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Snooth User: dmcker

How might this happen in the wine world?

Posted by dmcker, Jun 22, 2017.

Diageo just announced they're buying George Clooney's tequila company, Casamigos, for an even $1 billion (including some performance riders). The company's only four years old. Obviously all quick startup jackpots don't just happen in Silicon Valley.

Clooney really does seem to live a charmed life. The camera loves him, of course, and he manages to make so much look effortless, even if we realistically know it's not.

Hard to imagine how this kind of pop in such a short period of time could happen in the wine world. Any opinions or guesses, seemingly foolish or not, on how it might?

 

 

 

 

Probably won't be happening at this type of wine operation in southwestern France, though I'm very happy to drink their wine...

Replies

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Reply by GregT, Jun 22, 2017.

There's Meiomi at around $275M and the Prisoner at around $350M, but not many billion-dollar purchases, except for Mondavi, which was an iconic brand with a long track record.

But I don't think there's nearly as much money in wine as in beer (Ballast Point for over $1B) or hard liquor. Look at your average wine bar vs any random sports bar - the latter is always louder and more crowded. Plus Clooney is going to stay on as spokesman.

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Reply by dmcker, Jun 22, 2017.

Pretty much standard startup buyout in that the founders agree to stay on for a certain period of time to supposedly maintain standards, keep up image and generally ease the transition. We know that Diageo will just turn it into another generic before too long, of course, though making plenty of money while they do it. They're better at this type of alcohol than they were at wine.

I was particularly impressed by how it all happened within four years of startup, and for a boutique label. Not the case for wine. Hell the vines won't even be ready to provide suitable fruit within that period...

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Reply by Stephen Harvey, Jun 22, 2017.

Whilst not a start up Pernod Ricard aid EUR6b+ for Absolut Vodka from the Swedish Govt some years ago

I am presuming that Tequila has a similar low cost of production like vodka

Lots of margin in commercial spirit

I wonder what multiple they paid on?

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Reply by outthere, Jun 22, 2017.

It would never happen like that in the wine workd since after four years you would still not have released any product had you planted a vineyard. Had you sourced fruit you would only two vintages on the market. Plus everyone and their brother makes wine. Only a few make Tequila.

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Reply by GregT, Jun 23, 2017.

I am presuming that Tequila has a similar low cost of production like vodka

Nope. it's a lot harder to make than wine. The reason there's none made outside of Mexico is because it would be cost-prohibitive. I have a friend who was a partner with some people making really good tequila. They looked at producing in the US and figured it would be five hundred to a thousand per bottle.

First, the agave has to be around 10 years old to be worth harvesting. The plant needs to have stored enough sugar to make it worthwhile, but they can't have gone to seed yet.

Then when you harvest, it's like a giant artichoke. the guy who harvests it uses something that looks like a spade, but it's actually very sharp. With it he cuts off the spines, leaving just the "heart", like an artichoke heart. Except that the agave heart, or pina, weighs between one and three hundred pounds.

You pack those into a huge room as tightly as possible. That room is an oven and you start the fire and cook them for three days. Then you take them out and grind them slowly with a huge stone wheel to extract whatever juice you can.

The physical labor is incredible and OSHA would shut you down in a heartbeat. The cutting tool can very easily slice off your foot. Hefting the agave heart can pull your back, shoulder, arm, whatever. God forbid you don't pack tightly and a few fall on you. The huge stone oven is the size of your bedroom and it remains hot for days after the cooking is done so you're subject to severe burns. You work long days. And you're not paid what in the US would be minimum wage, much less any over time. None of it is automated.

It's an incredibly labor-intensive, capital-intensive, and time-intensive process. May be the most expensive liquor to make - I'm not sure, but it's nothing like whiskey, vodka, or gin, which are all cheap to produce. Agave has to come from a third-world country, or at least one with no labor laws and very low wages.

The law requires that it's at least 50% agave. So it's either 50 or 100%. Nobody would make 60, 59, 82% agave. That would be pointless. The other fifty percent is some alcohol, maybe grain alcohol. So don't buy that.

And BTW, unlike whiskey, you don't want it aged in barrels. Buy the white one.

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Reply by Stephen Harvey, Jun 23, 2017.

Thanks Greg - its amazing how you can wrongly form a view on something based on its"proximity" to something else

I think i imagined some giant crushing plant that you tipped a couple of truck loads of cactii into and then out one end came a juice which was fermented and distilled

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Reply by JonDerry, Jun 23, 2017.

Buy the white one, blanco or Mezcal? I've definitely enjoyed some Reposados in my time...the process of making it sounds like a lot of drama.

Agreed that the 1 Bill in 4 years is quite a feat.

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Reply by outthere, Jun 23, 2017.

I don't know Greg. This one was awfully good.

 

I agree with using blanco for mixed drinks but for sipping this kicked butt.

 

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Reply by dmcker, Jun 23, 2017.

There's also the fact that 'tequila' can only be made in one region down around Guadalajara (Jalisco), and those rights are carefully protected. Kindof like Armagnac or Cognac in that regard. Mescal is pretty much the same thing, but made by different folks with different (varying) standards in different parts of Mexico (including Jalisco), also using any kind of agave while Tequila must be from blue agave. Usually tasting smokier from the kiln, too. Tequila is effectively a subset of mescal. A lot of mescal is made in Oaxaca, possibly its most famous area for the best stuff. Mescal's generally the one with the worm, not Tequila. Plenty of mass-produced cheap mescal out there but good, boutiquey mescal can get pricey. Low production volumes, and very hands-on skilled-craft production. Think it's going to take quite a bit further market maturation before anyone does with mescal what Clooney and crew have just done with tequila.

Fermented and distilled products of the agave plant have been around in Mexico since long before Cortez, and some say for multiple millennia (keep running across academic papers with abstracts starting like this: "The great variety of agaves and their multiple uses have played an important role in the cultural identification of Mexico. They have been exploited in many ways for over 10 000 years, and one of these applications is the production of alcoholic nondistilled and distilled beverages"). Pulque (fermented) and mescal were well appreciated by the invading Spaniards. Mescal/mezcal is the Nahuatl word for 'oven-cooked agave'. The 'Tequila' industry started in the town of that name in the 16th century.

You forgot to mention, Greg, that the blue agave plant takes a long time to get to that size and ripeness--roughly 10 years from planting to harvest. Then there's the fact that harvesting can't just be done by anyone. It takes skill to wield that bladed spade efficiently (and safely), and jimadors are masters of a professional craft that takes years to perfect. And they're becoming rarer and rarer in Mexico's modernizing economy.

Yes to the implied recommendation by Greg to always look for the statement 'made from 100% agave' on the label. Just saying 'made from blue agave' is meaningless, since all tequila must be. The purer all-agave product is tastier, and can be healthier. Personally I've encountered fewer hangovers with it.

I've spent time in Jalisco and Oaxaca visiting producers, and have helped importers into Japan (not the big boys but boutique operations, including a famous Tequila bar and its offshoots, and a specialty Mescal bar). Fun (and hot) to travel around, and things almost always get interesting when we sit at table and sample the house's wares. In recent years I've gotten more into mescal, though I still drink plenty of reposado and anejo and blanco tequila. And as in Mexico I almost never use salt and lime. There is a commonly used chaser called 'sangrita' which is blood red as in Bloody-Mary tomatoey, and tasty and probably healthier than not drinking it. When I'm in any old bar and people insist on shots and all they have is refrigerated Cuervo Gold, after doing my best to stifle my gag reflex I generally ask for not only lime, but a little wasabi to lick off the hand before shooting. It does help with that nasty stuff that's definitely not 100% agave.

Moving on from that subject, of course there's the whole complex geography and subject matter of body shots. Have my best stories regarding those from cheap tequila and good champagne....  ;-)

 

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Reply by dmcker, Jun 26, 2017.

Another puff piece on the Diageo buyout of Casamigos, though it does a clearer job of showing how Diageo will benefit internationally from acquisition of the brand.

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Reply by rckr1951, Jun 26, 2017.

I can only wish.

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Reply by Stephen Harvey, Jun 27, 2017.

I am still curious on what multiple it ws bought on given my re-education on Tequila as above

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Reply by GregT, Jun 27, 2017.

D - I did mention the 10 years. And I wouldn't use that tool. Those guys are really skilled.

SH - there's this:

https://www.forbes.com/sites/greatspeculations/2017/06/26/is-casamigos-acquisition-a-shot-worth-taking-for-diageo/#14dc60356ad5

OT - for sipping the tequila guys say the white is still the way to go. They say you should taste the agave and the source, the terroir if you will. And it's purest with less distilling and no barrel aging. For mixed drinks, use the cheap stuff. For sipping, barrel or not, you have to go with 100 percent. Next time I see you I'll bring you a bottle of my buddy's and you'll see what I mean. And I don't even like hard liquor!

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Reply by dmcker, Jun 27, 2017.

My bad on the 10 yrs--somehow skimmed right past that. And yeah. I played with the tool a couple of times. Me preparing an agave plant vs. a proper jimador doing it, my production was less than 10%, though I did get to the point where I didn't need to be worried every millisecond about amputating a limb. With jimadors it's like utilizing trained, experienced pickers on lemons or green beans or grapes, but much more so. Productivity and speed (and safety) rise drastically (and required physical effort drops concomitantly) with skilled experience.

Blanco vs. the aged versions--yeah, you get the taste of that tequila clearest with the blanco. But that doesn't mean it's best for sipping, IMHO. Reposado and anejo from the same brand are usually smoother and more integrated, just as they are with aged bourbon, whisky and brandy. Doesn't mean a good blanco can't beat a mediocre reposado for just about anything, of course. For shooting blanco, for mixing blanco, for sipping, especially after food, I usually go with the aged stuff. Assuming we're talking well made, 100% agave stuff, of course.

Regarding the multiple, I see this as an international sales leverage ploy (which Casamigos has done almost none of yet), and expect to see Clooney used a lot for marketing. Some sexy spindrift there, perhaps. I've never talked to any of the uppity-ups in Diageo but for better or worse they've not seemed reticent about taking plunges since they've had that name. And they're getting decent press from this acquisition.

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Reply by dmcker, Jan 30.

Well Bacardi just bought Patron (or rather the 70% of it they didn't already own) for $5.1 billion, and some are saying that was cheap. Tequila really is a force to be reckoned with in the US market. And smart people like Clooney (above) and John Paul DeJoria (the Austin businessman who founded Patron in 1989, and was a billionaire even before this sale) are certainly cashing in.

I liked how the author of the article painted the NYC bar scene to illustrate Patron's past positioning:

"The joke in New York cocktail bars used to be, ‘Do you have Patrón? No? Okay, I’ll have a Macallan.'"

 


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