Brand Premiums: The Petrus Formula


Been thinking about Bordeaux again…..

We know what it takes to make a case of wine: Grapes, barrels, some labor, a place to make it, bottles, corks, etc. When we’re passing the time driving around wine country, we flip between playing “I Spy” and some number games. It keeps the mind fertile and out of trouble. So, when it was announced a while back that the price of Petrus 2005, en primeur (that means that you have the honor of paying for the stuff two years before you’ll ever see it) was about $35,000 per case, all we could think was: For fucksake, Let’s run the numbers.

So, here are the numbers as we see it: Grapes: the most expensive run about $70.00 a case. Overhead $25.00, Barrels are expensive, so add about $30.00. And nice bottles like the ones they use, run about $8.00 a dozen. Okay, good corks are a bitch to find these days, so I’d say another, $15.00 for the best corks.

Running the abacus over those numbers comes up to about $148 a case of cost. I just don’t know what else to add. I mean, you could add the foie gras, limos, hookers for the good clients, but none of that is really wine cost. So, let’s assume for the moment, that the winery gets about $30,000 of the sales price per case, then their margin is about $29,854.00, per case.

Now, the question is: How many cases do they make? We will never really know for sure, but we do know that there are about 11 hectares and given smallish yields, a safe number is 4,000 cases. So, 4,000* $29,854= $119,416,000.

Based upon that somewhat stupefying number, we can’t help but ask ourselves: What does this mean le petite maison is worth?

Petrus being a ultra luxury brand and truly one-of-a-kind, arguably should command a greater multiple of earnings than say Gucci. Vuitton, etc., while it would be possible to create another Gucci, there ain’t more land being made in Pomerol, so creating another Petrus would be nearly impossible.

However, just to be conservative, after having a look at market caps for luxury goods businesses, we’ll apply a run-of-the-mill multiple of earnings for a super-luxury brands of about 25 times. Therefore, based upon current sales, Petrus, with its 4,000 case business is worth somewhere around a cool $3 Billion. Just to have a good chuckle, take a look to see where they’d be on the FTSE/NYSE large cap list

So, for all of our friends making a few thousand cases of wine out there. Don’t worry that you can’t pay your bills, just keep doing it long enough and maybe your 3,000 cases will be work a cool $3 billion. We can only live in hope.

We were thinking about running the abacus over the Romanee Conti numbers, but maybe we’ll save that for the next long drive.

BTW, we’re going short on 2005 Petrus.


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