK wine market is one of the largest and fastest growing: UK boasts highest value imports and consumption has grown by 40% in the last decade10 Average bottle price point increasing: higher growth in quality wine sales (around 10/bottle), up 21%11 Wine has proven resilient during recession: home wine sales were relatively stable from 2008-2009, with 16% increasing their spending, while drinking in bars/restaurants declined12 Industry is ripe for disruption: Internet alcohol sales still relatively low but expected to grow rapidly, to 11.1bn by 201713

!"

!"

!"

!"

Why Now? Rise of Social Selling

!"

10

Peer recommendations increasingly powerful: We choose recommendations over experts, whether its hotels (e.g. TripAdviser) or films (e.g. RottenTomatoes) Easier to apply multiplier effect to acquire new customers: The rise of social networking sites make it easier to leverage networks Workers are looking for new income streams: The 9-5 office job is less attractive to the modern workforce, as many seek flexible and independent career options

!"

!"

Social Selling: Case Study

!" !"

Stella & Dot apply the social selling model to jewellery sales.
2004: Stella & Dot founded 2007: Raised $37 million from Sequoia for a 10% stake 2012: $200 million in revenue 2013: Paid out $150 million in commission since launch Average trunk show generates $1,000 in sales 14,000 active sellers
!" !" !"

!" !"

!"

!"

80% do 20 hours/month, earning ~ $250 Top sellers can earn $10,000s Top earner paid $1.3 million in 2012
DiVinos co-founders have joined Stella & Dot for market research purposes

!"

100% yr-on-yr growth in Europe (UK, France, Germany)

Optimising Social Selling

12

Our sales model minimises fixed costs (e.g. permanent staff, shop rental) and reduces customer acquisition cost by helping the Ambassadors leverage their Hosts extended social networks. Our Ambassadors will receive support, training, and a suite of online tools to help them grow their business:
!"

A dashboard to track earnings and other stats for each Tasting Circle & their extended network Comprehensive CRM tool that syncs with their online calendar and generates additional suggestions for marketing opportunities, such as bespoke recommendations for their customers Ability to accept mobile payments at Tastings A catalogue of guided tastings, with tasting notes and seasonal marketing recommendations

!"

!" !"

The UK Market Opportunity

!" !"

13
!

Overall size of wine market in UK: 9.7 billion, with just over 5 billion sold off-trade in 2013 (outside of bars/restaurants)13 Only 10% of wine sales are currently online and this is expected to grow rapidly, as broadband speeds increase Around 2/3 of the UK population drinks wine. Of this, ~50% buy at least 2 bottles per month and 40% buy 5 or more bottles Ultimately, 40% of wine drinkers account for 75% of sales.14

!"

!"

Competition
Supermarkets

14
!

Customer disadvantages - Confusing # of SKUs - False promotions - No purchasing advice

Customer advantages - Ease of purchase - Convenience - Discount-driven - High sales volumes - Purchasing advice

DiVino competitive position - 64% of wine sales market share - Only part of sales addressable for DiVino - 18% of wine sales market share - High Street stores, high rents & declining sales - Very small, knowledgeable segment of market - Not DiVino target market

Wine Shops (warehouses and high street shops)

- Need to make special trip - Limited opening hours

Wine Brokers

- Limited customer segment - Focused on more expensive wines

- Tailored purchasing advice and recommendations

Online supplier ad-hoc e.g. vineyards direct

- Large # of SKUs - No purchasing advice

- Ease of purchase and delivery

- Significant competition

Online subscription/ clubs e.g. naked wines

- Commit to subscription model

- Ease of purchase & delivery - May provide some recommendations

- Small but growing segment - Direct competition for DiVino

Customer Profile
!"

15
!

For DiVino to succeed, the target market of the ambassadors needs to correlate with the demographic profile of those buying wine Stella & Dots target market in the UK is 35-55 and the majority of their sellers are in this age bracket15 The wealthiest socio-economic brackets (A, B and C1) are the most prolific buyers of wine DiVinos initial target market will be the 35 to 45 age bracket given it has the most attractive combination of population size and average purchase quantities

!"

!"

!"

+ Distribution of Wine Buying by Socio

Economic and Age Groups16!
<1! 1 < 2! 2 to 4! 5 to 9! 10 to 14! 15+!

16

Population!

Bottles of Wine bought per month by socio economic group

Respondents" Percent! Population" Millions!

Bottles of Wine bought per month by age group

Respondents" Percent! Population" Millions!

AB !

C1 !

C2 !

D !

E !

18-24 !

24-34 !

35-44 !

45-54 !

55-64 !

64+ !

Development Roadmap
Feb Mar Apr

17
!

May

Jun

Jul

Aug

Sep

Build basic e-commerce website Establish supply chain & contract with wine producers Design marketing & tasting materials Algorithm design Recruit Founder Ambassadors Add e-Marketing Suite functionality Add ratings, food pairings, videos Step up recruitment drive

Competitive Advantages

18
!

Many innovative new models have succeeded in the U.S., despite challenging regulatory/licensing issues (e.g., Sippify, Club W and Vinely) but the UK and European approach remains traditional. The UK wine market is large, well developed and ripe for disruption. DiVino will disrupt the market by leveraging its competitive advantages: !" Accelerated viral growth, due to the power of social networks !" Reduced customer acquisition costs
!"

!" !" !"

Increased average spend, customer retention and customer lifetime value given try before you buy model and personalised recommendations based on big data and ratings Significant PR coverage given the innovative business model A flexible, loyal, part-time salesforce Eliminate cost of shop premises and achieve higher margins by cutting out distributors

Revenue Model Assumptions

Variable # Ambassadors % Ambassadors part vs. full time and # tastings implied Ambassador Training & Tools access costs # attendees per tasting event % of attendees coming to multiple events % of attendees making purchase at tasting Average basket size at tasting event Average cost per bottle Margin on wine sales (i.e. given cost of goods, tax, transportation, storage and delivery) Subscription model sign up at tasting events and life time value Input Value Up to 700 in Y3 80% part time (2 tasting events per month) 169 sign up, 45 training & 80/yr access 10 attendees per tasting event 42% 1x event, 30% 2x events, 3% 4x events 80% of attendees make purchase at a tasting 6 bottles at 10 each 10 average spend 30% on 10 bottle. Direct sale DiVino gains margin. Ambassador related sales DiVino gains 13% of margin 1 person per tasting signs up and orders one case per quarter for 4 quarters Notes

19
!

Conservative estimate based on Stella & Dot UK experience of getting 2000 ambassadors by Y2 Stella & Dot ambassadors in US and UK 80% part time (2 events /month) and 20% full time (10 events/month) Costs associated with becoming a Stella & Dot ambassador Estimate based on Stella & Dot experience of on average having 10 people attend each event Conservative estimate based on DiVino survey of London and New York network Stella & Dot experience that 8 out of 10 women make a purchase at the event itself Conservative estimate based on Stella & Dot average 600 spent at trunk by 8 people - 75 Based on interview with leading UK wine distributor/ retailer (10 avg) and avg spend in London (9.60) Based on interview with leading UK wine distributor/ retailer

Based on wine clubs signing people up for one case of wine a quarter. Currently focusing research on this area through surveys and interviews with leading supermarket and wine retailers

Revenue Projections

20
!

Year 1 # of Ambassadors Avg # tastings held by part time ambassador per yr Avg # tastings held by full time ambassador per yr Total revenue from training of Ambassadors Total revenue from Tasting & Ambassador Model Total revenue from Direct Website Sales Total DiVino Gross Profit* Avg Part time Ambassador profit from Tasting & Ambassador Model per year Avg Full time Ambassador profit from Tasting & Ambassador Model per year 150 24 120 32,400 2,481,702 49,634 764,801 3,997 19,530

Year 2 400 24 120 101,725 7,720,851 386,043 2,472,293 4,096 19,629

Year 3 700 24 120 166,400 17,371,915 1,737,191 5,801,132 4,096 19,629

* After Ambassador commission, before ofce & staff costs etc. !

Funding

21
!

We are seeking to raise 100,000 in exchange for 20% equity. Year 0 Platform design - Enterprise Management System, website, app, videos Algorithm for personalised wine recommendations - System design and purchase of wine category data Marketing, PR & Branding - Recruitment of Ambassadors Consulting - Expert to select wine & negotiate with distributors at outset Personnel - Business development & tech support Other - Other administrative / logistical / professional fees Total () 35% 15% 20% 10% 10% 10% 100,000

Team

22
!

We are currently working to build relationships with wine experts, critics and tastemakers in the UK food and drink scene. We have also started engaging with various start up and business leaders in talks about joining our Board of Advisors.

+
1."

References

23
!

Wine Intelligence and WSTA, Moving beyond discount: positive retail strategies for todays economic climate, Consumer Intelligence, May 2009 MacLean, Natalie (2007), Red, White and Drunk All Over, Bloomsbury Publishing Plc. Wine Intelligence, Vinitrac UK (April 2009), n=1932 Christie, Sophie, Supermarkets accused over misleading discounts, The Telegraph, November 2013 McGuinness, D., Gendall, P., and Matthew, S. (1992). The effect of product sampling on product tria, purchases and conversion, International Journal of Advertising, Vol 11 No. 1, pp. 83-92 Barth, J.E. (2007). Customer engagement and the operational efficiency of wine retail stores, International Journal of Wine Business Research, Vol. 19 No.3, pp. 207-215 Ibid Wine Intelligence, Guided Shopping Experiment (2009) Wine & Spirits Trade Association Market Overview (2013) Ibid Ibid Wine Intelligence, Vinitrac UK (2009) Wine & Spirits Trade Association Market Report (Q4 2013) Mintel, (March 2007) Conversation with Stella & Dot recruiter Mintel, based on survey of 2,031 adults (March 2006), Office of National Statistics

2." 3." 4." 5."

6."

7." 8." 9." 10." 11." 12." 13." 14." 15." 16."