Winc falls way short of being “The Netflix of Wine” when it comes to customer retention

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 Previous Coverage

• Winc the Netflix of wine? (Nope)
• Winc raises $3+ million in latest offering, but fails to disclose federal court case brought against it by state of Ohio

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Netflix has become the global gold standard for retention with most estimates showing it holding on  to 93% percent of acquired customers.

 

As noted in our previous article: Winc the Netflix of wine? (Nope), Winc has a habit of boasting (with no supporting data) that its performance is Netflix’s equivalent.

Despite the fact that Winc’s financial and operational disclosures are far from transparent or complete, an analysis of relevant scraps that have been offered indicates that Winc’s customer retention rate is most likely inadequate to advance the company to profitability.

Wine Executive News has contacted Winc with a draft of this — and previous — full articles and asked for comments. None has been received. Comments will be published if received.

The Netflix high bar of customer retention – 93%

Before evaluating Winc’s claim to be the Netflix of wine, we need to understand how high that bar is set: basically a median retention rate of 93%.

[Note: Link URLs are premium and have been redacted.]

• ~98% – “Our subscriber monthly churn is in the low single-digits, and much of that is due to payment failure, rather than an explicit subscriber choice to cancel service.” — The Netflix Recommender System: Algorithms, Business Value, and Innovation (written by two former top Netflix executives).
• 93% – Market Research Highlights Netflix’s Continued Dominance Of The SVOD Market
• 93% – Selerity: Netflix is successful thanks to big data and analytics.
• 91% – How Netflix Maintains a Low Churn Rate by Keeping Customers Engaged & Watching
• 90.3% even after price increase – How to retain loyal customers: 5 learnings from industry experts to instantly earn customer loyalty
• 89% – OTT Churn Management Strategy: How to maintain a low churn rate like Netflix

 

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The churn/retention environment

One of the most important metrics for business sustainability and success is customer retention and its inverse, churn. Closely linked to churn is Customer lifetime value (CLV). If the CLV of customers is less than the cost of acquiring those customers, then a business is headed toward the graveyard.

 

What’s more, churn eats away at profitability even when CLV is greater than acquisition costs. As this article from the Harvard Business Review notes, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one. Supporting that is a study by Bain & Co that found a 5 percent increase in retention rates can boost profits anywhere from 25 to 95 percent.

 

Methods to retaining customers vary from business to business;

 

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 Other views on retention

• Want to Be the Industry Leader? Solve for Retention
• Open Questions: Carlos A. Gomez-Uribe
• Netflix’s long-time chief product officer Neil Hunt is leaving the company

What’s the retention norm in non-wine industries? 63 to 84%

As evidenced by this article: “Average customer retention rate by industry,” Netflix performs in the stratosphere above normal.

 

1. Professional services: 84%
2. Media: 84%
3. Insurance: 83%
4. IT Services: 81%
5. Telecom: 78%
6. Banking: 75%
7. Retail: 63%

 So, what’s the average retention in DTC wine? 80%

As vital as Direct-to-Consumer sales have become for wineries, data about churn and retention rates is slim. However, a survey was conducted by Silicon Valley Bank of winery retention dates in 2018.

 

 

In this case, “attrition” is the same as “churn” which is the reciprocal of retention. Thus, the average attrition rate of 20% is the same as 80% retention.

Winc’s decidedly un-Netflix consumer retention behavior

If a company’s revenue is decreasing because it is not spending enough money to gain new customers, that is a sure sign it’s losing more customers than it can afford.  In Winc’s case, the company has done that at least twice in the past three years.

 

As we noted 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.

 

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.]

 

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The financial data from the three SEC filings, above, combined with Winc’s claim of 137,ooo new customers in 2020 offer an opportunity to estimate Winc’s active customer base and its customer retention rate.

Winc’s decidedly un-Netflix consumer retention rate. 65-75% is a long way from 93%

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 And before we go: Winc’s interim 2020 filing offers more data points and a little good news.

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Next article: Breaking out the numbers + Netflix’s “billion dollar” algorithm

The financial data from the three SEC filings, above, combined with Winc’s claim of 137,000 new customers in 2020 offer an opportunity to estimate Winc’s active customer base and its customer retention rate.

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AAbout the author: Lewis Perdue is a best-selling author, technology entrepreneur and an experienced financial journalist whose experience includes Dow-Jones, MarketWatch, TheStreet.Com, WallStreetJournal.Com. More about Lew can be found at Ideaworx