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Wine Club Winc postpones $75 million IPO. A look at one number might be the key.

Winery Winc postpones $75 million IPO

In recent years, Winc has made some unsupportable claims that have marred its overall image.

Wine Industry Insight has followed the company’s inflated claims for several years.  The most recent of these was Winc’s claim that they were “The Netflix of Wine.”

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That claim appeared too good to be true, and that led Wine Industry Insight to look closely at the claims, which it wrote about here: Winc the Netflix of wine? (Nope).

KEY METRIC: Customer Retention –Netflix, Wine & Winc

That first Winc article lead to our first deep dive into a key Netflix metric of success:  customer retention which our article found was at least an annual rate of 92% (8% churn).

The retention rates of other non-wine businesses was 63% to 84%. Finally, data from Silicon Valley Bank indicated that winery wine clubs retained an average of 80% of its members from year to year.

We could not find any disclosure of customer retention rate in any of Winc’s investment disclosure statements.

Industry investment insiders told us that the retention rate was maybe 30% — something that a Winc filing seems to have confirmed. (read on)

Profits are hard when you keep hemorrhaging customers

However, Our Nov. 24, 2020 article (Winc falls way short of being “The Netflix of Wine” when it comes to customer retention) noted that:

As we found in our previous article, Winc lost more than $4 million in pre-pandemic 2019 because of lower revenues from its customer base and because it spent less on acquiring new customers.

According to Winc, pdf page 27 of the company’s August 12, 2020, Offering Circular:

“Net revenues for the year ended December 31, 2019 (“Fiscal 2019”) were $36,446,424, a decrease of 10.3% from net revenues of $40,626,034 in the year ended December 31, 2018 (“Fiscal 2018”).

“Net revenues from DTC sales decreased 13.9% to $29,629,900 in Fiscal 2019 compared to $34,408,360 in Fiscal 2018. This was a result of a decrease in order volume by the existing customer base of approximately $4,087,145 as the company decreased new customer acquisition spend. [Emphasis added.]

This is not a new problem for Winc.

In the offering circular statement for a previous round of funding filed last year with the SEC Sept. 26, 2019, Winc noted  that:

Net revenues for Fiscal 2017 were $36,793,528, an increase of 6.9% from net revenues of $34,427,896 in the year ended December 31, 2016 (“Fiscal 2016”).

Net revenues from DTC sales decreased 1.6% to $31,743,728 in Fiscal 2017, compared to $32,244,382 in Fiscal 2016. The decrease was primarily due to a decrease in marketing spend for new customer acquisitions. [Emphasis added.]

The Damning Number in Winc’s Current IPO: 89.7%

Because of the uncertainty of actually knowing Winc’s actual retention rate, Wine Industry Insight ventured a charitable –and grossly incorrect –retention estimate of 75%.

Indeed, industry insider estimates of 30% annual retention — 70% churn — were right on the mark. Here’s how that’s calculated:

According to Winc’s S-1 filing:

“In 2020, we exhibited an 89.6% average monthly consumer retention rate, defined as consumers who bought in one month and made a subsequent purchase in the following month,…”

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If we were to follow a cohort of 1,000 customer who signed up on the same date, then one month later, 89.7% would be left: there would be 897 still Winc members.

In another month,89.7% of them would be left: 805 members. Repeating that calculation for each month means that after 12 months, 302 would be left as Winc members — 30.2%, smack on the industry insider estimates.

Previous Wine Industry Insight Coverage of Winc and Related Issues