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How Majestic Wine plans to beat the market through investing in customer relationships

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Majestic Wine today said it planned to beat the market by investing in customer relationships rather than stores. It said it was using data and technology for continuous improvement, putting more money into high performing areas and canceling those that performed worst.

Chief executive Rowan Gormley today said the group, now two years into a three year transformation plan and Top150 retailer in IRUK Top500 research, was “making headway despite headwinds” and was well-placed for what could be a tough year ahead.

Gormley said the retail group, which includes pureplay Naked Wines as well as multichannel retailer Majestic Wine, benefitted from an international position in the market, with 20% of its business taking place in the US and Australia, while the business had focused on customer engagement, and had a strong track record in acquiring customers.

 “If the UK is headed for a retail crisis, as some commentators are suggesting, then we are planning for a great crisis,” said Gormley. We founded Naked Wines during the financial crisis of 2008 and proved that investing in acquiring customers and generating loyalty through great products and service will drive profitable growth even in a tough market.”

Majestic Wine today reported revenue of £476.1m in the year to April 2, up by 2.3% on the same time last year. Almost half (45%) of that came via online transactions. It moved into the black at the bottom line, with pre-tax profits of £8.3m improved from a loss of £1.5m last time. But the retailer said much of the profit growth had come through Naked Wines, where underlying sales grew by 11.3% over the year, and earnings before interest and tax grew sixfold during the year. That contrasts with Majestic’s retail arm, where underlying sales grew by 1.9%.

Here’s what the retailer said about its multichannel strategy, analysed through the prism of two key InternetRetailing performance dimensions.

The customer

The Majestic Wine strategy is all about investing in customer relationships. It aims to double investment in new customer acquisition from £14m to £28m a year, of which up to £8m will come in its current financial year. “Rather than investing in bricks and mortar we are investing in acquiring new customers,” said Gormley. “We believe, and have good evidence to support, that this is a better strategy because investing in your customer makes you value them more and treat them better. This improves loyalty, which builds a better business. When you invest in bricks and mortar you are committed for years. When you are investing in an advertising campaign on Facebook you are committed for days. Finally, the payback is better. For every £1 we invest, we get a payback in excess of four times.”

This year saw Majestic add a new KPI: repeat customer sales retention, which stood at 92% for Majestic retail and 83% for Naked Wines and for its commercial business. This metric, says Gormley, recognises the insight that the customers who stay are the best customers. The retailer plans to keep its return on investment in customer acquisition at 75% or higher.

Strategy and innovation

Simply being better is a key focus for Majestic Wine. “Our goal,” said Rowan Gormley in his review, “is to make ourselves unbeatable in our chosen markets, by reinforcing and growing our competitive advantage.” It implements a test and learn approach to continue investment in what works and discard what doesn’t.

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