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Virgin Wines first-half sales keep pace with pandemic growth, but rising costs and competition dent profits

Image courtesy of Virgin Wines

Virgin Wines today reports that first-half sales stayed level with its strong pandemic performance, against a backdrop of rising competition for both customers and warehouse staff. Profits were 6% lower than last year as costs rose.

The wine merchant has now branched out into other alcohol categories, launching both BeerSave and SpiritSave subscription schemes and plans to launch a fully personalised gift service later this year.

The update came as Virgin Wines turned over £40.6m in the six months to December 31 2021. That’s flat on the same period one year earlier, and 55% ahead of the same period two years earlier. Pre-tax profits of £3.2m were 6% down on the £3.4m reported a year earlier, reflecting the rising costs of labour and customer acquisition.

Virgin says that while it benefited from the pandemic trend of online gifting during the 2020 Christmas trading period, gifting sales were 27% lower in the same period in 2021.

Commercial sales, however, grew by 25% to £4.2m. That includes its successful partnership with personalised card and gift business Moonpig. Virgin Wines has since started to work with hamper provider Virginia Haywood and with Arena Flowers, and it now plans to launch a fully personalised gift service in the third quarter of its current financial year.

Jay Wright, chief executive of Virgin Wines, says: “As expected, the trading environment has evolved considerably over recent months, and given strong prior year comparatives, we have worked hard to maintain encouraging growth from our core sales channels, whilst maintaining strict discipline around our customer acquisition and our cost control. This result demonstrates the strength of the underlying business model, our discipline in acquiring good quality customers, the reliability of future subscription revenues from a highly engaged customer base and the ability to generate free cashflow as well as our award-winning consumer propositions, the quality of our wines and our outstanding customer service.

“The second half of the year has started well. We continue to make progress with our strategic initiatives and remain in line with management expectations.”

Rising competition

Virgin says that acquiring new customers was the most challenging area of its business, at a time when competitors put “aggressive” pricing into place and the wider market ran promotions on wine over Christmas. This, says Virgin Wines, meant that fewer potential new customers visited its website. Those new customers it did acquire cost an average of £13.62 – up from £12.65 a year earlier – and among those who visited its website, its conversion rate rose to 56.2%.

Competition was also high for warehouse staff – particularly temporary staff over the Christmas period. That was exacerbated by the rise of Omicron in December 2021, and ultimately the retailer had to cut off guaranteed Christmas deliveries two days earlier, costing the business about an estimated £800,000 in sales in the week running up to Christmas. The cost of shipping, packaging, glass and courier charges also rose, putting pressure on prices. Virgin says it was able to mitigate much of that through its merchandising model, cost efficiencies and beneficial foreign exchange rate. However, it warns that “there continues to be inflationary pressure in multiple areas of the supply chain to our business and we therefore keep pricing continually under review to ensure gross margins are maintained”.

Virgin Wines is a Top500 retailer in RXUK Top500 research.

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