Nakedwines.com strips out middleman WINEMAKING Online retailer aims to blow up industry by adding vintners, having monthly fee so it can sell bottles less expensively

Lijun Mo, left, general manager of Ningbo Free Trade Zone Prince Mazingan Wine Co., Ltd., and translator Lily Wang taste a variety of white wines they intend to purchase for distribution in China at the Nakedwines.com wine studio and tasting room in Kenwood, Calif. on November 30, 2012. less Lijun Mo, left, general manager of Ningbo Free Trade Zone Prince Mazingan Wine Co., Ltd., and translator Lily Wang taste a variety of white wines they intend to purchase for distribution in China at the ... more Photo: Alvin Jornada, Special To The Chronicle Photo: Alvin Jornada, Special To The Chronicle Image 1 of / 4 Caption Close Nakedwines.com strips out middleman 1 / 4 Back to Gallery

The founders of Nakedwines.com, a British online wine retailer that recently launched in Napa and Sonoma, say they have bad news for consumers.

"When you spend $50 on a bottle of delicious Napa Cab, you are spending about $7 on wine and $43 on sales, marketing and other stuff you can't taste," they say on their website.

It's called the three-tier system, which includes the producer, the wholesaler and the retailer.

But Nakedwines.com has set out to change that by cutting out the middleman. Co-founder Rowan Gormley said there's no wine business model like Naked's. It's an amalgam of crowdfunding, wine club and wholesale store.

MBA BY THE BAY: See how an MBA could change your life with SFGATE's interactive directory of Bay Area programs.

This is how it works: Customers, or investors (the company calls them angels), pay Naked $40 a month for as long as they want. There is no time requirement. Instead of getting shares or dividends, the customer can use his or her investment money to buy any wine on the website at a 40 to 60 percent discount. Even if the purchase exceeds that person's investment, the discount remains in play for as long as he or she contributes.

The company uses the $40 monthly payments to hire winemakers to make wine exclusively for Naked.

New industry model

"We build up a float and use it to buy everything - grapes, equipment, barrels, bottles, even a work studio - so the winemaker has no expenses and no risk, making it possible for them to sell at wholesale prices," Gormley said.

Last year the company did $40 million in sales. In June it bought the former Blackstone winery in Kenwood (Sonoma County) and has since brought in 25 California winemakers, including Bonny Doon Vineyard's Randall Grahm, to make wine exclusively for Naked. So far in California, the website has 10,000 "angels." In Britain it has 110,000.

Gormley and seven others got the idea for the business after founding Virgin Wines, a conventional online wine retailer backed by Richard Branson. After selling the company in 2005, they resigned.

"We sat under a tree in my garden on a beautiful day and realized it probably wasn't smart to resign in the middle of recession," Gormley said.

They wanted to stay in the business, but they wanted to blow it up. So they racked their brains to come up with a new model. They got $6 million in seed money from WIV, a German wine company.

"In the beginning we struggled," Gormley said. "We had only 15 orders a day. After six to nine months it suddenly took off."

Now Naked's sales average about $4 million a month, said marketing manager Adam Reiter. The company has 80 employees worldwide.

Gormley said the website, which offers free shipping for orders of $100 or more, or a flat shipping fee of $9.99, appeals to consumers who aren't necessarily wine connoisseurs or collectors, but average shoppers looking for a good deal. The "angel" dropout rate - when an investor stops contributing his or her $40 a month - is only 2 to 3 percent, he said. It's also advantageous to customers interested in having a part in a startup, or funding a winemaker.

Still figuring it out

Naked has employed winemakers including Sam Plunkett, known for his Australian Shiraz, and Robin Langton, formerly of Patz and Hall, who now serves as Naked's head winemaker.

Consumers get to rate the wines on the website and have Internet conversations with the winemakers. On average, a winemaker who has been with Naked for four years can make between $150,000 to $200,000 a year, Gormley said.

Bonny Doon's Grahm is still a little unclear on the concept, but said he signed on to give it a try. It's sort of like moonlighting for another company.

"I honestly don't understand the implications," said the influential Santa Cruz winemaker. "I don't know if I'm competing against myself, but the wine world is changing. There has been an enormous proliferation of brands and the consolidation of distribution."

He said he has to be careful not to undercut the price of his Bonny Doon brand, but likes the freedom Naked affords him.

"There is a finite limit to how much we can produce under Bonny Doon," he said. "With Naked I have the freedom to experiment, the flexibility to blend."

And Naked pays for the grapes that Grahm picks out. "It's helpful," he admitted.

Name branding

Two of his wines - a Viognier blend and a Rhone blend - have already been released. He's working on a red blend and a Grenache Blanc.

As far as branding - Grahm's name goes right on the front of the bottle, as does every other winemaker working for Naked, Gormley said. Somewhere on the back of the bottle a Nakedwines.com label appears, he said.

"We're not trying to make our own label," Gormley said. "Wine is not like whiskey or scotch, where you'll go to the bar across the street to get the brand you want. Our goal is to have enough of the greatest winemakers in the business that people can't ignore Naked."

For more information, go to www.nakedwines.com.