Coming from an analytical background means the Tivoli Wines owner takes a remarkably methodical approach to business. It’s a policy that has reaped dividends over the past four years – but he admits that sales forecasts for even the first quarter of 2021 are essentially guesswork
David Dodd knew he wanted to be an independent wine merchant. The only question was where he would plant his flag.
He approached the problem with characteristic logic. This is a man who once earned his money by identifying locations for the likes of HSBC and Sainsbury’s. So he built a database that covered the whole of the UK, analysing thousands of neighbourhoods in granular detail.
He and his accountant wife Helen settled on Cheltenham, where Kai and Caroline Horstmann were selling their Tivoli Wines business.
Quickly adapting to the hybrid model, Dodd invested in four Enomatics and created an upstairs lounge area called the Wine Library. Obviously that’s not been contributing to profits since Covid hit, but Dodd is philosophical and playing the long game.
“Even though we had a 60% sales increase last year, that only just about covered the loss of the Wine Library,” he admits. But “it’s on the upper floor and it’s not costing me extra rent, so that’s really important”.
How do you think business will pan out this year?
A couple of suppliers have suggested price rises of around 25p to 45p per bottle – that seems to be the norm. That’s pretty considerable if you think about it but it’s not a complete shock to us.
I’m on a mission this year to really try and drive up our margins without passing it on to the customer, so we’re looking at every part of the business. We’re changing how we buy, how we act – whether we buy in bulk, trying to open lines of communication with other independents to see if we can buy together.
Little things like bulk-buying boxes – online has gone crazy at the moment, so why don’t we bulk-buy boxes and split it between three or four merchants to try and get the price down a little bit? With all the price increases it’s getting harder to operate at a 35% margin or a lot less if you’re online.
I expect this year to be more challenging than last year. For the on-trade the first two quarters are going to be the most difficult they’ve ever experienced but if you can hang in there, quarters three and four will be the best ever – especially if you can get any semblance of summer trade. What implication that has for off-trade I’m not too sure, but it’s going to go up and down all year.
Do you sell to the on-trade?
No, we absolutely refuse to do it. I remember sitting down with Helen, and when we sketched out the margins and what you’d need she said: “why would anyone do it?” Maybe one or two customers, who I’m personally friendly with, I’ll help out but outside of that we have no interest in tiny margins.
What margins are you working to online?
We tend to keep it in line with the shop, however you tend to get more incentives so we operate more at 30% with all of the discounts that get added.
It depends on what they purchase but you could drop down to 17% or 18%. If they’re ordering a case of six £10 wines with free delivery, then you can make very little.
Around Christmas we had a lot of one-bottle orders and delivery can be an arguing point – lots of customers don’t want to pay delivery. We set our delivery at about £8.99 but we lower the threshold for free delivery to £30 if it’s local because we’re not paying APC. We reduced it to £50 if it was national. One of the key things I’m looking at this year is how we can squeeze more margin out of online.
How have your online sales changed over the last 12 months?
We probably increased online sales six-fold last year, so 600% increase off of a relatively low base.
A lot of that was local or regional. About 40% were customers from Cheltenham who didn’t want to leave the house, but we made more margin that way through delivering ourselves.
We proactively targeted local and regional. The local side were customers who had previously come into the shop but were staying at home for obvious reasons, so we delivered to them.
The wins for us were regional, and by regional I mean people in surrounding towns and villages who very rarely come into Cheltenham but have heard of us through other means and want to support a local retailer rather than a national one.
That was all new custom for us, so we proactively targeted them through social media. We tried to personalise as much as possible, we dropped sweets into the boxes … our core aim was to build relationships with these customers.
We also saw an increase in national customers, but the low-hanging fruit is in local and regional and I think you can satisfy that demand at low cost without investing in pay-per-click or search engine optimisation.
The first year we launched a website, we went into that quite heavily and spent about £600 per month to get to the top of the Google listings and got zero return. I remember we used Louis Roederer Brut Premier Champagne as a test and invested quite heavily on price.
We were pretty much the cheapest online and made sure we got to page one of Google, and we had over 700 clicks and not one transaction. That taught us that we weren’t doing it right and we decided to pull back and let everything grow more organically, until we could upskill ourselves.
What’s the next move with the website?
If you want to make a splash online, you need to have a specialism: really carve yourself out a niche. You can’t be a generalist online because you roughly have the same price as everybody.
I think those who do it really well are the ones who can find something slightly different. For us, if we do want to go down that route, it would be working out what our specialism would be. Subscription is the future of online, so then we’d have to think about how we’d develop a subscription package that’s slightly different.
Part of me thinks if you gave me £100,000 to invest in an element of our business, I wouldn’t get the maximum return if I invested it online. I still think retail and wine experiences and events offer the highest return.
Indies have built so much of their recent success on the “experiential” part of their offer and many seem to have successfully replicated it online.
We talk frequently about that. How do you build a relationship when you have no voice? You can do it via newsletters, but we’ve thought about other initiatives too.
If we go down the subscription route, do we start looking at virtual tastings as a way to get people to join in, say, once a month? What’s the added element so you can set yourself apart from the nationals? There are three or four things we could do, but I don’t have the answers at the moment.
Once you start trying to focus your money online nationally it can get very expensive very quickly.
Would the Wine Library be a better candidate for investment?
The Wine Library generates a gross profit of 65% to 70% and I don’t need to invest in extra resources for it – I use the existing shop resource. The Wine Library will pay itself off by the end of this year and I’ve got four to five years in this property, which I hope will be highly profitable, so I get a much higher return on the hybrid on-trade side than I would for online.
How had the Wine Library been performing before March?
It didn’t hit the levels we wanted it to but we knew it was high risk because we’re not in a wine bar location. Effectively we are on a parade which is off the beaten track so there’s not much complementary evening entertainment around us.
Just before we closed it in March we were fully booked with private parties. It took us two years to get there but we had a really strong January, February and early March in 2020, so it is frustrating that we’ll probably have to go back to square one. But we’re looking forward to getting it back open because we know the concept works.
If I was doing this again, there are many things I’d change about the Wine Library. You absolutely have to do food. We had a food partner that would supply the cheese and charcuterie plates, but we made no money on it.
I can definitely say that we see a halo effect from the Enomatics of between 8% and 12% of the people upstairs who then come downstairs and buy a bottle. So we are generating GP from the machines.
Some of the suppliers donate bottles to put in the machines so it doesn’t cost me to fill them and we are making profit from that and we’re getting customers to try wines that they wouldn’t necessarily have bought off the shelf downstairs.
Do you think most hybrid indies will stick with that model?
There are a lot of customers who are prepared to go into a wine shop and sit down to have a glass of wine. I don’t know if there are as many customers who are prepared to go into a wine bar and buy wine to take away, so how you lay out your venue is really important.
I’m really fascinated by multiple use of space – why can’t you be a wine shop in the day and a fully-fledged restaurant in the evening? I know there are a lot of these urban breweries now. We have a local one called Deya and they turn their brewery into a wine bar on a Friday and Saturday and put food vans outside and it’s incredibly successful. It’s in my head to do something like that to target the younger sector of the market in this setting.
You had an ambition to get into wine retailing and you took a forensic approach to it. After all of that, what made you settle on Cheltenham?
I created the data set that looked at demand and I identified Cheltenham as having a high-demand location.
At the time there was Tivoli Wines and a Majestic in the market. There are more competitors now who have come in. The space at Tivoli really interested me. Tivoli only used about 30% of their available space to sell wine.
I had a number in my head when I bought the business of £650,000 [sales], and that’s what I thought the optimum would be for a wine shop in this location. Last year we exceeded that by far, so I feel quite satisfied that we got to that level.
Cheltenham and the surrounding areas are already engaged in wine but you also have quite a young consumer base. Gloucestershire University is just based about five minutes’ walk away.
We have a high proportion of SINKS and DINKS [single income no kids, dual income no kids] in the surrounding area and that’s where we want to go for the wine experience side. Everything for us runs through wine experiences – that’s been the growth.
Before we got to the Covid era, what sort of things were you doing?
The first one we did when we opened was in a meeting room and a guy came in and just talked to 20 different customers for two and a half hours about Malbec. Within 20 minutes you could see the customers’ eyes dropping and instantly I realised we needed to change the format, so we trialled about three different types of events.
So for those people already engaged in wine as a subject we had producer events and they would come in and do a vertical tasting or a portfolio tasting. That tends to attract people who already have some knowledge of the subject.
We wanted to create a format that would target people aged 25 to 40 and get them into wine, so we came up with what we call our wine festivals. We divide the shop and the Wine Library into three separate areas, and we have three different presenters and each presenter only has five minutes to talk through up to eight wines each, so it’s very fast moving. You’re on your feet and there’s music in the background.
We have about 50 customers split into three groups then we move them round the shop and upstairs every 30 minutes. Because it’s small groups they are more inclined to talk to us and to talk to each other and to ask questions.
You have to be quite concise and not get into the details and you literally pass them a new wine every five minutes. That’s probably where we’ve had our greatest success. They were selling out three months in advance and tickets were £25 to £30, and we were showing between 15 and 25 wines priced at retail between £10 and £30.
Since I bought the business in 2016, we’ve doubled our sales, we’ve increased 45% in footfall, we’ve increased 5% in margin, and probably the average basket spend has gone up by £9. So this model really works for us but it’s built through wine experiences.
How have you adapted tastings online?
We didn’t want to send out full bottles, so we decant into smaller medicine bottles, which we also have to sterilise. It’s hard work. For our Christmas tasting where we showed 30 wines, we had to fill 1,500 bottles.
We’d like to roll it out to a wider geographical area. I was having a conversation with another merchant recently and we talked about going down the canning route, or maybe sachets.
How many suppliers do you work with?
I’m up to about 20 now. I might order from some suppliers monthly and I might order from some quarterly – it depends on the success of individual lines in the shop.
To go from my quarterly list to my monthly list we need to have fast-moving lines and that means we have to have wines coming in that are excellent value and sell for between £10 to £14. Once we get customers on to those it will trigger an order every month.
We tried to get a load of new-wave South African wines in because we were really interested but it just didn’t work for us because our customer base wasn’t quite right for it. We focused on natural wines about two years ago, but I think it was a bit early and that didn’t really work for us.
Last year we took the range up from 450 to 750 and we’ll probably go to about 800 this year. I’m happy with the range – we need to tinker with it a little.
One of the negatives of last year is that our average bottle price dropped from £16 to £13. A little bit of that was because we expanded our entry-level range, but we were led by customers. That’s what they wanted – that’s what we delivered.
Which styles or regions are doing well?
55% of the shop is Italy and France. Spain has been an interesting one – it’s really jumped up for us in the last year. That’s probably been driven by our own interest. Everyone in the shop loves Spanish wine, especially Galicia. That’s our key region.
We’re really passionate about the English trade and we expanded the range. I think at its highest last year we had about 70 different lines mixed between sparkling and still. That’s a rapidly growing area. We do sell cases of English wine. A lot of it is local – Woodchester does really well for us. We sold a lot of cases of Woodchester rosé in the summer.
We sell mixed cases of English online. It’s an area of experimentation for a lot of customers. When I first bought the business, we would probably get one person every three months asking about English wine. Now we get about 15 people a week asking about our English selection.
How are you sourcing stuff right now?
I’m a huge fan of tastings. I will travel all over the country to go to tastings, I love it and it’s one of the highlights of my year. I love trying new wines and I love speaking to winemakers. Not having had them in the last year is a challenge – it’s not quite the same virtually, but we have to get over that fact. As soon as we can do it safely, we will return. We miss it.
I don’t like wastage so I’ve said to our suppliers I’d rather you come in once a quarter, bring in 20 wines and spend three hours with us because we see the benefit of what they can tell us about the wines – they tell us the stories.
When we get some sample bottles we get some customers to try the wines as well. I’ve said from year one that I want to set up a customer buying group so they would try the wine blind and tell me what they think of it and what they’d pay for it, and that really gives us some insights.
How does your database work?
We set up a loyalty database two years ago and it’s so important to me.
The database has about 800 people on it and it represents 38% of our transactions and 46% of spend. I’ve got customers who are worth about £14,000 a year to me so we identified the customers who weren’t ordering online and who weren’t coming into the shop and emailed them.
How do people earn loyalty points?
Roughly we give a point for every pound you spend. Some weekends it will be double points and for some wines it will be double points. Once you hit 250 points you get £10 off your next transaction.
Once you hit 500 points you get a ticket to one of our events. 750 points gets you another £10 off and with 1,000 points you get a £100 voucher for the Wine Library. It works pretty well as it means they try new wines, and the money comes back to us.
It’s really expanded the more challenging ranges from eastern and central Europe because we put loads of them in the Wine Library.
We put in one Sauvignon Blanc, one rosé, one Malbec and the rest are really exciting wines and it genuinely works.
We bought the Enomatics outright – we took the plunge. The Wine Library took about £70,000 in total and it was all self-funded. And we’re going to have six years of high growth in the Wine Library.
Tell us more about the team.
We’ve got Tina who’s been working in the shop for 20 years – through Threshers, Wine Rack, the previous owners and now me. She’s part of the community and people come in just to speak to her.
I probably have managed 200 people throughout my career and I’ve never met anyone with her energy. You could put three 18-year-olds next to her and she’d wipe the floor with them. She works hard all day and she’s a real asset to the business. She’s nuts as well.
Calum is our creative, artistic person, with a fantastic palate and he’s pretty much our lead wine buyer. I lean on him quite a bit because he has such a passion for the subject. He’s the opposite of Tina – you’re not going to see him any time soon breaking out in a sweat on the shop floor, but he’s the person who makes sure we have the best wines on the shelf. He comes up with an awful lot of ideas and runs the digital and marketing side of things.
We’ve just taken on Calum’s wife, Chelsea, so we’re now a two-family business, and she supports Calum on the digital side by looking after the website and the data maintenance. She is highly organised and identified where we needed better processes.
Last year because the shop was so busy we brought in a student, Seb. He’s not the average student – he loves £50 Chardonnays. He’s perfect as we get all his wages back as he spends it all on wine. He’s really confident and he wants to get involved in tastings and you can just see him growing in the next few years.
We’ll probably get another full-timer this year.
The most important person to the business is someone who never comes into the shop and that’s Helen. I don’t have to think about the numbers. She sorts everything out and it takes the pressure off me.
Can you imagine opening another shop?
The original plan was to open three. Last year we kiboshed it and said because of Brexit it just wasn’t the right time. I would say there is a 50% chance that we’ll open another one.
I have a dream that I’d like to create a wine hotel, somewhere to have residential wine courses. You’d need a lot of money to do it, but it is kind of the direction I’d like to steer the business.
What else might the future hold for you?
Majestic is going to get stronger. I’m convinced of that because they’ve got the right person in charge now, so I’d like to see us independents working together where possible.
I’d love to buy in direct, but I don’t have the expertise. I’d love to work with another independent on that. And I would be interested in speaking to them about sharing warehouse or storage space.
I’ve quadrupled my spend with some suppliers. I’ve identified my top 40 wines and I’ve said I want a discount, but I’ll buy a pallet from you of a single line in one go. I’m just trying a slightly different approach.
How does the idea of running a wine shop compare with the reality?
I love it. What I was doing before was so much more financially rewarding, but this is a great industry to be in.
We’re on a rollercoaster. I spent 20 years forecasting sales for the largest businesses in the world and I was pretty good at it, but my wife said to me last month, “what are you forecasting for the first three months for sales for Tivoli Wines?” and I have got absolutely no idea.
We’re in a very strong position but I’m just unsure which direction we’ll go in. I’m very risk averse – I like to sit on a lot of data before I make a decision.
We made a decent profit last year, we gave the team a 15% bonus at Christmas and the rest we will re-invest. I paid myself less than I paid my staff last year. I just want the business to grow, and that’s our approach.