Devil's Advocate - Family Values

The romantic image of a wine industry made up of small family-owned estates sometimes has to be set against the reality of hard economics.

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Robert Joseph - the Devil's Advocate
Robert Joseph - the Devil's Advocate

The news that Paolo di Marchi, one of Italy’s leading winemakers, has decided to sell his Isole e Olena estate to the EPI Group, owners of Charles Heidsieck Champagne and Biondi-Santi in Montalcino, has inevitably attracted much attention. In particular, it has upset wine lovers who regret that yet another iconic name has passed from private into corporate hands.

I would once have unreservedly shared their views, and still instinctively prefer the idea of dedicated ownership by a small family but nowadays, unfortunately, I have a greater understanding of the wine industry that extends tediously beyond issues of quality, style and price and the romantic notion of wine being the embodiment of terroir and human sensitivity and skill.

In particular, I appreciate the importance of cash and cashflow, issues that far too often go unmentioned when wine is being discussed. Wine critics – a group to which I once belonged – tend to imagine that people who make good wine and charge enough for it can go on doing this indefinitely, or at least until the next generation wants to take over.

But it’s not that simple.

Winemaking is both a very cash-intensive business and one in which, thanks to climatic and other challenges – annual income is uncertain. Some wineries do build up substantial cash reserves, but even these may not be enough to cover the costs of replanting, new equipment and any work that may be required on the buildings. Any money that has been set aside, may also have to tide the winery over such small inconveniences as a US or Chinese president slapping on punitive tariffs. And, even when you’ve found a fruitful new market, there’s always the risk that it will be disrupted by disease, climatic catastrophe – or that its army will upset the international community by invading a nation on the other side of its border.

Whatever the reason, when the coffers run dry, owners of any business have to take desperate measures.

When I lived in Burgundy at the beginning of the 1980s, Hubert de Montille revealed part of the secret of his Volnay estate’s success: “my having another income.” De Montille was a successful lawyer in Paris. This is what enabled him to decide when to release his wines and which to quietly sell off cheaply in bulk to a negociant when they failed to meet his standards.

Not everyone has this luxury.

In the late 1990s, I recall a young Australian flying winemaker who had just returned from a harvest in South America telling me how shocked he’d been to see tons of top class Cabernet Sauvignon grapes picked in vineyards belonging to one of Chile’s best producers being loaded onto trucks belonging to one of its competitors. When, many years later, I had the chance to ask the owner of the first of these companies about this story, he briefly gave me a firm stare. “Having to do that really hurt” he said, “but we literally had no money to pay for the harvest, and the cash my neighbour paid for that fruit saved us from bankruptcy.”

A few years on I saw what happened when the Australian winery, Peter Lehmann, desperately needed to find a buyer after a previously loyal UK supermarket cancelled a major order. As Doug Lehmann explained to me, with no other likely customer ready to take that quantity of wine, his business urgently had to get some money with which to pay its suppliers and employees. After a heated tussle, the winery was sold to family-owned Hess group, which managed to beat off stiff competition from Allied Domecq, a giant, UK-based PLC that no longer exists. Eleven years later, Hess sold Lehmann on to Casella another, rather larger, family-owned company which, in 2020, thanks largely to Yellow Tail, has revenues of over $370m. Not all family businesses are cosily small. Gallo is a family business. So is Walmart.

Other wine businesses have had to be sold to pay inheritance tax, or as a result of disagreements during the owner’s lifetime among their children over the future of the estate. Others still change hands because the people who launched them three or four decades ago, simply want an easier, less stressful, life.

In Napa, one company, Vintage Wine Estates which went public last year and turns over around $80m, has been a beneficiary of several of these situations. In early 2011, it bought the nearly 30-year Cosentino winery, that had ceased trading after being unable to cover its debts two months earlier. Two years later another family-owned winery, Clos Pegase, became part of the group, followed by JR Cohn and Swanson in 2015. When buying the latter property, Vintage Wine Estates president Pat Roney described the company philosophy: “Our interest is in preserving the legacy of these wineries, while providing investment, resources and a plan for the future.” And, Roney might have added, the advantages a large group has when it comes to distribution.

EPI, the buyers of Isole e Olena, also, as I say, own Charles Heidsieck, a Champagne house where I worked for two weeks over Easter when I was 15 years old. It was then run by the charming Jean-Marc Heidsieck who met me personally at Reims railway station when I arrived. The business became part of the Henriot group in 1976 and was sold to Remy Cointreau in 1985 before passing to EPI in 2011. I loved the wines that were made by the family, and I love them now that their business has a very successful clothing and footwear conglomerate behind it.

But I still remember the pride Jean-Marc had in a company that had been founded by his ancestor in 1851.

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