Question: What do Laithwaites, Sunday Times Wine Club, Telegraph Wine Service, Natwest Wine Club, British Airways Wine Club, Warehouse Wines, Avery’s, and (pause for breath!) Virgin Wines have in common?

Answer: They are all owned by Direct Wines, the behemoth of the UK wine by the case market.

Founded upon one man’s passion for Bordeaux in the 1970′s, the company rose triumphantly into a £250m business, effectively writing the rules for delivering wine directly to peoples homes. It was an amazing success story.

But in recent years the company hasn’t found life so easy. Cost cutting, a recruitment freeze and a management cull leading predictably to this years posting of a £5.5m loss.

They remain a privately owned business so do not need to stand in front of a pack of blood hungry shareholders at an annual AGM. But if they did, they would no doubt explain away their malaise by pointing towards the recession, the weak pound and increasing prices.

All of which are valid but they do not tell the full story.

Having spent some time with the business in 2004 it was clear then that the company was at a turning point as it struggled to come to terms with a new competitive and technological environment.

The decline of Direct Wines boils down to three simple truths.

1) The business model that has served them so well for 30 years is now broken.

Direct Wines are a traditional direct marketing operation. They get you to buy an introductory case at a ludicrously low price and then try to get you to buy another case at a higher price.  If enough customers convert to the higher priced cases, they then make a profit.

Unfortunately, not enough people are “trading up”. Not surprising considering that, through their omnipresent marketing, they’ve educated the public into believing a deal is always available.

In this sense they are no better than the supermarkets who they claim to stand apart from. They’ve done as much to commodatise wine as say, Tesco, have.

2) Their wines might not be quite what their customers think they are.

Laithwaites sing proudly about the exclusivity of their wines and the fact that the products cannot be found in the supermarkets.  They invite you to believe the notion that their buyers travel the world to find real wines from real winemakers.  Direct from the vineyard.

However, could it be the case that customers have got a little wiser to what’s actually in the bottle?. Take the recent qualification added to the video of  Il Papavero on their website -

Because Giuliani (winemaker) sources grapes from all over Italy, national wine regulations demand that Il Papvero be labelled a “Vino De Tavola” however “hiding behind its humble Vino de Tavola status is a red full of the warmth of Italy” (Sunday Times)

So, each year they find the some grapes at the right price from wherever they can get them and then make the wine in any given location and ship it to England. Nothing wrong with that at all, but is it really what Laithwaites customers have been led to believe over the past 20 years?

I wonder how many other wines on Laithwaites best selling list would reveal similar stories to Il Papvero?

3) Somewhere along the way it lost it’s love of wine

Direct Wines is first and foremost a direct marketing operation. The model was genius, but it became all about the model and they forgot about the product. In recent years they might as well have been selling widgets.

The company now has a new management team in place, with much of the old guard making way for new kids on the block.

Can it survive? Of course it can. But it needs to demonstrate innovation pretty soon. The brand is an irrelevance to the next generation of wine drinkers but has enough equity in it’s existing customer base to provide a platform for either regeneration or a slow painful death.

So how do they turn it around? Over to you…