As Digital Wine Ventures sips success, CEO can't see growth slowing any time soon

As Digital Wine Ventures sips success, CEO can't see growth slowing any time soon

Digital Wine Ventures (ASX: DW8) CEO Dean Taylor.

In October 2018, a Chinese market-oriented wine merchant then known as Dawine turned its attention to acquiring a promising smart logistics venture from Sydney, founded by an entrepreneur who already had three other wine ventures under his belt.

Through a network of distributors and warehouses, the vision was to uncork bottlenecks in the supply chain that had meant slower delivery for customers and a rapid oxidation of margins for vintners.

That founder was Dean Taylor, and in exchange for his business WINEDEPOT he was given stock and a position as CEO in the parent company, now called Digital Wine Ventures (ASX: DW8).

With the help of a strategic regional distribution centre on the border of NSW and VIC, new acquisitions, structural consumer shifts driven by COVID, and a growing list of high-profile partners such as Bibendum, Vivino and eBay, WINEDEPOT's shipments rose 550 per cent year-on-year in March.

At Business News Australia, we ask Taylor what has driven this sudden surge in sales, coinciding with an almost quadrupling of the DW8 share price since the beginning of 2021.

"I think fundamentally we've just found a fantastic product-market fit," replies Taylor, whose roughly 6.5 per cent stake in DW8 is now worth around $16 million.

The vin-trepreneur - who previously founded and sold Cracka Wines, Wine Ark and My Wine Guy - says the sector has been looking for a solution like WINEDPOT for a long time, representing a latent opportunity sitting there and waiting to be crystallised.

"Certainly there was a need before COVID, but with COVID a lot of the wine producers in Australia have had to really rely more heavily on their direct-to-consumer sales channels, and have become more interested in it," he says.

"Then we came along with a solution that just makes it so much easier for them. They're just signing up in droves.

"What we're really witnessing is a massive change from the incumbent solutions which are fragmented, efficient and expensive, to a dedicated solution that provides a quick delivery solution at a much more affordable price."

He says the foundation stone of the business is providing a fulfilment solution for these wineries, while the group is also in the process of launching a direct-to-trade marketplace allowing wineries to sell directly to tens of thousands of trade buyers across the country.

"The appeal for them there is that they normally have to pay that distributor 35 per cent commission on the wholesale price, and then normally something in marketing support as well like 10 or 15 per cent.

"We're able to offer them that same ability to get access to that sales channel for just 10 per cent. The appeal there is that a lot more of the margin goes into their own pocket.

"Customers are also getting the wines quicker which makes them happier, and in many cases it's substantially cheaper."

This is made possible by the company's decentralised system with depots in Brisbane, Sydney, Melbourne, Adelaide and Perth, which can be scaled up if needed thanks to distributor partnerships in these cities.

"The premise is that wine is heavy, it's fragile and bulky, and to move it around the country is expensive and slow. By having those depots we're able to hold stock in markets close to the customers, and so when the order comes through we send it to the nearest depot where it gets packed and delivered."

Nonetheless, not all suppliers want to have their inventories fragmented around the country, so to solve this issue last June the group launched a 10,000-pallet climate-controlled national distribution centre (NDC) in the Albury-Wodonga region - close to winemakers, and not too far from major cities either.

"That basically allows us to replenish that depot network very quickly and cost effectively, in most cases overnight," says Taylor.

"It allows us to operate a next-day delivery service into Melbourne, Sydney and Adelaide, and then plus one day into Brisbane and a few days into Perth."

The NDC opening was followed by a $6.5 million capital raising announced in July at a whopping 37.5 per cent discount at the time.

A large chunk of the proceeds were used for the $2.4 million acquisition of South Australia's Wine Delivery Australia in November. Replicating the approach previously taken with Taylor, the target's founder James Munn was brought onto the Digital Wine Ventures executive, this time as chief operating officer.

By the time DW8 reported its December half results in late February 2021 with a 1,042 per cent revenue rise to just shy of $1 million, bullish investor sentiment was not dampened by the deepened loss of $2.36 million.

Just 10 days earlier, WINEDEPOT had announced a partnership with the world's largest wine app and marketplace Vivino, and this was soon followed by further significant deals in March with fine wine and beverage distributor Bibendum and eBay.

"We've partnered with Vivino, eBay and there are others that we'll announce the not-too-distant future," says Taylor.

"What that means is it's all incremental sales that they [winemakers] can also get by being part of our platform, which are high margin, and then we fulfill and take care of it all for them.

"It's not a distraction, they don't have to spend money on technical integration, it's just an easy solution for them that allows them to get on with doing what they do best, and that is making great wine."

Structural change

It is this culmination of developments that have contributed to a 550 per cent year-on-year jump in shipping volume to 25,311 cases in March, representing 21.3 per cent growth over February.

Between mid-March and Mid-April there were 27 new winemakers who signed onto WINEDEPOT, and Taylor estimates there are now more than 400 on board, although this number only includes those that use the company's logistics services. Once the direct-to-trade marketplace comes on board he expects the figure will be much higher.

"When you overlay the consumer marketplaces that are connected for more growth again, basically there's our organic growth plus the opportunities we have to accelerate that through strategic acquisitions," he says.

"I can't see our growth rate slowing down for some time, that's for sure."

That's to mention the bigger picture of higher alcohol consumption that was triggered by the pandemic, and a growing taste for consumers to buy more things - practically anything - online.

"COVID basically pushed consumers online and businesses as well, and it was across every single category - the growth that was in the alcohol category was almost 100 per cent. Previously, online alcohol sales represented about 8 per cent of the market and the anecdotal evidence that we've got access to shows that it's now somewhere between 16 and 20 per cent," says Taylor.

"There's been an enormous shift. What's happened is consumers have realised how convenient it is to order online and have things delivered to the home, particularly if they're bulky, heavy items."

"The market has adapted to it far more easily because of applications like Uber Eats and those on-demand delivery services. There's definitely been a structural shift which definitely was triggered by COVID, but from what we can see it's here to stay."

However, the executive doesn't discount the user experience consumers have in wine stores, fossicking around for that gem they may have never thought of otherwise. Taylor explains Digital Wine Ventures is also looking at ways to mimic that experience online.

"Something that I guess I've learnt in my other businesses is having curated ranges to suit certain market segments and customer profiles, leveraging AI and machine learning to try to dynamically curate on the spot for customers.

"We definitely are leveraging those tools to try to personalise experience as much as possible; there's a real need for that.

"You look at the great businesses like Amazon, Spotify and Netflix - that personalisation has been key to this and it's actually capturing as many data points as possible and using those to provide the best possible shopping or searching experience."

With the Australian wine industry hit hard by hefty Chinese tariffs, Digital Wine Ventures is undoubtedly better placed than if it had maintained its original Chinese market focus. It is a state of affairs that has put further pressure on winemakers to find new sales opportunities wherever possible.

"It's definitely having an effect on suppliers. They're all scrambling for solutions for the surplus inventory that they've got from that. We're trying to work with them where we can to provide them with additional routes to market locally," says the executive.

He says the upcoming trade-focused marketplace launch will do just that, but the group still has its sights on overseas growth.

"We are also conscious of the fact that our platform has applications not just here in Australia but in other countries, particularly markets where there's already brand equity for Australian wine, so the UK, Canada, USA, other parts of Asia other than China.

"We certainly already are looking at ways we can take our platform into those other markets to help the suppliers that we're working with, not just to address the domestic market but international markets as well."

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