Virgin Wines (LSE:VINO) is a new AIM stock listed on the London Stock Exchange. On the surface, it seems like a strong company with impressive growth. But does this e-commerce enterprise have staying power and the likelihood of making investors money?
Top quality wines
Virgin Wines went public on 5 March. It has a market cap of £125m and the shares are priced at £2.25. I’ve been a Virgin Wines customer on and off for years. I think the wines are excellent quality and always taste great. My experience of its customer service has always been first class too. This makes me feel good about its long-term prospects.
However, any local supermarket or corner shop sells good-quality wines too, and often there are discounted bottles available. While Virgin Wines can be competitive on price, it can’t beat supermarket prices. Nevertheless, I do think the company offers a superior quality of wine for its price point. It also guarantees to exchange any bottle that doesn’t meet expectations.
From a customer retention point of view, it has it made on exclusivity. The company works directly with various winemakers around the world. If I love a bottle, and want to reorder, I can’t buy it anywhere else, which has encouraged me to return.
AIM stock with rising revenues
Throughout 2020, the company delivered over one million cases of wine. And it has over 1,000 products in its portfolio. While its focus is wine, it recently expanded into collections of premium spirits and craft beers.
Although it was originally part of Richard Branson’s Virgin empire. It became independent of the group back in 2005. It now offers a selection of subscription-based payment models, namely its WineBank and Wine Plan schemes on a pay-as-you-go basis. WineBank is its focus and it rewards loyal customers with a 20% monthly bonus. This helps entice consumers in with exclusive offers and keep them as long-term shoppers. It currently has approximately 147k paying subscribers.
Prior to Covid, company revenues increased by 6.4% to £42.5m for the full year to June 2019. This increased a further 33% to £56.6m to June 2020, while achieving an impressive £40.6m in the second half of 2020.
Future risks
Virgin Wines has been a clear beneficiary of pandemic-induced lockdowns as at-home alcohol consumption soared. But whether it can maintain the momentum once the economy reopens remains to be seen. It plans on using additional funds raised from its IPO to double down on marketing. This, it hopes, will continue to build customer recruitment and retention. I think the fact it’s already snared many new customers and has a good retention rate gives hope that it will continue to grow in the future.
I believe competition remains its biggest risk though, and whether at-home drinking will decline once restaurants and bars reopen. Inflation could increase its operating costs. Historically, alcohol has proven to be a fairly resilient product during hard times. But I imagine supermarket wines would win out over more expensive premium brands during times of adversity.
As I’m such a fan of the product, I’m tempted to invest in Virgin Wines shares as part of my long-term investing strategy. But I would only take a small position for now.
