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The grapes of wealth

Passion, enthusiasm, egos, and some of the most sublime products ever produced - winemaking has it all for family businesses.

Around thirty miles north-west of the city of Bordeaux, in France’s premier wine producing region, sits a wine estate associated with not just one of the world’s best wines, but also with one of the greatest family business dynasties of all time. Château Mouton Rothschild produces a so-called “first growth” French wine – among the best the country has to offer.

No doubt a bottle of Château Mouton Rothschild is exquisite, but part of the appeal of drinking the wine lies in its brand. And for Mouton Rothschild that comes from its association with a 250- year-old family dynasty that spans winemaking to finance. Rothschild might represent the pinnacle of family winemaking, but the very nature of the business – the long periods needed to produce good wine and consumer appreciation of wines with great provenance – means that family-owned châteaux and estates have typically dominated the industry.

Certainly that was the case 30-40 years ago when at least 80% of the wines being made around the world were owned by family businesses. Indeed, even after widespread consolidation during the last 20 years, winemaking is still dominated by family-owned estates, if not owned by the original family, then by new family owners as well.

And family dominance is not just confined to Europe or the so-called Old World wine producing regions, but it is prevalent in the New World too. Great family dynasties such as Californian E&J Gallo, Australian Casella and Argentina’s Zuccardi, are all big players in the international market.

Indeed, Gallo, controlled by the family since it was founded in 1933, has been so successful as a family business that second-generation family chief executive Joseph Gallo was picked as one of Campden FB’s Top 50 Family Business Leaders in 2011.

That said, running a family-owned winery hasn’t become easier. Consolidation pressures, a global slowdown in demand in many markets, and more incidences of inclement weather in wine producing areas are taking their toll on the industry, placing considerable pressure on family businesses operating in the sector.

Colin Campbell, a fourth-generation family wine maker in Australia, probably speaks for many families in the industry when he talks about the issues affecting family winemakers. “We are going through some big changes in the Australian wine industry at the moment. There is a lot of restructuring going on due to oversupply; growers are pulling vines out of the ground, others are being bought out by the major players and some are even going out of business which is sad to see. This readjustment is one of the challenges we have had to see our way through.”

Consolidation has been a big issue for families in the industry. The Australian wine industry is dominated by two big players, famous beer producer Foster’s Group and Constellation, while in the US, most wines consumed domestically come from one of 30 companies despite there being over 4,000 grape growers in California alone.

But the problems aren’t just confined to families producing wine in the New World—Old World wine families are feeling similar pressure too. Donatella Cinelli Colombini, who runs her family’s winery in Tuscany, called Cinelli Colombini, says consolidation is also affecting most of the Italian wine sector.

“In Italy we don’t have the likes of Foster’s or Constellation, but around 100 wineries with more than €25 million of annual turnover control over 50% of the market. This is even more worrying when you consider that there are around half a million companies – many of them family owned – in Italy with vineyards. When you get a downturn, like we have experienced lately, the small and medium sized wineries really feel it,” she says.

It’s not just the beverage giants threatening family vineyards, but the retail giants as well, says Campbell. “The strength of the two largest chain stores in Australia, Woolworths and Coles, is a real concern for us. The power of retail consolidation causes issues for us as the stores own brands are becoming more prominent, which reduces the opportunity for other brands such as ourselves to be sold in those chain stores, and discounting is rife.”

Although Campbell has plenty to worry about with the wider issues in the industry, he also reckons that family-run wineries can often be better equipped to handle the numerous pitfalls associated with producing wine. “If you have family members in the business you normally have much more commitment and passion. You need that all the time in the wine industry, but even more so at the moment with all the pressures,” says Campbell.

Campbells Winery in the Australian state of Victoria is owned by Colin and his brother Malcolm; Colin is the winemaker and Malcolm is the viticulturist. The winery has been in continuous family ownership since 1870. All three of Colin’s children and both of Malcolm’s already work in the family business, which the Campbell seniors say should ensure ownership into the fifth generation.

The family’s winemaking passion is not in dispute and is reflected well in the following observation from Campbell. “As I keep telling my guys, you can go home at night but the wine doesn’t sleep, and it takes an enormous amount of commitment to keep on top of it.”

Tony Terlato, founder and chairman of US-based Terlato Wine Group, agrees that being a family business ensures a level of dedication that goes way beyond simply having a good job. “Every family member has a personal interest in the business, they are not working to create a résumé or for their next move up in another company,” he says. Terlato is recognised as one of the industry greats. The top American wine publication, Wine Spectator, awarded him its highest honour in 2004 – the distinguished service award.

This commitment and longer-term outlook family-owned wineries have often gives them the edge over larger non-family businesses in the sector, says Simon Berry, a seventh-generation wine merchant at his family business Berry Bros & Rudd in London.

“The wine trade is about the long-term and works on different cycles to large corporations,” he says. “It takes time to build up relationships and it is never just about profits. Families can accept they might not make their best wine until their grandchildren’s generation and they are happy with that.”

And while they have a longer outlook, families also have a longer memory to guide them through the tougher periods, says Campbell. “In our business we have a saying ‘you need a blend of the wisdom of age and the exuberance of youth to succeed in the wine industry’. You need some youth to keep you firing along, but you need to have the experience of age to guide the younger generation through the trials and tribulations.”

And bringing that next generation in is something Campbell has strong views about. The family has a code of principles it follows, that states next generation members must all gain a tertiary education in whatever area they want, then work for five years for another business before they can apply for a job at Campbells. “They need to be kicked around a bit by somebody else before they come home, and they need to realise there is a bigger world out there than just what we have here,” he says.

Wine families are mostly pretty secretive when it comes to revealing how much money they make, or don’t make. Most of them talk in terms of the number of bottles they produce annually and don’t talk about the raw figures. But as Colombini says, running a winery is about much more than being a successful business owner.

“Producing excellent wine is not among the most profitable businesses, but we must also take into account the exquisitely human aspects – it is priceless to live close to nature in such a beautiful place, make beautiful wine and raise your children here,” she says.

That doesn’t mean that most family-owned wineries are unprofitable, but families also need to be adaptive and always appreciative of the consumer of their wines, say experts.

Alongside running the winery, Colombini teaches others how to turn their wineries into tourist destinations in order to diversify and remain successful. “It’s important to have the face of a producer behind the wine,” she says. “In some cases the family history is quite well known like with the Frescobaldis, who have been a prominent wine and noble family in Tuscany since the 1300s, in others you have a brilliant man like Angelo Gaja, who is internationally recognised as one of the world’s greatest winemakers, which creates a myth behind the wine. It is always important that the winery is linked to a story and characters.”

Colombini relates the story of her own family’s sometimes difficult time in the industry to raise the profile of the wine they produce. “When journalists, importers and tourists come here they ask how long my family has owned the winery. When I tell them that my ancestors have been here since the end of the sixteenth century they are fascinated, and even more so when I explain that we have moved from wealth to poverty to wealth several times,” she says.

There is little doubt that the family-aspect of the business is extremely important to many wineries and Campbell says that this needs to be celebrated and promoted more. Campbells Winery is a member of Australia’s First Families of Wine, an organisation that aims to promote family-grown Australian wine and offer its members opportunities to grow their businesses.

Wine families say it is important not only for families to raise their own presence as wine producers, but also raise the presence of their regions and countries as well. This is a challenge Sergio Zingarelli, head of his family’s Italy-based winery Rocca delle Macie, feels Italian wineries need to address. “In order to be competitive on a global scale we need to develop further the uniqueness of our region and our wine in order to differentiate us from the rest of the world. Our strength is in being Italian,” he says.

Weakness in demand for wine in Europe and North America has no doubt hurt many family-owned wineries. But as so many other businesses are finding growth in demand for their products in the emerging markets is helping to make up for the demand slowdown closer to home.

All wine producers see Asia as the fastest growing area for their wines in the years ahead. Total Chinese wine consumption increased 105% between 2005 and 2009, while wine consumption rose 106% for the same period in Hong Kong, according to international wine exhibition group Vinexpo. The growing importance of the Asian market is illustrated by the fact that Vinexpo last year held its annual wine and spirits exhibition in Hong Kong.

“Wherever there is a growing market of people interested in the good things in life, the wine market is growing,” Berry says. He also sees an opportunity for families to leverage their unique and distinctive qualities in order to thrive.

“The industry is being squeezed in the middle, so obviously the giants are doing well but it means the specialist retailers have had the opportunity to flourish.”

Families are well placed to take advantage of this trend as they most often have an alluring story behind their wine. “People are much more interested in all aspects of wine these days,” says Berry. “They are more interested in how it is made and where it comes from, and that has nothing to do with the recession.”

Terlato sees the increased education of consumers as an area family-owned wineries can really benefit from.

“Education of the consumer in understanding the value of highly regarded appellations such as a birth certificate is a programme we will be working on for those wanting to know what to look for in a wine label that tells them ‘this is aristocracy’.”

As some families are pushing the provenance-side of their wine production, others are taking a much more business-like approach. E&J Gallo Winery turns over more than €2 billion annually and it has been estimated that one in five glasses of wine consumed by Americans is produced by Gallo. It is also in its third generation of family management and there are at least 16 members of the Gallo family who work at the winery.

Similarly, across the Pacific, Casella Wines in Australia is family-owned, but also produces around 20% of wine exported from the country. “We are fortunate to have Yellow Tail, a strong and healthy brand known to millions of consumers for its consistent quality and value for money,” says John Casella, the second-generation of the family behind the internationally recognised Yellow Tail brand.

Then there are family businesses that see owning a vineyard, particularly a famous one, as a trophy asset and have deep enough pockets from other parts of their business empire to run the winery as a going concern.

The Agnelli family’s purchase of Château Margaux in the early 1990s might be an example of this. And there is of course the big family-controlled luxury group LVMH, which owns a number of famous wine and champagne brands.

Few winemaking families are under any illusion that the pressures in the industry won’t affect their livelihood in the years ahead. But very few are about to give up the passion and enthusiasm of being a family-run business in the sector.

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