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It’s been rumored for a while now that MGP was looking to acquire a more upscale/premium brand to their portfolio. All signs pointed to them trying to acquire Smoke Wagon with several podcasters speculating as such. Smoke Wagon seemed like the obvious choice only because of just how much name recognition they’ve received over the last 5 years.
Smoke Wagon is also the largest single purchaser of barrels from MGP outside of Diageo (Dickel and Bulleit), Pernod Ricard (Smooth Ambler) and Constellation Brands (High West and Nelson’s Green Brier) which meant that they could have benefitted from selling more cases immediately as well as having a huge supply of new-make bourbon ready to use in the future.
Then on May 8, news broke that MGP had reached an agreement to purchase Penelope Bourbon. What?
Who is Penelope Bourbon?
Penelope Bourbon is a small operation in Roselle, New Jersey putting out around 100,000 cases (6 packs) of bourbon annually. Their founders, Michael Paladini and his wife Kerry as well as Danny Polise have been hard at work for a few years now growing their business. Their brand has produced a range of labels known to practically set the bar for blending barrels on the younger end of the spectrum that end up far better than they have any right to be. Penelope also offers multiple cask-finished styles as well as cask-strength options. Some of their most talked-about versions have been a Rosé Wine Finished Bourbon and their new “Architect” Bourbon.
The agreement looks like it’s around $105 million which I believe includes the owners’ salary factored in for a certain number of years (yes, MGP wants them to stay on board). It also comes with all of the barrels they had in their possession and their intellectual property. This is all for a 100% stake in the company.
The financials probably drew them in to the purchase, although I’m sure MGP shopped around to many other NDPs that they source their whiskey to looking at things like number of markets they were already in as well as growth statistics. Speaking of growth, as of 2023, Penelope’s year-over-year (YOY) sales increased by 166%. MGP also has put into place a structured agreement that Penelope will have to meet certain performance parameters as part of the deal.
What is the bottom line for the customer and MGP?
So what’s in it for MGP? Here’s my thoughts in a nutshell: there are dozens of non-distiller producers that are currently sourcing MGP barrels for their brands. They all have to factor in the cost for sourcing every barrel of whiskey into the price of the bottle. MGP and their own brands don’t have to factor in that price, meaning they can either undercut their competition OR they can just soak up more profit per bottle by keeping their bottle prices similar to the brands they source barrels to. They choose to do the latter but I’ll explain why in a minute.
In simpler terms, it probably costs Penelope around $15 to create one bottle of Four Grain Bourbon once you factor in all the costs. However, if MGP were to bottle that exact same product, it might cost them around $8 to create the same thing (note: these numbers are guesstimates). That’s because they don’t have to buy barrels through a middleman anymore.
MGP could have bought any brand and the results would have been the same. Whichever brand they chose would have had the same results. But don’t take everything I just said as a sign that Penelope will now be sold cheaper either.
Other brands that source barrels from MGP are guaranteed that they won’t be in direct competition with MGP’s own labels in terms of price. This is why so many still do business with them and why a bottle of Remus single barrel is basically the same price as a bottle of Stellum Single Barrel or Smooth Ambler Single Barrel.
What does the future hold?
Penelope Bourbon is a bourbon that I never had that much interest in because it felt like they marketed their whiskies towards the crowd that demands low-proof or younger/cheaper options. When looking at the typical customer who was buying Penelope Four Grain, I imagined them probably cross-shopping it to Basil Haydens or Four Roses Yellow Label. But I was not giving them enough credit because Penelope does produce a Barrel Strength bourbon and has a Private Selection line that is bottled at barrel strength too. Even their new “Architect” label comes in at 104 proof. This does show a recognition to the trends of higher-proofed products attracting a whole different crowd of buyers – a smart move by Michael Paladini and his team.
What I do hope will happen is that MGP will start pulling some of those rare, 10+ year old barrels we know they still have and let Penelope release a couple new Limited Editions. This would help draw more advanced enthusiasts to the brand who have the money to buy stuff like that. This could also see Penelope returning higher profits because MGP’s own line currently doesn’t go above $100 per bottle (Volstead and Gatsby notwithstanding) on purpose. And of course, expansion from the 27 states that Penelope is distributed in already, to even more, is always a plus.
Michael Paladini’s skills so far have been his expert-level palate when it comes to blending and determining what tastes great. Imagine what he’ll be able to do with more aged stocks of whiskey at hand. I also look forward to some of his more interesting cask finishes using older bourbon barrels. The future is wide-open now and we’re all going to be anxiously awaiting how they seize the moment.
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Tuesday 9th of May 2023
Do you have a source for the 50,000 case estimate?
Mike & Mike
Sunday 14th of May 2023
I'm sorry, but they do not want to be named at this time