Leaping into a new venture

At a time when other would rest on their laurels, Steve Smith one of New Zealand’s most notable wine people, changes direction and launches a new venture. 

Steve Smith MW
Steve Smith MW

After leaving university, Steve Smith MW worked with the legendary Sir George Fistonich at his New Zealand winery Villa Maria. In 1998, Smith MW went on to co-found Craggy Range winery in Hawke’s Bay, which quickly developed a reputation for its single vineyard wines. He was one of New Zealand’s first MWs, becoming the first viticulturist in the world to claim the title. 

In 2015, he stepped down from his managing director role at Craggy Range, owned by the Peabody family, and now splits his time between his role as managing partner in Aotearoa New Zealand Fine Wine Estates and Smith & Sheth Wine Company, along with various governance and advisory roles in land-based innovation. He has spent his career contributing to New Zealand’s wine industry through chairing various organisations and in 2014 was awarded  its highest honour, the Sir George Fistonich Medal. He has also just completed a three-year term as Chancellor of Lincoln University.

MEININGER’S: At a time of life when many people are consolidating their careers, you’ve launched into a new direction.
Smith: Yes. So when I finished at Craggy Range, I just wanted to take a bit of time to clear my head. And I wasn’t sure what the future was going to look like. And then a guy I had met in 2012, Brian Sheth, got hold of me. He and his family were in New Zealand from Austin, Texas and he said he wanted to have lunch with me. He’s a billionaire, but the most casual, laid-back Texan you’ve ever met in your life. We clicked quickly and developed quite a close friendship. And he said, “Look, if you want to do something else in wine business, we should do it together.” He’s a true wine guy. And if he was going to do something, he wanted to do it in a small, high-end and discreet sort of way. And that really suited me, because I was really up for something like that. 

 

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MEININGER’S: And what did that mean in practice?
Smith: I said I think there’s an opportunity where we could buy between three and five small New Zealand wineries that have got established reputations and established brands, but which have got various issues. Maybe they can’t take the business forward, or haven’t got a stable business. Put them under one banner, keep the brands and keep the estates, but turn them into something that could actually make them into sustainable businesses. Focus on Pinot Noir and Chardonnay. He said, “Yep. I’m up for it,” so I put my list together and we started our own little fine wine négociant company called Smith & Sheth. And then we purchased Pyramid Valley which is in North Canterbury, which is a biodynamic property that had been producing New Zealand’s most expensive Chardonnays and Pinots.

MEININGER’S: Why did they sell?
Smith: It was a bunch of things. Succession. There are some significant succession issues about to come up in the New Zealand wine industry.

MEININGER’S: And then you bought Lowburn Ferry in Central Otago from Roger and Jean Gibson. Was that also a succession issue?
Smith: It was one of the things. But the interesting thing is that they weren’t going to sell it to just anybody. They put their heart and soul into it. It took us 18 months of negotiation to get both of those properties. Pyramid Valley is right on the beach. It’s the most magnificent site from a soil and aspect point of view, but it’s also marginal. On the margin’s where you make the great wines anyway, so it didn’t worry me, but from a business point of view, if that was the only property we had, it would’ve been quite high risk. You can get huge variations in yield from year to year.

MEININGER’S: Did you have a particular business model in mind when you started your hunt for property?
Smith: One was Ridge Vineyards, and the way that Paul Draper and the owners of Ridge took that idea and based it around two estates. They had Monte Bello [vineyard in Napa] that they owned, concentrating really on Zinfandel and Chardonnay. Then they went to Lytton Springs [Sonoma], so they’ve got a two-estate model they’ve built this great wine business around. We’ve done the same thing.

MEININGER’S: It’s interesting that these are both biodynamic properties, given your science background. How do you reconcile the two, given that biodynamics has some unscientific elements to it?
Smith: Some things science can explain, yes, but you’re never going to get a 100% solution. Sometimes you’ve just got to make a call: do I believe this in my heart? Or do I not?  Every culture needs a counter-culture. The rise of biodynamics and the rise in organics is a counter-cultural response to industrial agriculture since World War II, which has done a huge amount to cause a significant amount of damage around the world, right? So that’s the counter-culture part. The natural wine movement is a counter-culture to the industrialisation of wine that’s happening. So, who’s right and who’s wrong? Probably neither of them are right, neither of them are wrong, but it’s a counter-culture that says we’ve got to reframe things. One of the things I personally want to do is design what a proper biological system should look like. I think that’s what agriculture needs to do. We need to design a new system.

Regenerative agriculture is very similar to a new field of science called agroecology, which is like the ecology of agriculture. One of the big issues right now is there’s been a rise in insect pests and fungus, because of the monocultural situation. There are no natural balances happening. The idea of agroecology is to allow the natural balances to happen.

For example, aphids are a massive issue in lettuces. If you use alyssum [flowers], then you have these little insect traps that attract wasps that eat the aphid. If these predatory wasps get to an alyssum flower with nectar within 24 hours of hatching, they might go and kill 30 aphids, but if they don’t get that alyssum they might kill two. It’s this idea of using nature to do things.

 

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MEININGER’S: You’ve obviously got a very entrepreneurial streak. Do you come from a family of entrepreneurs?
Smith: My father had his own business all his life. We were very much encouraged to think that if you’ve got something you want to do or if you’ve got a problem, to sort it out. It’s a way of thinking. I was very lucky. I worked with [viticulturist] Richard Smart, who has a huge work ethic. Then I worked for Sir George Fistonich for 15 years. He started with nothing and has been in receivership at least once. So he was very entrepreneurial, and he had to think very creatively. And then probably the most entrepreneurial project was Craggy Range, where as a 35-year-old who had never run a business in my life, I became responsible for a major investment from the ground up.

MEININGER’S: There must have been an element of being in the right place at the right time I guess. Yet can you also look back at something you did that turned out well, that maybe other people wouldn’t have the courage to pursue?
Smith: Going from a secure government job to work for a guy in receivership [George Fistonich]. At the same time I was up for a similar job – a wine company at the start of its life. So I agonised between the two. It was a big call, but at the end I went to George. It was all about George’s pioneering spirit. In the end, it’s all about people. You make that decision in your heart about who you want to work with.
The other hard decision was finishing up at Craggy Range.

MEININGER’S: And what drove that?
Smith: A few things. After the 2013 vintage, which was our fourteenth, I thought, ‘You know what? That was an incredible vintage’. All of the things I’ve learned in the last 14 years have come to fruition. We also won Wine Enthusiast’s New World Winery of the Year, though we’d only been in operation for 12 years. I loved creating Craggy Range, but I thought, ‘I’ve ticked a lot of boxes here’. I was 52 and thinking, ‘Do I want to do this for the next 18 years? I’ve done it and it’s been an awesome project’, but I felt like I had another project in me.

MEININGER’S: So you’d done what you’d set out to do. Let me ask you the same question a different way. What are classic mistakes that you see other people making?
Smith: Not asking yourself, why are you here? What are you going to measure yourself with? What does success look like? People used to give me a really hard time about Craggy Range. Because it was overseas-owned, we had to publish our accounts for public view every year. For the first ten years, we showed significant losses. Now that was always the plan. The vision was to be one of the world’s great wine estates during Terry Peabody’s life. So when I started, I thought, ‘OK I have 25 years’. How am I going to measure that? So there was my measurement. What’s going to stop me getting there? One would be if Terry had no idea what this is going to cost and how long it’s going to take. I said, ‘Terry we’re going to make losses along the way, but by year ten we will be cash-flow positive’. He knew what the game looked like. It took us an extra year. It was a NZ$100m [$66m] investment, but by the time I left it had an enterprise value of NZ$300m, because we built a great brand. The NZ$100m included the losses. 

Are you driven by cash flow and profit now or by a long-term plan? If long term, what are the pitfalls along the way? This new project is a similar thing – about building long-term value, so we will make losses for a few years.

MEININGER’S: One of the temptations, then, will be to add another winery, and add another winery…
Smith: We’ve turned two down and they were good wineries. How do you make a decision about whether a winery is suitable or not? The answer is what draws these things together, and the values of what you are as an enterprise. We came up with this idea that what ties us together is ‘natural made’, which is a contradiction. The word ‘made’ is an acronym for Modern Art Design Escape. I get sick of winemakers saying that they don’t do anything, that it’s all made in the vineyard. Wine doesn’t occur in nature. The reason we like ‘natural made’ is that yes, it comes from nature, but made is the human influence, that brings the sense of art. When a winery comes up for sale, does it satisfy these values? If not, the decision is easy.

MEININGER’S: You’ve also played a large role in the New Zealand wine industry. Where do you see the challenges ahead?
Smith: One thing I’m critical of is that there is a section of the Marlborough Sauvignon Blanc community that’s commodity bulk wine. I don’t think that’s doing New Zealand any favours; I don’t think it’s building a long-term sustainable business model because the margins are so tight.

MEININGER’S: Justin Howard-Sneyd MW suggested to the audience of Sauvignon Blanc 2019 that they should just buy up that production and refuse to allow it to leave New Zealand.
Smith: There is a strong view in the community here amongst a lot of really good producers – and I would totally agree with them – that there should be a quality mark for Marlborough that can only be used if it’s bottled here. Because you’ve got to protect the Marlborough appellation.

MEININGER’S: There’s a lot of talk in New Zealand right now about forging new trade deals with the UK in light of Brexit. What impact do you think Brexit will have on New Zealand?
Smith: There’s a very strong relationship between Britain and New Zealand. It’s a great relationship, and this takes a little bit of a kink out of that relationship, you know? It became a lot more EU-driven rather than British-driven, so I think it allows us to develop a more personal relationship with Britain, and I think that’s got to be good.

Felicity Carter

 

This article first appeared in Issue 2, 2019 of Meininger's Wine Business International

 

 

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