[Whiskey Decision] What do Penelope, Smoke Wagon, Blue Run, and Fiddler have in common

Just another day in Newark's rush hour: trains delayed, commuters grumbling. But this time, the culprit wasn't a signal failure or track repair – it was a bull 🐂, yes, a real bull, casually strolling along the tracks. Ricardo, as he's now affectionately named, turned a typical NJ-to-NYC commute into an impromptu rodeo, leaving onlookers in disbelief. No harm was done to the animal who was heavily sedated before being taken in. Here's the kicker: It's not Newark's first rodeo. A similar escapade unfolded back in 2006. Seems like these tracks have a history of bullish surprises

In today's dispatch, we're diving headfirst into:

• MGP: An incubation lab for great whiskey?

• Worthy Reads: Sampling some of the best from around the web

• Chart Worthy: Take stock of spirits

• Cocktail: cheers to Ricardo!

Exploring MGP Ingredients:
🗿The Waking Giant in the Bourbon World

MGP. A dirty word? An industry necessity? Or just a “Distilled in Indiana” label?  

For those unacquainted with the intricacies of bourbon production, MGP Ingredients (Midwestern Grain Products) is akin to a ghostwriter in the literary world – immensely influential yet largely unknown. Nestled in Lawrenceburg, Indiana, MGP's facility, with roots stretching back to its Seagrams days, is not just a distillery; it's a veritable powerhouse in the world of sourced whiskey production.

MGP: The Whiskey Wizard Behind the Curtain 

MGP's modus operandi is simple yet ingenious. Offer distilling prowess to budding and established whiskey brands: Smoke Wagon, Nulu, Nashville Barrel Company, and Traverse City to name a few. Providing everything from custom mashbills to aging services for Distilling and Non-distilling Producers (NDP). Compressing the time for these brands to hit the shelves.  

For MGP, this is business fortification: get paid for their distilling expertise, while the clients spend on branding and marketing. All at a 30% profit margin. 
A classic case of letting someone else do the heavy lifting.  

• Expertise as Currency: MGP's primary investment isn't cash; it's their vast distilling knowledge. They're the ghostwriters of the whiskey world, creating products that others will brand and market. 

• Aged Inventory Advantage: A 10.8 million gallon inventory trump card. Allowing clients to release premium, aged products, as strategic partner. 

• Risk and Reward: In true hedge fund style, MGP’s 750 clients are a diverse portfolio. Some brands might flop, but the ones that soar validate MGP’s offering. 

• Market Insights: Every successful client is a market trend indicator for MGP. They're like a culinary detective, piecing together what flavors hit the mark.  

The impact? Distilling Solutions generated $428M in 2022 (55% of total revenue).

Detecting a trend... 

MGP Distilling Solutions may be transforming into a Silicon Valley-esq incubation lab. In April 2021, Luxco (a former client) valued at $474M, was acquired by MGP. An investment to move into “higher value-added products,” - products that command $50+ a bottle. Luxco’s lineup included Ezra Brooks, Rebel, and Blood Oath – all distilled from MGP’s own factories. And as a quick aside, yes, MGP’s own products have been rebranded as Ross & Squibb but old habits are hard to stop so we will likely continue to reference Ross & Squibb as MGP. 
 
The financials? In the first year, the Branded Spirits segment generated $238M in sales, 30%+ of total revenue. Gross margins? An eye-watering 40%. For context, Brown Forman & Diageo average 18-20% gross margins across their entire business portfolio.

The Most Recent Bet: Penelope Bourbon 

Defying expectations, MGP closed Penelope over Smoke Wagon for an acquisition priced at $105 to $215 million, closing in June 2023. Penelope’s 78,000 case volume paves the way to a $5 million cost synergy by 2025 – a 10% cut from their $50 million SG&A expenses. The cherry on top? Penelope is primed elevate the existing 40% gross margin by 2-3%.

Moving up in competition

Zoom out, and MGP’s $200 million move on Penelope mirrors the savvy strategies of CPG titans (Coke & Pepsi), targeting emerging brands ripe for explosive growth. But unlike Coke and Pepsi, they know the recipe even before making an offer. Talk about an unfair advantage.

MGP’s financial arsenal? A hefty $400M credit line and a 10.8M barrel whiskey reserve, valued between $344M-$554M. This war chest is a ticket to future craft spirit conquests, potentially catapulting their Branded Spirits division past the $1 billion mark. And their current clients are a bit of a who’s who in terms of recognition and prestige. In the premium spirits arena, MGP is gearing up to compete against some of the biggest spirits producers in the world.

Share the Decision (About Whiskey of Course)

📰 Worthy Whiskey News (a.k.a. our favorite reads)

• Virginia ABC Authority is stirring the pot again, not with spirits but with a $2.7 million inventory vanishing act. A whistleblower's tale of retaliation adds another twist to the bottle, making May's mysterious bottle lottery now seem less about luck and more about hush-hush. It's a real 'spirit-ed' saga of disappearance and drama!

• 13 Days and Counting. Bourbon tariffs are set to hit a high note, doubling from 25% to 50% on January 1st. This spike doesn't spell cheaper whiskey stateside but shakes up the $5.2 billion foundation of in Kentucky's capital investment through 2026.

• $20 Pappy. If it sounds too good to be true…

📈Chart Worthy📉

MGP is big… but not that big.

📈 Top 5 Pour Decisions: The Priciest of Whiskeys 📈

Biggest five-year price surges among our featured whiskeys for 2023

1. Shenk’s Homestead Kentucky Sour Mash Bourbon +486%

2. Springbank 21 y/o Single Malt Scotch Whisky +397%

3. Stagg Jr Barrel Proof Bourbon +306%

4. Elijah Craig 23 y/o Bourbon +300%

5. Hancock’s President’s Reserve Single Barrel Bourbon +293%

📸Rewind: A selection of our most popular IG Posts

• Stock vs. Bottle - Blood Oath/MGP edition

• 2023 Rewind: We ask you for your best bottle pickup from this year

• Sometimes that $31 bottle just slaps - OGD114 winning

• A double dose of Christmas: It’s that season Mariah & Blantons and Lego & Very Olde St. Nick

🐂The Bull Run 🐂
A bull running on the tracks

Ingredients

• 1 1/2 ounces of a low rye bourbon

• 1 ounce Grand Marnier

• 1/2 ounce lemon juice

• Lemon twist

• Brown sugar

Keep up:
Rim of your martini glass w/ brown sugar. Combine ingredients in a cocktail shaker with ice. Shake it up! Strain into your martini glass and garnish with a lemon twist. Cheers to Ricardo!

What a ride it's been this week, huh? Thanks for joining us on this journey through the world of good spirits at great prices.

Got friends who love a well-priced bottle as much as we do? Share this newsletter with them and let's make our merry band of spirited enthusiasts a little bit bigger.

Thanks again for being here. Let's raise a glass to the week ahead.