International Riesling Foundation
The wisdom of an investment can often come from the investor’s prospective making it necessary to deﬁne what a “wise investment” is. Since the “wine industry” reaches many disciplines, only businesses that “touch” the production of wine will be entertained. Wine enterprises that are specialized in a specific sector of the wine industry have been successful and can illustrate the worthiness of the industry as an investment. Examples of successful wine companies will support that under the right circumstances – which as any other business venture involves being at the right place, at the right time with the right plan – the wine industry can indeed be a wise investment.
Each investor has different levels of appetite for asset ownership, time horizon or rate of returns. Despite the fact that there are no two identical investors, it is fair to say that they would deﬁne a wise investment as a venture providing a fair return given a certain ﬁnancial risk. Unwise investments made by wine wannabes that rely on exuberant tax haven to offset their eye popping income will not be discussed – only for-proﬁt ventures with signiﬁcant business motivations rather than emotional ones will be of interest to demonstrate the wisdom of a wine investment. It is fair to add that the wine industry has been growing well in the New World over the past 30 years while it has been under many challenges in the Old World. This is why ﬁnancial wine success stories tend to be concentrated in the New World.
The breadth of the wine industry from suppliers (equipment, packaging, public relations to name a few) to grape growers to winemakers to sales and marketing companies is too large to be discussed all at once. Only businesses that are involved in the production of wine will be covered for the purpose of this conversation. Three segments of the wine industry will be discussed: The grape growing business, the winemaking business, and the sales and marketing business. Finally we will have a look at fully integrated models from grapes to sales.
The grape business can provide tremendous return over the long run as it not only generates cash ﬂow from selling the crop but it is also a real estate investment. This business is long term oriented and slower pace than any other segment in the wine sector. Large farmers have been known to enter the business as a diversiﬁcation strategy for their estate; this has been the case for many Washington State growers for example. The land investment alone can be sufﬁcient to validate a project – consider the case of the Mariani family that bought 7,100 acres of land in Montalcino in the 1970’s when this region was undiscovered; ﬂash forward 45 years later and now this region is one of the most prestigious in Italy with skyrocketing land prices – a very wise investment indeed.
The winemaking business is a medium term business and often requires technical people and a great deal of business acumen – the critical skills here are to turn grapes into wine at the right cost and produce the desired quality. In its simplest incarnation, one can think of a custom crush facility such as Courtyard Cellars in Paso Robles (that sold at a good premium to Gallo two years ago) or perhaps a large European Cooperative. The Cave Cooperative du Luberon is a great example of a very successful winemaking operation using its winemaking expertise to attract growers. This allowed it to expand its control to 80% of the appellation and is now seen as one of the largest players in the south of France for Rosé wines.
The sales and marketing business is the fastest pace business by far. It requires little capital, just wits and a knack to spot trends ahead – or sometimes to create them. In the United States, a company like Cameron Hughes does this well. They successfully sell wines in lot series by quickly adapting to the marketplace and taking advantage of excellent wine lots unsalable by other wineries – Consider this 10-year-old modern negoçiant sells about 3 million bottles. Of course this idea has been used for many years by Burgundy negoçiants and other wine brokers (Bordeaux for example) whom add value by understanding the market well and connecting buyers with the right wines.
Vertically integrated businesses are the toughest enterprises to run as a viable venture. Those businesses grow grapes, they transform them into wine, and they package and sell the resulting wine. It is a difﬁcult business model requiring simultaneous long and short term thinking. The difﬁculty is exacerbated for small wineries as they usually lack expertise in one area of the wine sector. Consider the Clos Saint Vincent in the Bellet AOC near Nice in France. Sergio, the owner, produces 20,000 bottles a year and his enterprise is made of him, his spouse and one part time vineyard worker. Sergio, like all small business owners, has to wear many hats – he is the viticulturist, the winemaker and the sales and marketing director – Sergio cannot be good at every role. But luckily he is in a region where local wines are consumed avidly allowing him to be a successful one man band. Put this in contrast with the giant Chilean Concha y Toro, which is also fully integrated, but has expertise from many employees all along the wine food chain. In other words, either grow bigger to hire all those required skill set or be in a market niche that can absorb your inevitable lack of expertise.
In conclusion there are many successful wine investments all over the world today. Many of the best investment are from companies that specialize in a speciﬁc segment of the wine sector, grape growing, winemaking and sales and marketing. A few vertically integrated businesses are proﬁtable either because of a dominant position in the market combined with a large knowledgeable pool of workers (think Gallo or Concha y Toro) or because they have found a niche they can survive in undisturbed despite their inherent inefficiencies (think small local producers as well as many estate luxury segment wineries). Even though the underlying growth trends of the wine industry are better in the New World than the Old World, opportunities are everywhere for the right focused business plan and indeed many ﬁnd the wine business to be a very wise investment.
Riesling is an old varietal. Riesling parents are not all known but one of them seem to be Gouais Blanc (Heunisch Weiss in Germany); Gouais is also in the lineage of Chardonnay, Semillon and Gamay – which makes Gouais a bit of the Casanova of grapes with “decedents” everywhere (80 varieties have been linked to Gouais Blanc through DNA profiling – see the excellent research from José Vouillamoz on this). Goauis Blanc was a favorite of northern Europe in the middle ages and was rumored to have been brought to Europe by the Huns – which is why it is called Heunish in Germany (see, they weren’t all that bad, at least they were carrying Riesling’s parent with them!). The other parents of Riesling are unknown but they were probably local grapes (Vitis Sylvestris?), perhaps hybridized with Traminer which had been spread out by the Romans. (See the below chart.)
Riesling is first mentioned in literature in the 15th century (1435) on a transactional document from the Rheingau showing the sale of grapevines. That would make Riesling at least 600 years old with roots in Roman time (Traminer parent) and Huns time (Gouais Blanc parent) – a very nice pedigree. It is clear that as early as the beginning of the 9th century, grapes were planted in the Rheingau and the Mosel; it is also likely that grapes were actually planted around Trier as early as the 3rd century A.D (Treveri was a large Roman city where the citizens probably grew grapes in the Mosel). One has to wait until the late 18th century to start seeing a push in Germany to rip off inferior varieties and plant Riesling instead (the world should be glad I was not in charge then since I believe that every variety is inferior to Riesling).
In the USA, the first Riesling vines hitting the west coast were probably planted in the 1850’s – they were recorded as “Johannisberg Riesling” and were brought by German immigrants. Emil Dresel and Jacob Gunlach planted Rhine farm in Sonoma in 1858. Also, Agoston Haraszthy brought many Riesling cuttings in 1861. Riesling flourished in California reaching 10% of total acreage in 1921 but prohibition put a halt to that expansion and Riesling acreage felt from 2,000 acres in 1921 to 282 acres in 1962. In the 70’s Riesling was again on the rise and peaked in 1976 when it was the fourth largest crop in California (crazy to imagine today – no?) before falling off again to pre-1921 acreage levels by 2003. By then, another State had captured the attention of wine consumers for Riesling wines – Washington State. In Washington, Riesling found a home like nowhere else in the country growing uninterrupted from the early 80’s to now. Washington is the number one producer of Riesling in the new world churning more Riesling than California or SE Australia. Did you know that Washington produces now as much Riesling as Alsace in France?
At Pacific Rim we’ve pushed the envelope a bit further planting four Riesling clones all from Germany: Clone 90, 198, 110 and 239. We have all four planted in the cooler Yakima Valley and within the Horse Heaven Hills appellation at our Wallula Vineyard. Clone 198, 110 and 239 are old German clones that were identified in the 50’s at the University of Gesenheim, while clone 90 is from Pfalz that was isolated in Neustadt. Clone 110 (or FPS 09) is known to be very fruity and Muscaty, somewhat atypical in Germany. Clone 198 (or FPS 17) is a low yield version ideal for high quality wines, a very elegant clone. Clone 239 (pr FPS 23) is a high terpene producer, very fragrant – we love this clone; however, we find it a wee bit too susceptible to Botrytis. Clone 90 (or FPS 12) is an aromatic clone, very cold hardy and disease resistant (though I never found it more resistant than the other vis a vis Botrytis).
The 2013 harvest is now officially over except perhaps the few acres left out there for ice wine production. Overall the vintage is excellent even though the growing season has been quite a roller coaster.
The season kicked off with a bang starting with a warm spring and unfortunately, a few untimely rains during bloom. This caused shattering and uneven berry sets. As a result we have witnessed many clusters with varying berry sizes and uneven levels of ripeness within the same cluster both in Oregon and Washington. All summer long, the season stayed warm and ahead of a normal year in heat unit accumulation giving every indication of an early harvest, which usually means we should prepare for a quick harvest with low acids, high sugar, high phenolic content, modest flavors and a fast and furious picking schedule (not ideal). As so often in grape growing, that was without counting on Mother Nature’s way of shuffling the cards!
These are the four things we noticed with the 2013 vintage:
1. We saw outstandingly high yields – I have seen many Riesling vineyards in Washington pushing 7 tons per acre this year – this caused a collateral blessing of slowing down the ripeness considerably and allowing flavors and sugar concentration to be more aligned.
2. The heat units seemed to have been unfairly distributed. The very hot days contributed to many heat units but those days do not contribute to maturity (it was just too bloody hot). Also, the vines created of larger canopies this year so we did not see much phenolic content developing in whites as feared.
3. A huge storm came through in early September bringing several inches of rain to the Pacific Northwest and often bringing the sugar levels down a percentage brix.
4. The temperature did not rise after the storm which brought ripening to a halt. Some blocks did not recover in sugar from the storm even after two more weeks of post-storm ripening. As a result, the bulk of the grapes were harvested in October and October 30th was our last day of picking.
The 2013 vintage looks very nice with good acids, pH slightly higher than usual but in check, low sugar levels and a wide range of flavors based on which days the grapes where harvested. We will see awesome wines of good quality this year from Oregon and Washington.