3 challenges Blockbar will face as a NFT luxury spirits and wine marketplace
Blockbar is a spirits and wine marketplace where you can purchase bottles from brands and receive a NFT when you make a purchase. That NFT can be used to redeem the bottle,gift to someone else or re-sold on the marketplace.
As WisePass is entering the NFT space, we’re studying the market and make some analysis on some players in the market in the F&B industry trying new initiatives such as Blockbar.
What Blockbar is doing is interesting but we believe they may face several challenges. This article will deal with 3 challenges we believe they may struggle with.
BlockBar Co-Founders Dov Falic and Samuel Falic
1 The business model
10% of the sales is what Blockbar makes on each sales. Is that enough for a luxury platform to succeed as the volume in luxury products are usually limited? We doubt it as fixed costs will be high and require a large GMV sales breakeven.
Let’s assume that with 20 employees are paid 10,000$US on average, their fixed costs would be over 200,000$US monthly. That means Blockbar would need to generate over 600,000 USD in GMV sales every month or over 7 million USD GMV for a whole year to cover salaries alone…
According to an article on The Spirits Business written by Alice Brooker on September 16th 2022, Blockbar managed to generate 7 million USD in GMV sales on its first year. That means actually over 2 million dollars ( estimate 33% gross margin ). The business is unlikely profitable yet but should be if they keep growing the sales consistently.
With 300,000 registered users still from the same article, the main challenge is to maintain a high growth in user acquisition while maintaining the lowest cost possible. That requires marketing spend and a strong discipline on tracking that lifetime value over the months after the first time transactions ( and hopefully repeat transactions ). We assume that the 300,000 users have not all made a purchase but only a fraction of them.
The fundamental business of Blockbar is simple. It’s an e-commerce platform selling bottles with a NFT touch. They make 10% on each sale. It’s selling high value items. It’s a niche, low margin and brutal business.
Can Blockbar become profitable and grow revenue with a low customer acquisition cost with high lifetime value while maintaining a lean cost structure? We think it’s going to be hard.
Some bottles can cost up to 75,000$US on Blockbar
2 The value proposition
The authenticity guaranteed by the NFT for each single bottle can be seen as a gimmick instead of a truly essential part of the business.
That leads us to wonder how authenticity is being done today or yesterday. With such scale, collectors could just be invited to the actual vineyard or distillery and buy directly from the producers instead. Blockbar would then just bring mostly convenience for its audience to access great brands and makes it easier to re-sell or gift.
For brands, they can mainly jump in and experiment this new digital distribution with a few bottles on the platform but the revenue generated from each sales will not be significant yet.
The main value proposition of Blockbar is the ability to get brands and have special bottles sold on their platform. For brands, it’s a fit to sell their premium SKUs to the desired target audience like collectors. It’s only an additional sales channel with a touch of tech.
We don’t see NFTs as a key selling point for brands nor consumers as we doubt there’s going to be millions of transactions happening between collectors daily.
Can Blockbar enrich its value proposition beyond the marketplace and make NFT somewhat essential for the stakeholders on the platform? It will be up to the founders to make the value proposition stronger.
Pernod Ricard has already done some experiments with the blockchain via Blockbar
3 Distribution Channel
Blockbar looks at democratizing the luxury spirits and wine business. That’s conflicting with luxury as it’s intrinsically not for everyone. Not everyone can afford a 1,000$ or 10,000$ bottle.
The problem will then also be to grow revenue without compromising with their branding. Selling slightly less pricey bottle ( under 1,000$ but above 100$ ) will be a challenge. When doing such things, Blockbar will face issues and compete with traditional channels ( on and off trade ). .
Can Blockbar clarify its value proposition and stay premium and at the same time grow it sales volume meaningfully to become the inevitable choice for brands and consumers?
We think it’s going to be a trade-off between choosing to be a general drink platform to grow sales in the long term or staying premium and accept to have sales below 100M$US yearly. We’d love to be proven wrong though.
Sotheby's head of wine and spirits joined BlockBar as COO on July 2023 according to its LinkedIn profile
Conclusion
When doing some research on the obstacles for the company, we found out that Blockbar will struggle as well for taxes in the USA as each state will have a different tax policy. We won’t expand on that and will keep it to 3 challenges.
Blockbar is facing many challenges but if the team manages to solve the the legal, value proposition and distribution channels alone. They should be in a good position to become a powerful player in the industry.
If Jamie Ritchie, with his network, is able to drive the revenue to more than 10M$ monthly sales with the same cost structure mentioned above within 2-3 years, they shall become one of the most valuable marketplace in that segment.
Will Blockbar succeed? Too soon to tell. Let’s give them another couple years.
