TLDR: Quality over Quantity 

A tale of two distilleries both looking to exit:

Johnny McVolume's Wild Whiskey

• Revenue: $10M

• Points of Distribution (places that sell Wild Whiskey): 10,000

Value McGee's Quail Egg Vodka

• Revenue: $4M

• Points of Distribution: 2,000

Ol’ Johnny is more than double the size of Value McGee and has 5x the distribution.

They are both chasing after the same buyers so it’s reasonable to assume Quail egg is about to be cooked by the competition…

Well not so fast…

Value McGee's sales per distribution point ($2k) is double that of Johnny ($1k).

We could all identify that as a good thing, but it's an even bigger deal than it seems.

We have to go back to the core tenet of spirits valuation: 

 so let's bring a buyer into the equation:

International Beverage Titan Cartel Inc. (IBTC) 

• Revenue: $12 trillion

• Points of Distribution: 200,000

The head of corporate strategy at IBTC is looking at these two brands as M&A targets.

She doesn't care about their revenue today. She cares about their revenue once acquired and selling to IBTC's footprint.

Wild Whiskey rev/point ($1k) x IBTC distribution points (200k) = $200M Revenue

Quail Vodka rev/point ($2k) x IBTC distribution points (200k) = $400M Revenue

Despite having less than half the revenue, Quail vodka is twice as valuable to IBTC.

Revenue does matter, a lot, but it's more of a qualitative measurement than a quantitative one (I'll explain next week).

A Plea To Spirits Founders

Despite this, if you talk to any spirits founder or look at any fundraising deck.

What are they going to do with the money?

More distribution

More states

More accounts

Yes, you have to hit a certain revenue amount to be considered for M&A, but if the quality isn't there, it won't matter.

Your existing accounts matter more than new accounts. Always remember that.