Direct Wines Ltd.

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Direct Wines Ltd.

New Aquitaine House
Exeter Way, Theale
Reading,
United Kingdom
Telephone: (44 0118) 903 0903
Fax: (44 0118) 903 0130
Web site: http://www.laithwaites.co.uk

Private Company
Incorporated: 1969 as Bordeaux Direct
Employees: 720
Sales: £250 million ($441.3 million) (2004)
NAIC: 424820 Wine and Distilled Alcoholic Beverage Merchant Wholesalers; 454113 Mail-Order Houses

Direct Wines Ltd. is the world's largest mail-order wine merchant. The Reading, England-based company operates through its own directly controlled wine club Laithwaites (formerly known as Bordeaux Direct) and also operates a number of third party wine clubs, including the Sunday Times Wine Club, and wine clubs for Natwest, British Airways, and a large number of banks and other corporations. Direct Wines also owns a controlling stake in online wine retailer Virgin Wines, acquired in 2005. Direct Wines pioneered the model of selling wines directly from producers to consumers, working with a vast network of grape growers and wine producers through the world. Starting from France's Bordeaux, Direct Wines has long played a leading role in discovering new wine regions for the British wine public. The company itself produces as much as 20 percent of the 40,000 bottles of wine it sells each year. Serving more than 700,000 active customers, Direct Wine operates a multimedia marketing strategy.

While direct mailings—including 14 catalogs each year—and call center operations remain the group's primary source of business, Direct Wines is also the leading online wine retailer. E-commerce sales represent approximately 10 percent of group sales of around £250 million ($441 million). Founder Tony Laithwaite and wife Barbara Laithwaite are the privately held company's co-chairpersons, while Oliver Garland serves as the group's managing director.

WINE ENTREPRENEUR IN 1969

Tony Laithwaite was an unlikely entrepreneur when he started out in the business of selling wine in the late 1960s. A self-described mediocre student, Laithwaite had dabbled with the idea of becoming a sculptor or a painter, "but the results were amateurish," he told the Birmingham Post. In his youth, Laithwaite had become interested in France after seeing a television series about the French detective Maigret, and decided to spend his summer vacation there. His grandmother, herself an entrepreneur, had made acquaintance with a French tourist seeking directions, and was able to set Laithwaite up with a position on an archeological dig near Bordeaux. Laithwaite found lodgings in the home of Jean Cassin, manager of the local wine-producing cooperative Lussac Saint-Emilion. Soon, Laithwaite became more interested in the wine business than the archeological dig, and began helping out at the winery, washing bottles and performing other menial tasks.

Laithwaite continued working at the winery during his summer vacations as he completed his education, studying geography at Durham University and writing his thesis on the wine industry. The hands-on experience introduced him to an entirely new appreciation of wine. As Laithwaite told the Sunday Times, "I was seeing the wine trade from a different angle. The workers took all the risk but didn't make any money. And the wine we got in Britain was not what I was used to—it had lost all its fruit and taste."

Following graduation, however, Laithwaite was unable, or unwilling, to find a job. Eventually he went back to France, returning to Saint Colombe to work for Cassin. Laithwaite also signed up for courses at Bordeaux University, studying under innovative oenologist (winemaker) Professor Émile Peynaud. In the meantime, he had begun to bring back bottles of wine to England, selling them to his family and friends. Their enthusiasm for the Bordeaux wines, which were far different from the often heavily trafficked wines being sold as Bordeaux in England at the time, encouraged Laithwaite, and in 1969 Laithwaite decided to establish his own wine merchant's business.

With Cassin's help, Laithwaite drew up a business plan. Cassin supplied him with 24 half-bottles of wine, which Laithwaite brought back in a briefcase. In England, Laithwaite took out a telephone book, copied some 100 names and addresses and mailed out a brochure, prepared by Cassin and describing the Lussac Saint Emilion vineyard. Laithwaite called his business Bordeaux Direct, inspired by French road signs.

Laithwaite's initial mailing proved a disappointment, however, generating just two sales. However, one of those sales came from a nearby real estate developer, who invited Laithwaite to his home to taste the wine, and then recommended it to his circle of friends, who then bought several cases. Word of mouth quickly brought new sales in; at the same time, Laithwaite began plying the streets, selling the Lusac wines door to door.

With his sales rising quickly, Laithwaite needed to expand his imports. In order to raise funds, Laithwaite turned to Cassin and several other local wine producers, who each agreed to invest £200 in Laithwaite's business. Laithwaite himself contributed £200, while his grandmother added another £700. With these funds, Laithwaites purchased a van and began taking orders to fill it. When he had received sufficient orders, he returned to France, filling the van to capacity with 100 cases of wine. Laithwaite bought the wine outright, in order to ensure himself a sufficient profit margin.

Laithwaite's trips to France grew more frequent as his order book filled. By the early 1970s, he had rented an empty shop to serve as a warehouse, and by 1971 had begun posting his first profits. The shop initially served as a retail counter as well, opening on Saturdays to a steadily growing clientele. In 1972, Laithwaite decided to transfer the business to Reading, where he opened up a new shop under a railway arch in the town of Windsor. By then, Laithwaite had been joined in business by his wife, Barbara, who took care of the business end while Laithwaite continued to seek out new wines to offer to his customers.

The couple's break came just one year later, when the Sunday Times ran an exposé on the often fraudulent practices of the British wine trade. Interest in wine, and particularly French wine, had begun to grow strongly in the United Kingdom in the early 1970s. A lack of regulation in the market, however, enabled more unscrupulous merchants to bottle and mislabel the wines they sold. Amid the rampant fraud in the British wine market, the Laithwaites struggled to remain in the business of selling their premium priced wines.

In response to the Times article, Laithwaite wrote a letter to the newspaper congratulating the editor for the exposé and pointing out the merits of buying wines directly from the French estate. Laithwaite's letter generated such a strong reaction from the newspaper's reader-ship, that its editor, Harry Roberts turned to Laithwaite with the idea of launching a special offer for its readers to purchase wines. The response to the offer overwhelmed the small company with orders of more than 3,000 cases. Immediately, Bordeaux Direct and the Sunday Times reached an agreement to launch a full-fledged wine club, the Sunday Times Wine Club, which grew into one of the country's largest.

COMPANY PERSPECTIVES

Buy your wine online from Laithwaites and you'll enjoy real gems delivered direct from the world's best independent winemakers. Each year we travel thousands of miles, taste over 40,000 wines and get in quick to pick the best … ahead of the pack.

BECOMING A MODERN BUSINESS IN THE EIGHTIES

The new scale of the company's trade caused a number of initial difficulties, not only with cash flow, but with warehousing and logistics as well. The Laithwaites sought help from a "business angel," an executive in the publishing industry, who agreed to help restructure the company in exchange for a 23 percent share. With help from their new partner, the Laithwaites succeeded in putting into place a new structure capable of meeting the surging demand for the group's hand-picked wines. Before long, however, the couple had a falling out with their business partner, who had begun an attempt to take full control of the company. Fortunately for the Laithwaites, the group's cash flow had risen sufficiently to enable the couple to buy out their partner, regaining full control of the company.

The experience led the Laithwaites to avoid turning to the financial markets for investment capital. Instead, the Laithwaites plowed all profits back into the company, and continued to build up its membership base. Before long, the company's success with the Sunday Times had led it to form other wine club partnerships, and over time the company became the force behind a large number of wine clubs, such as those offered by Natwest, British Airways, and Barclaycard, among others. The expanding base of the company's business led it to create a new holding company, Direct Wines Ltd.

Before the end of the 1970s, Bordeaux Direct's sales had topped £1 million. By the end of the 1980s, the company's sales had reached £15 million. The Laithwaites, who lacked a formal business education, continued to develop the company on their own. Yet when Laithwaite suffered a heart attack in 1988, the couple recognized the need to bring in professional management to operate the company. Over the next several years, the company added a new management layer, adding a finance director, a marketing director, a sales director, and an IT and logistics director. The process was completed in 1991 with the appointment of Greg Hodder as the company's managing director. At that time, the Laithwaites took up positions as the company's co-chairpersons.

The relationship between Laithwaite and Hodder proved a stormy one. Yet, Laithwaite recognized that the company needed Hodder, and before long approached a psychologist at the London Business School to provide counseling to the pair and develop a smoother working relationship. The choice of Hodder soon paid off for the company. By 1994, Direct Wine's sales topped £50 million and by mid-decade had reached the £100 million mark.

MULTIMEDIA MODEL FOR THE NEW CENTURY

Direct Wines sales and marketing effort remained focused on the mail-order channel. The company delivered some 14 catalogs each year to its customers, and also operated a central call center at its Reading headquarters complex. By the end of the 1990s, the company had begun to develop an interest in developing its Internet presence. Direct Wines established two web sites; these, however, were not designed for e-commerce operations.

The rise of a new wave of e-commerce sites dedicated to wine sales forced Direct Wines to respond. In 2000, the company put into place an ambitious effort to redevelop its Internet presence, turning to a rising star in the British Internet scene, MarchFirst, to help develop its web sites. That partnership soon fell through, however, and Direct Wines decided to take its web site development in house. The decision enabled the company to create a central, standardized back-office platform, providing it with the flexibility quickly to launch new web sites when needed. The platform allowed the company to put into place web sites not only for its core wine club operation, but also those of its partners. Into the middle of the first decade of the 2000s, the company provided support for more than 20 web sites.

KEY DATES

1969:: Tony Laithwaite establishes Bordeaux Direct, importing wine from France for sale in England.
1973:: Laithwaite founds the Sunday Times Wine Club in partnership with the Sunday Times, establishing itself as a major force in the U.K. wine merchants sector.
1991:: The company, now holding company Direct Wines, completes its conversion to professional management as Greg Hodder is appointed managing director.
2000:: Bordeaux Direct changes name to Laithwaites.
2003:: Direct Wines acquires the Australian Wine Club and madaboutwine.com from the Fosters Group.
2005:: Direct Wines acquires a controlling stake in Virgin Wines.

At the same time, Direct Wines had also moved to re-brand its Bordeaux Direct operation, in recognition of the fact that the company had long ceased to focus on the Bordeaux region, and instead imported wines, including its own house brands, from all over the world. In 2000, therefore, the company changed the retail operation's name to Laithwaite, a testament to the high degree of recognition enjoyed by Laithwaite among the U.K. wine buying public.

Into the middle of the first decade of the 2000s, Direct Wines sought new avenues for its expansion. The company began a program of acquiring new wine clubs. In 2003, for example, Direct Wines bought out the Australian Wine Club and the web site madaboutwine. com from Australia's Fosters Group. By 2005, the company had acquired a controlling stake in one of the online wine trade's most successful survivors, Virgin Wines, taking over its operation from the Virgin Group. The addition of Virgin helped strengthen the group's Internet presence, while broadening its reach into a more youthful wine-drinking public.

By 2006, Direct Wines had grown into the world's largest mail-order wine merchant, with sales of £250 million ($441 million). By then, the Internet was the vehicle for almost 10 percent of the group's sales. This figure was expected to rise, as the penetration of "always-on" Internet access encouraged the growth of online sales. With Tony Laithwaite continuing to play a major role in the company's operations, Direct Wines had found its way directly to its customers' palates.

M. L. Cohen

PRINCIPAL DIVISIONS

Laithwaite's Wine Club; The Times Wine Club; Virgin Wine Online Ltd.

PRINCIPAL COMPETITORS

Tesco plc; Oddbins Ltd.; C.I. Traders Ltd.; C. J. Lang and Son Ltd.; A. G. Parfett and Sons Ltd.; Chivas Brothers Ltd.; The Beer Seller Ltd.; Berry Brothers and Rudd Ltd.; Winerite Ltd.; Halewood International Ltd.