Virgin Wines has announced a GBP10 million investment program from Andersen Consulting.
On the face of it, an online wine shop appears an excellent concept. Such companies can offer a broader range of wines than their high street equivalents, provide advice and tasting notes for consumers to make more informed choices, and theoretically offer a price advantage due to the lower overheads of an online business.
Unfortunately, most consumers have appeared unimpressed at the broader range of available products, and while many may visit the wine retailer sites for information about different wines, traditional bricks and mortar businesses have retained the vast majority of sales. Competition from online supermarkets has also proved tough, as www.tesco.com has been able to establish an effective distribution infrastructure, and sell products like wine along with consumers’ weekly shopping, making the concept of buying online more convenient that waiting at home for the delivery of a single bottle. Economies of scale have also helped Tesco keep prices lower than the majority of its online competitors.
Virgin Wine was set up in June as a joint venture between Virgin and Virgin Wines management, joining a long list of Internet companies supplying wines to online consumers. Already operating in the market are companies such as www.madaboutwine.com, www.berry-bros.co.uk, www.chateauonline.com and www.lastorders.com, to name but a few. Reflecting the intense competition, www.itswine.com announced last week that it was planning to abandon its pure dot-com strategy and begin to explore more traditional sales channels.
The plethora of entrants has thus found that competition for what is still a small market is perhaps more intense than they had predicted. Nevertheless, Virgin Wine has grounds for confidence. Average spend per bottle of wine in the UK is £3.30 but Virgin Wine claims that its customers are already spending double that amount. Whilst it does not believe it will break even until 2002, it is aiming to sell about 50,000 cases of wine online by the end of this year.
This extra injection of cash could be just what’s needed to mark it out from the rest of the pack, especially if it helps to make acquisitions. Rumors suggest that the company may buy Oddbins, the high street off-license, worth an estimated £50m.
