Family Wineries in Turmoil

Why most family wineries won’t survive, and what others are doing to ensure that they will. Roger Morris reports.

Reading time: 5m 25s

 

Courselle family
Courselle family

 

  • Family wineries have some advantages but also some built-in that make their survival difficult.
  • The article shows reasons for both developments and provides six survival tips for tamily wineries.

 

In 1953 the McCrea family started making wine at their Stony Hill winery on Spring Mountain in Napa Valley. Ten years later and about a mile away through the dense woods, the Davies family began making sparkling wine at Schramsberg Vineyards on Diamond Mountain. Both wineries won critical praise during their first half century. Today the Davieses are still at the helm of Schramsberg. The wines of Stony Hill are now made by someone else.

Similarly, two branches of the famous Mondavi clan had family wine businesses in the 1960s. Both prospered, and both families had children who are still winemakers. But the Robert Mondavi family had to sell its winery almost 20 years ago, while the Peter Mondavi family is now into its fourth generation.
 

Why do some family wineries survive, and others do not? 

Why do some family wineries survive, and others do not? And has the modern wine world become so competitive that trying to keep a winery both afloat and in the family is almost impossible? Of course, all wineries have high costs, especially with climate change and marketing challenges. But family wineries have both built-in problems and advantages.
 

Why most family wineries won’t survive for very long:

  • Not all families are born farmers.

“Many of the families that started wineries in Napa Valley in the 1970s and ‘80s were professionals – dentists, lawyers, entrepreneurs – who were looking for tax shelters,” says Rob McMillan, founder and head of Silicon Valley Bank’s wine division. The same still holds true. Owners who were never farmers may hire professional vineyard managers and winemakers to produce great wines, but the passion to farm doesn’t always come with the terroir. Plus, they remain very aware of the cash-out options.

  • Family needs often disrupt business needs – and vice versa.

“Many small, first-generation farmers don’t have retirement plans, so the winery becomes their retirement fund,” says one Sonoma business person who grew up at a family winery that has since been sold. “That puts both them and the generation ready to take over at a disadvantage.”
 

  • It’s not a given the next generation wants to become family farmers.

Eric Miller started his own winery, Chaddsford, with his wife Lee in southern Pennsylvania in 1982 and later inherited his father’s winery, Benmarl, in the Hudson River Valley. Of their four sons, only one was into winemaking, working at a large winery in California. “We asked him if he would like to have Benmarl,” Miller says, “but he thought we were joking. He didn’t want an all-consuming work life.”

"I think the kids need to have a first life before they take over,”

Véronique Barthe is the seventh generation owner – and first woman in a family that had been produced only sons – of châteaux La Freynelle and Arcole in Bordeaux.  “I didn’t have a choice,” she says. “I was 20 years old when my father took ill and the place was getting ready to be sold.” Now she has three children in their 20s – a son and two girls – who are making wine or interning in Bordeaux, Paso Robles and Canada. “But I think the kids need to have a first life before they take over after me,” Barthe says.

  • Or there can be too much interest.

Although second-generation siblings may fight over how the business should be run, it is often the third generation – when there are competing cousins – that frequently battle over succession.
 

  • In prime terroir, cashing out can be an offer too good to refuse.

In prosperous areas like Napa Valley, family winegrowers are often given lucrative buyout offers. Sometimes they come from corporations, but often they are purchased by other wine families. For example, Jackson Family Wines owns almost 40 wineries on four continents, several of them California and Oregon properties once owned by other families.

"You do it for pure love."

Why some family wineries have bright futures:

  • It’s not a job; it’s a passion.

“You do it for pure love,” says Miller. Barthe says, “I decided to take over for my father because I thought the place needed me. I had nothing else to do, it’s been a big adventure and I would do the same again!”
 

  • Each generation is gifted the most-expensive asset – the vineyard.

“Marie and I represent the third generation of the Courselle family as winemakers, but the family has been winegrowers for more than a century,” says Silvie Courselle, who with her sister, Marie, operates three Bordeaux properties – Château Thieuley, Clos Sainte Anne and Château Saint Genes. That means 80 hectares (almost 200 acres) that their three teenage children will inherit should any decide to continue winegrowing.
 

  • In most families, there’s a built-in labor force.

Kids usually do physical farm labor when they’re young, but they can be equally important as adult employees. The Wente family began making wine in Livermore, CA, in 1883, survived Prohibition and today members of the fifth generation – four young women and one young man – each have their own part of the growing business to run.
 

  • Laws have been enacted in many countries to encourage family wineries.

Over the past few decades, in the U.S. eastern states passed laws allowing farm wineries to operate tasting rooms and to ship directly to customers. As a result, literally hundreds of family wineries sprouted up. Many also are in the lucrative business of hosting weddings and other events. France’s SAFER laws, enacted in the 1960s, can block industrial development of farm land while encouraging its sale to local farmers.

 

Six Survival Tips for Family Wineries:

Owners of family wineries that have survived – and some that have not – give these survival tips:

 

Six Survival Tips
  1. The current generation needs to get its financial house in order before passing it on to the next one.
  2. Succession planning is critical.
  3. Professional management should be considered, beginning with third or fourth generation families.
  4. Small wineries need to grow with the family.
  5. Take on financial partners as a last resort.
  6. Each generation needs to be groomed.
  • The current generation needs to get its financial house in order before passing it on to the next one.

Banker McMillan sites poor financial planning as a major reason why family wineries are sold. It doesn’t help for a new generation to inherit valuable land if a sizable debt comes with it.
 

  • Succession planning is critical.

“We’ll worry about that when it happens” is the worst philosophy a retiring generation can have. Roles for each member of the next generation need to be discussed, hopefully agreed to by all and written into legal documents. Handshake agreements between generations are useless once the older generation is gone.
 

  • Professional management should be considered, beginning with third or fourth generation families.

Peter Mondavi’s sons and grandchildren at Charles Krug winery did just that. Both outside and family members sit on a board of directors that hires neutral, experienced executives to run the business. “We are essentially brand ambassadors who do a lot of traveling to support the distribution and sales force,” Peter Jr. says himself, brother Marc and their children.
 

  • Small wineries need to grow with the family.

The largest American winery – Gallo – has remained a family business because it has grown as the family has gotten bigger. Some members remain involved, while others less so.
 

  • Take on financial partners as a last resort.

While Miller could have resurrected his father’s winery, Benmarl, the one started by him and his wife, Chaddsford, had taken on a long-term partner for financial reasons, and the partner decided to buy him out. More famous was the Robert Mondavi family winery that decided to become a publicly-traded company in order to finance its aggressive international growth. But when business soured, the Mondavis were ousted and the company and its name sold to Constellation Brands.
 

  • Each generation needs to be groomed.

Many parents like Barthe encourage their children to work at the winery when young but to gain experience elsewhere before deciding whether to come back. Today, it is quite common for winery children to reach the age of 30 before deciding to return – just as their parents are reaching retirement age.

As far as the Davies family of Schramsberg is concerned, they have survived because of some of all of the above. “My parents set up a plan where shares in the winery would go not just to their children, but also to their grandchildren,” says CEO Hugh Davies. “But I’m 59, so I have a few laps around the track left before I hand off the baton” to his and his brother’s children.

 

 

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