The largest deal in Shark Tank history went down last night when Kevin O’Leary and Zipz Wine CEO, Andrew McMurray struck a deal. Let’s go over what went down.
Zipz is a single serve wine seller offering 10% equity for $2.5 million.
But wait, wasn’t Copa Divino the holder of the single serve wine technology?
Copa Divino Patent
Apparently not. From what I gathered through the Shark Tank edits, McMurray says that Copa Divino only holds the right (similar to that of a franchisee) to the patent but doesn’t actually own it. The owner is a company in France. McMurray indicates that he’s unequivocally allowed to make single serve wine without infringing on any patent.
The patent discussion is very unclear since we only get the bare bones details but we’ll take McMurray at his word that Zipz isn’t infringing.
Early on it’s very clear that McMurray wants multiple sharks to come in on the deal. After McMurray discloses he has several investors including several Wall Street professionals, Daymond asks why he needs them for the money.
McMurray says he wants all 5 of the Sharks at the table with him.
Later, when McMurray relays the deal on the table, his partner responds, “Kevin only?”
$2.99 Price Point
McMurray established his single serve at a $2.99 price point with sales of $650,000 including acceptance in Walmart. Kevin made sure McMurray knew in no uncertain terms that this wouldn’t work – for him or in the long haul.
Kevin said 97% of wine is purchased at $9.95/bottle or less. Given this, customers won’t buy a single serve for $2.99 a glass when they could get 5 and a half glasses for less than $9.99.
Also, Kevin’s already had discussions about his own wine with Costco – the world’s largest wine buyer and reseller ($5.2 billion in sales) – and he knows what they want and the $2.99 price point will never work for them. Kevin said the cost would need to get to $1.49 for Costco’s ok.
During the back and forth, Kevin revealed that he has attempted to get his own brand, O’Leary Fine Wines, into Costco two years ago and is only now to a point where he is negotiating to get into their stores. The takeaway being, it’s hard to get into Costco, Kevin knows what Costco wants, and $2.99 for a single serve will never work.
McMurray said he’d received good response on the $2.99 price point but Kevin countered that neither he nor his distributors have tested the market.
The Other Sharks
This was Kevin’s deal. That was very clear from the onset. Wine is Kevin’s wheelhouse and his passion. As such, he was the feature shark in this segment. The other sharks did chime in but sparingly.
Three different times, Robert commented how great of an offer Kevin was making. One time he said, “This is the best offer Kevin’s ever made to somebody.”
Mark was quiet but did make a great point about the brand name not fitting the product: “I would take MD2020 from a quality perspective over a brand with a zipper named Zipz. Huge mistake.”
Totally agree. Zipz is a horrible name for a wine company.
While McMurray went to talk to his partner, Lori asked Kevin if he saw the deal as a way to get into Costco and he nodded his head yes.
Daymond investigated a little bit into the company’s motives as seen above. (Daymond is really good about digging up the dirt on companies).
An Exceptional Deal
Like Robert, I was amazed at how good of a deal Zipz was getting. They asked for $2.5m for 10% and Kevin gave them just that with a very fair kicker.
The offer from Kevin was $2.5m for 10% with the option to buy another $2.5m worth of equity at exactly a $25m valuation in the event of an exit. This means if McMurray sells the company at $50m, Kevin still gets to buy-in at $25m. This entire deal was contingent on getting into Costco.
For the valuation they were seeking, Zipz only came in with $650,000 in sales in 1,200 stores. As Kevin said, that’s nothing in the wine business.
Given not only their lack of sales, but Kevin’s immense knowledge on the subject, Zipz got a tremendous deal.
Kevin knows so much about the wine business, he was educating Andy McMurray throughout the pitch. After Kevin hit him with the 97% buy $9.99 under truth, McMurray asked, where’s that fact from?
Moreover, Kevin apparently has the all-important connection with Costco which is what makes everything. Kevin flatly stated:
“If I team up with you, I can get this into Costco.”
“I can get you into Costco.”
Given that he hasn’t gotten his own wine into Costco, it’s curious that he would make that claim. I wonder what the Costco Wine department thought about those statements.
What I think Kevin meant is he knows exactly what Costco is looking for in wines and the single serve wine would put it over the top. He already has Costco’s phone number so it’s well within his capability to make this deal happen.
However you see it, Kevin at least brought the strong possibility that Zipz could get into Costco which is obviously mammoth and worth a ton of money. It’s what everything comes down to. I’m surprised he didn’t charge more for paving the way for Zipz.
Having Kevin as your wine company’s partner is akin to having a turnkey that opens everything up and then runs the business for you; Kevin already knows exactly what to do.
Zipz got a fantastic deal and Kevin got what he wanted so it was great on his end as well. It looks like he’ll finally get into coveted Costco space as well as have a piece of the red hot single serve wine industry (and possibly revenge on Copa DiVino).
I thought he should have pushed for more equity (12.5-15% in addition to his option) since he was bringing so much to the table but you can’t blame him for going low to get what he so desperately wanted. He really, really wants into Costco and I think he also loves the single serve wine technology.
Licensing vs. Selling Wine
I’m assuming since the end game was getting into Costco, Zipz will not license and continue selling product. At this stage, it’s probably too late to change their name.
If they don’t get into Costco, maybe Kevin will still stay on board for the licensing.
Can’t wait to see the updates from this deal.
One side note to this pitch was how much free publicity Costco got. They were mentioned 13 times on Prime Time TV for free!