Valuation of a Champagne firm

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Permalink Reply by Priya Tyagi on July 27, 2010 at 8:19am

Any updates?

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Permalink Reply by Abhishek Pradhan on July 27, 2010 at 2:58pm

Hi Priya,

PFA the winery model hope this might be of your interest.

Do share your working as well.

Rgds,

Abhishek.

Attachments:

• Sample Model - Winery.xls, 324 KB

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Permalink Reply by Shirley Nebrida on August 11, 2010 at 5:37am

Hi Abhishek,

Your winery sample financial model is very interesting.

It helps me a lot.

Thanks.

Shirley

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Permalink Reply by Werner Reisacher on July 29, 2010 at 10:08am

I love eyour model Abshishek. For practical purposes, the user should also keep in mind that the vine plants to have a limited life span. After re-planting, the vinards are un-productive for a period of 2 to 3 years.

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Permalink Reply by Priya Tyagi on July 29, 2010 at 10:45am

Thanx a lot for your model. But i still have some queries..

Champagne firm is a bit different from wine since champagne has limited scope, as in area of vineyard is limited and so is the production volume of grapes (by design as well as by french laws). So what assumptions to make for projections? V cant just take total market growth assumption...and most of the firms in champagne are family owned so we dotn hv much info abt various metrics..

i was thinking of something like - export as % of sales, avg export price, etc as revenue drivers...Guide me if i m wrong

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Permalink Reply by Sachidanand (Sacha) Singh on July 31, 2010 at 6:40am

What does your firm do? Produces champagne (that means located in Champagne district, France) or trades in it? (That means it is in competition with some of the sparkling wines from Germany to Australia)
If it trades - in which market?

If it produces ch, growth (in no of cases) is strictly a function of the acreage of its vineyard and culture efficiency. That would make revenue a function of price only - no of cases would soon peak out (if not already done). Price would depend on consumption - how many (in percent terms) new people would consume ch every year and to what extent. This will depend on the economic growth of countries that fall in your market zone and to a little extent on promotion efforts. Create scenarios based on eco growth.

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Permalink Reply by MARK ALEX DIMITRIOU on August 9, 2010 at 9:48am

Hi All,

I want to value an e-business start-up and need some guidance on how to proceed (DCF, Market multiples).
Would anybody heppen to have tutorials or templates on this?

Thanks a lot in advance.

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Permalink Reply by Johan B on August 9, 2010 at 3:42pm

There's an old saying : the way to make a small fortune in the wine game is to start with a big one!

From planting, what is your assumption for gross yield per hectare per year for different varieties - and can you substantiate that by directly comparable neighboring producer data? Great wines unfortunately tend to come from very low yield vineyards. The difference can (sorry to give this in our measure but you can convert) range from 5 tonnes grape per hectare per year to over 30 tonnes grape per hectare per year. Also as somebody else mentioned, figure 3 to 4 years to reach full production. And as luck has it, that's normally exactly when the market changes from loving the Chardonnay that you planted in 2007 to demanding Sauvignon Blanc - so you rip up the US$10,000 per hectare new vineyard that has only just started producing and replace with a US$12,000 new stock...

I have extreme doubts about the ability of a new producer to reach the kind of market share % that your model assumes. It takes years and years and lots of luck and connections in the distribution channel to achieve success. (even if your wine is brilliant) Not sure which market you are defining, but a 10% market share would be classified as dominant in most - it's a VERY fragmented industry where generations-old firms don't even have that kind of market share.

Your pricing between low, mid and premium market is open to debate. The low/cheap wine market is ruthless and dominated by producers of frightening scale (tens of millions of liters per year). They would give their hind legs to get US$4/liter - more like US$1/liter (they export in 10,000 liter tanks, not bottles). At the high end your prices are too low : more like $150 per liter cellar net revenue at the top end. 99% of the wine consumer could not consistently blind taste the difference between a $15 bottle and a $150 bottle, but that's a whole other debate.

There are other points to go into, but very hard without knowing the region grown, region sold, cultivars, etc.

Bottom line : wine farms are like classic cars. If you bought an old Merc Gull-wing and left it in the yard for five years you'll have had no negative cash flow for those five years, but the car will have lost 50% in value. If you baby the car, clean it every week, service it properly; it costs a lot in cashflow but the car will be worth 10% a year in increase in capital value.

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Permalink Reply by Marty Sammon on August 10, 2010 at 6:33pm

HI

Happy to review your report, as this is a tricky subject. The value of the brand is crucial, and the history of sales and consistency of sales is important.

It is easy enough to grow the grapes, but very challenging to return on winery investments consistently unless you have a premium brand, and no GFC.

Regards Marty

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