Get a taste of the wine business

Financial Times

March 31, 2006

The fecund land of Napa Valley, northern California’s wine country, is waking to springtime with help from 400 hungry sheep. Trucked in from Colorado, the sheep are mowing the grass amid expansive rows of grapes at Napa Valley Reserve, a new vineyard-cum-wine-club that, for a price, gives members a chance to play winemaker.

The sheep help tame winter’s unruly growth ahead of springtime’s “bud break” when green tips begin to emerge from grapevines and the delicate task of pruning begins.

Thus begins a year of winemaking for 287 members, who have paid about $145,000, not including annual dues and fees, to help grow, prune, pick and sort grapes and blend and bottle wine at this 80-acre property about an hour north of San Francisco.

Founded in 2003, Napa Valley Reserve aims to offer a taste of having a vineyard without the heavy burden of ownership that can easily run to tens of millions of dollars.

Members are allotted rows of grapes to call their own and can participate “as much or as little as they choose” in all stages of winemaking. The Reserve offers not just the chance to “hear about the romance of winemaking but to see, taste and feel what’s going on,” says Frederick Ammons, resident winemaker. “This is agriculture. The process is at the whims of nature. If you were making beer, it wouldn’t be like that,” he adds.

A team of 15 full-time employees, including professional viticulturists, tends the grapes and makes the wine when members are absent from the vineyard tending their day jobs as hedge fund managers, lawyers, technologists and executives.

Autumn harvest is the Reserve’s busiest time – both staff and members arrive at the vineyard before dawn to pick grapes that will eventually become wine. The fruits of their labours are bottles of wine that can bear member-designed labels, which are said to make impressive holiday gifts.

This hobby requires deep pockets. Entry into the invitation-only club requires a deposit of $145,000 that is refundable, less a 20 per cent “transfer fee” when the Reserve reissues membership. Other costs include an annual fee depending on how much wine is produced – ranging from $7,500 for 3.5 cases of wine to $45,000 for 75 cases – plus annual dues of $960.

“Members could afford their own vineyard,” says Philip Norfleet, director of the Reserve. “But they have a lot more fun doing it this way.”

There is no equity stake in property and members are prohibited from selling wine. They are limited to making three barrels of wine annually at a cost of $55 a bottle.

There is not, therefore, much of an investment component to taking a membership. But then winemaking, despite its glamorous sheen, has its limitations as an investment. It can easily turn into an expensive vocation when novices find a $5m-$10m investment turning into a $20m money pit.

Bill Harlan, property developer, winemaker and founder of Napa Valley Reserve, once considered developing and selling several private vineyards on a separate parcel of land but then thought better of it.

“The challenge was to create a way for people to have what they really want without having to invest in what they didn’t want,” says Harlan.

The Reserve’s membership model is akin to that of some non-equity golf clubs and offers access to a rarified experience and an “investment on life” rather than financial gain.

Harlan sees the Reserve as a long-term business that will reap returns for the company in 10 to 20 years when members turn over and their memberships, which have appreciated in value, are reissued. So far only two members have resigned, one for health reasons. Memberships have risen in value from $100,000 to $145,000 in less than three years.

Owning a vineyard is fraught with challenges such as the prohibitively high cost of land in Napa Valley, the long and delicate process of cultivation, taking responsibility for operations and running a distribution network while battling stiff competition.

The fantasy of owning a vineyard in Napa Valley is especially tough because of conservation restrictions that prohibit small parcels of land from being sold off.

“People feel that if they’ve been successful in other business, they can do the wine business,” says Harlan. “But even with a huge commitment of time, responsibility and energy, you could go through the whole exercise and still not make great wine.”

Harlan understands the challenges and rewards of owning a vineyard. He made his fortune as a founder of real estate development company Pacific Union then pursued a dream to open his acclaimed vineyard, Harlan Estate, in 1984. It was 12 years before he released and sold his first bottle of wine. He purchased land for the vineyard in 1984 and after patient years of clearing land, building facilities, planting and cultivating vines, Harlan Estate sold its first bottle of wine in 1996.

“It was 12 years of money going out, without money coming in,” said Harlan. “The first generation is a balance sheet business. The second generation, around year 20, should be a viable, cash-flow business at that time.”

In addition to making winemaking more accessible, Harlan envisages the Reserve as a salon for wine lovers and like-minded people to “add another dimension to their lives”.

This is done in an idyllic setting consisting of the vineyard surrounded by woods and hills; expansive flower and vegetable gardens; olive groves from which olive oil is bottled; and an apiary.

The sleek facilities include a high-end kitchen, a “hospitality barn” for wine tastings and lavish meals, a library with rare books about wine, fermentation tanks and a “cave” for storing and ageing barrels of wine that is under construction.

The Reserve cultivates epicurean and aesthetic appreciation with a full calendar of food events, wine tastings, and lectures and seminars hosted by a star line-up of experts such as Robert Mondavi.

These gatherings are not intended to be business or networking functions. “The only business understood here is wine,” Norfleet says firmly.

Ten new members join per month and the Reserve hopes membership will grow to around 400. One-third are from the San Francisco area but the rest hail from around the globe, from Japan to Germany, New York to France.

Members are typically aged between 40 and 60 but it is common to find a toddler running around on the grounds as many members bring their children along. This is fitting for the Reserve’s philosophy of sharing winemaking across generations as memberships can be passed on to children, though additional deposits are required.

Members range from novices to wine devotees such as Frank Fritsch, chief financial officer of a medical company in Pennsylvania who is also president of the Pennsylvania Wine Society.

The membership structure allows him to “be serious with the least amount of time”, says Fritsch.

For Fritsch, the rich legacy of wine is just as valuable. His adult children in their 20s drink martinis and cosmopolitans but their father’s love of wine has rubbed off at the Reserve, which they visit several times a year. “It’s been a mission for me to get them interested in wine – and it’s worked,” he says.

Most members stay at Meadowood, an understated luxury golf club and resort in a 250-acre valley next to the Reserve, that is owned by Harlan. Rooms start at $450 per night while suites cost nearly $4,000 per night in the high season.

But Harlan says the $70m investment in the Reserve is not solely to make money. “To capture the whole season in a bottle of wine is very rewarding,” he says. Harlan confides that after raising his family, running his Harlan Estates vineyard has so far been his “most fulfilling and lasting endeavour”.

The hope is that his new vineyard will bear fruit for others to savour long after this year’s buds have broken.

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