Will MGP’s Big Bet on Penelope Bourbon Pay Off?

“I knew we’d find it.”

Hunched over, torso parallel with the floor, Penelope Bourbon co-founder Danny Polise is examining barrel heads. He points to a cask of 11-year-old corn whiskey at the bottom of the rack. A member of Ross & Squibb Distillery’s sampling team drills into the barrel, and Polise stands.

“Sometimes, the location isn’t where it’s supposed to be based on the spreadsheet. But I’ve gotten pretty good at finding them when they go missing,” he says, gesturing broadly across the expanse toward thousands of nondescript barrels.

We’re in one of Ross & Squibb’s historic warehouses, an enormous six-level brick facade rising up from the surrounding landscape. This brick behemoth still has “SEAGRAMS” and “SINCE 1857” emblazoned on the exterior, a nod to the once-prosperous company that distilled here several owners ago.

Polise flies in about every two weeks to sample inventory, tasting for close to two hours before his palate becomes exhausted. It’s been his routine since July 2018, when he and his Penelope co-founder Michael Paladini made their first trip to the historic distillery, then (and often still today) known as MGP of Indiana. Less than five years later, MGP bought the brand in a deal valued at up to $215.8 million, including an up-front cash payment of $105 million.

The sale was part of a broader effort by MGP to bolster its in-house brands after spending decades contract distilling for and supplying aged liquid to dozens of other companies. It’s not too much of a stretch to say much of the bourbon boom — and some modest fortunes along the way — was built on MGP whiskey. But until recently, MGP was largely the quiet supplier behind the brands, the source for hundreds of labels whose only mention of their liquid’s source was “Distilled in Indiana.”

Credit: Tyler Zoller

Gaining a more direct line to consumers was a catalyst for MGP’s $475 million acquisition of Luxco and its subsidiary Lux Row in 2021, and ultimately Penelope two years later. It’s also at the genesis of the Lawrenceburg distillery’s renaming in 2021, from “MGP of Indiana” to “Ross & Squibb.”

It’s a series of big bets crucial to MGP’s long term plans. While the company’s contract distilling and supply business saw double-digit contraction from 2023 to 2024, its premium owned brands (including some Penelope products) stood as an important profit center and rare area of growth.

With American whiskey sales continuing to slow, that’s a segment we could see the publicly traded conglomerate leaning even more heavily into. And it’s a massive bet, timed to allow MGP to forge its own destiny with the whiskey it long sold to others. Whether Penelope is the brand that can take it there remains a nine-figure (or greater) question.

The Penelope Story

In 2018, Polise and childhood friend Michael Paladini founded Penelope Bourbon. They named the new brand after Paladini’s daughter, thinking it might appeal to a broad swath of potential drinkers, both male and female. Their initial aspirations were modest by almost any standard.

Credit: Tyler Zoller

“I think [MGP] was disappointed by us at first,” Polise says. “When we first showed up, I think they were expecting us to buy 1,000 barrels. We really only had the cash for six.”

Slowly but surely, Polise and Paladini began finding a fit for their products. The duo started off sourcing three main mash bills from MGP: 99 percent corn bourbon, 45 percent wheat bourbon, and 21 percent rye bourbon.

“We had to innovate with just those three recipes,” Polise tells me. “So cask finishing and proof were the levers we could pull.”

“No custom mash bills. No groundbreaking production process. Penelope acquired aged stock directly from MGP or the bulk market. So all MGP had to do was acquire the brand and supply the product.”

Apart from a one-time loan from Paladini’s brother, the brand never took on outside capital. That 2019 injection went toward acquiring barrels of an experimental wheat whiskey laid down by former MGP master distiller Greg Metze.

With its affordable blends and cask-finished specialities, Penelope hit in a variety of sweet spots, including bars and restaurants. Notably, the founders focused on their core lineup and kept prices low during a time when many brands were moving fast upmarket.

“Their passion and dedication to engage the community and put[ting] out a quality product for an approachable price was inspiring, and something I didn’t see new brands do in the boom market of 2019/2020,” says Greg Benda, who runs the popular Instagram account BourbonFinds. Benda’s fandom for Penelope eventually grew to roughly 100 bottles in his collection, along with 15 single barrel picks for his friends and followers.

Credit: Tyler Zoller

In just a few years, the company grew to become one of the market’s most recognizable new brands, with distribution in around 30 states. Almost all the inventory came from MGP stocks.

Penelope’s growth was so impressive that MGP itself wanted not just a piece, but the whole pie. In May 2023, MGP subsidiary Luxco acquired Penelope in a potentially $215.8 million deal that sent the bourbon world into a tizzy. By the time the company was sold, Penelope had 22 employees on the payroll.

“This acquisition aligns well with our premiumization strategy and our focus on growing high- potential, high-margin brands,” David Colo, then-president and CEO of MGP Ingredients, said in a press release.

“Pre-sale, we weren’t handcuffed by what we wanted to explore, we were handcuffed by capital. Now, if it’s available, it’s available to Penelope.”

An advising law firm released more specifics regarding the deal, which encompassed “100 percent of the equity in Penelope Bourbon LLC and its related assets in a transaction valued at up to $215.8 million.” That included an upfront cash payment of $105 million, with potential earnout payments of up to $110.8 million “based on the achievement of certain milestones through Dec. 31, 2025.” In effect, an undisclosed portion of the deal saw MGP buying back its own barrels.

“Penelope had a simple formula: Get whiskey that is good enough and market the hell out of it,” says Kenny Coleman, co-founder of Pursuit Spirits and co-host of the popular Bourbon Pursuit Podcast. Bourbon Pursuit has recorded several episodes with Paladini and Polise, including one shortly after the acquisition.

“No custom mash bills. No groundbreaking production process,” Coleman continues. “Penelope acquired aged stock directly from MGP or the bulk market. So all MGP had to do was acquire the brand and supply the product. Penelope was well on their way of gaining mindshare across the marketplace while MGP has notoriously struggled at developing brands.”

Polise says that ultimately, Penelope’s growth came down to basic business fundamentals as much as the whiskey itself.

Credit: Tyler Zoller

“We ran a really healthy business,” he tells me, in between barrel samples. “If we’re stuck with this at the end of the day, we need a good business. We just built it so we wouldn’t have to jump ship. When MGP saw our growth and how many barrels we were buying, they saw a healthy EBITDA. … It just made sense.”

Certain aspects of the deal weren’t made public. Given the milestone-tied payout, the founders likely had plenty of financial incentive to stay on. But Polise is quick to point out the duo’s deep ties to the brand they’d built from scratch. “We weren’t emotionally and physically ready to leave,” he says.

Now, with unfettered access to the range of both Ross & Squibb and Lux Row stocks, Polise is working with more tools than ever in crafting new products. “Pre-sale, we weren’t handcuffed by what we wanted to explore, we were handcuffed by capital,” he says. “Now, if it’s available, it’s available to Penelope.”

Sometimes, new products start with an idea, or even a vibe. Polise and Paladini follow the “rule of threes” when ideating new blends and releases. If an idea comes up in discussions three separate times, it moves on to the next stage of development.

Polise points to Havana, a recent introduction to the lineup that consists of bourbon double-finished in Caribbean rum and maple syrup barrels. “Havana was an idea before it was a product,” he says. “How do we capture this vibe of the Caribbean and rum?”

In the roughly two years since selling, Polise and Paladini have greatly expanded Penelope’s lineup, especially at the upper end of the premium tier. Separate from always-on offerings, Penelope now buckets its premium, limited releases under the “Estate Collection” banner.

“Softening whiskey consumption and elevated industry-wide barrel whiskey inventories had a larger and quicker-than-expected impact on our aged and new distillate sales.”

The collection allows the brand to show off its best selections from available barrel stock, with higher age statements and more premium price tags. And the Single Barrel series highlights single cask offerings, which Polise is constantly earmarking during his Indiana visits. He estimates the brand will release about 80 single barrels for 2025, which could increase significantly in the coming years.

A new Founders Reserve line focuses on unique barrels and liquid streams, like an 11 year wheat whiskey, and a 17 year light whiskey. While highly limited offerings can certainly grab the hardcore enthusiast, some industry observers believe Penelope’s long-term success remains grounded in entry-level expressions, like the non-chill-filtered, 80-proof bourbon that initially put it on the map.

“Penelope wasn’t built with age statements or crazy stats,” says Eugene Nassif, co-owner of Cat’s Eye Distillery and Obtainium, an independent bottler that has sourced MGP products. “Sure, they have some special stuff now, but their core doesn’t rely on high age statements or high proofs. … They won’t feel obligated to add age statements like so many [legacy brands] are now returning to.”

MGP’s Big Bet

For Penelope’s parent company, the bet on in-house brands could have massive and lasting consequences. Domestic sales of American whiskey dipped nearly 2 percent in 2024. And according to recent investor reports, MGP seems to have been hit especially hard, with double-digit contraction in key areas.

“Softening whiskey consumption and elevated industry-wide barrel whiskey inventories had a larger and quicker-than-expected impact on our aged and new distillate sales,” the company said in a recent quarterly report.

In the third quarter of 2024, the company’s Distilling Solutions segment — which includes contract distilling and sales of aged product — fell to $71.9 million, an 18 percent drop compared to the year prior. Branded spirits — including Penelope, Remus, Yellowstone, Rebel, and Ezra Brooks — fell to $62.6 million, a more modest 6 percent drop.

“We remain confident in the trajectory and positioning of our business, enabling us to reaffirm our 2025 outlook and continue to make progress towards our goal of establishing MGP as a premier branded spirits company.”

In November 2024, MGP announced a reduction in distillation for 2025 in order to “optimize cost structure” while putting away less aging whiskey.

But MGP’s third-quarter report wasn’t all doom and gloom. The company’s “premium-plus” tier of sales stood as a rare bright spot, with a 1 percent increase year-over-year. That includes premium tequilas, as well as highly aged, high-value American whiskey.

The company’s first quarter results for 2025 showed a continuation of both trends. Consolidated sales decreased 29 percent, with Branded Spirits sales falling by 4 percent. But the premium- plus portfolio grew 7 percent from bumps in American whiskey and tequila, “particularly the stronger than expected performance of the Penelope brand.” (An MGP representative declined to provide specific details on Penelope’s total sales volume since the May 2023 acquisition.)

“We remain confident in the trajectory and positioning of our business, enabling us to reaffirm our 2025 outlook and continue to make progress towards our goal of establishing MGP as a premier branded spirits company,” said Brandon Gall, MGP’s interim president, CEO, and CFO, in the same report.

For almost two decades, brands capitalizing on the whiskey boom picked through MGP’s stocks, using a fusion of marketing and blending prowess to sell bottles for high-end prices. Understandably, MGP now wants its chance to do the same.

The company’s overall sales have contracted, a common trend right now as major producers initiate layoffs and reduce production. But when it comes to Penelope, on paper, the results have been up and to the right.

The Market Ahead

If Polise’s biweekly trips are any indication, the Ross & Squibb facility still has plenty of gold worth mining from its seemingly endless rows of sleeping barrels. He sees his current role as akin to a conductor. He can pick the barrels, eliminate faults, dial in the proportions, and blend the whiskey. But ultimately, the drinking experience — and specific flavors — will vary from one person to the next.

Credit: Tyler Zoller

“It’s my job to get it in harmony. People will experience what they experience,” Polise says Polise. “I just hope they like it.”

Now, post-acquisition and on a continued upward trajectory, none of the industry pros I spoke with doubt Penelope’s ability to build (or maintain) market share. Instead of the myriad other NDPs and blenders, they see Penelope’s main challenge as moving into competition with the country’s true distilling titans, especially Kentucky’s legacy producers. As Bourbon Pursuit’s Coleman puts it, that’s less a series of iterative steps and more a leap to “cross the chasm of being a household name.”

But for Coleman and others who have observed Penelope’s growth over the years, its success so far is just further proof of one of whiskey’s most time-honored truths.

“At the end of the day, brands win,” he says.

Penelope — and MGP’s bottom line — are counting on it.

The article Will MGP’s Big Bet on Penelope Bourbon Pay Off? appeared first on VinePair.