Maturing gracefully

Melanie Stern is section editor of Families in Business.

Russia and China are as promising as they are problematic for British fine wine institution Berry Bros & Rudd, as chairman Simon Berry tells Melanie Stern

A recent article in The Economist discussed the curious disconnect between the price of wine, and its actual value. A couple of French researchers, working independently, looking into wine economics (a controversial subject for the country at a time when New World wines are giving France's oldest monopoly a battering) found results pointing to the same conclusion. In one study, The Economist reported, the results of a group of wine experts who were put through blind taste tests showed that it was ranking and vintage that determined price, while the other found that the bids of 120 non-expert samples on champagne at auction were 33% higher when they had seen the labels. So it seems the average Frenchman on the rue can't tell the difference between a €10 bottle of plonk from Carrefour and a Bordeaux premier cru vintage – unless their labels are evident. It is true that wine labels are often works of art and this might justify high prices: a bottle of Mouton 1945 has carried original works by Miro, Picasso, Warhol and Tapies, and this October a 12-bottle case of the top-end claret sold in a Los Angeles auction for a record $290,000. Personally, my salary doesn't allow for Mouton Rothschild, but it just about stretches to my favourite Chilean cabernet sauvignon red, to which I was first seduced by the rather exciting gothic lettering on the label and the questionable legend behind its name, translating as 'Cellar of the Devil'.
 
Like the fashion industry, buying wine is often more about responding to the philosophy and lifestyle conveyed by a label. But fashion doesn't appear to have much truck with Simon Berry, chairman of UK wine merchant Berry Bros & Rudd (usually referred to as 'Berrys'), whose company maxim is "But is it good to drink?" One certainly climbs into another world of gentler, more distinguished times when walking through the headquarters of a firm now in its 308th year of business. The Berry Bros & Rudd's shop on St James' Street in London's Mayfair, with St James' Palace and the Ritz at spitting distance, is the original site where the company was founded seven generations ago. Why it isn't a more prominent part of the London historical tourist trail is a mystery. Visitors are welcomed in by creaky wooden panel flooring and my interview with Simon takes place in 'the parlour', a tiny and suitably rickety room at the back of the shop. The historical theatre inside belies the fact that it is just a genuinely old room. A soot-covered electric heater shoved into the stone hearth seems to be the youngest item in the room, though it also looks old enough to be steam-powered. The walls are covered with faded illustrations of lords and ladies that look like they were hung there before cameras were invented. In the shop, a huge set of scales remain as evidence of Berrys' bygone history in coffee importing – the platforms were since used to weigh customers in what could only be described as a lovely piece of English eccentricity, having cradled the esteemed buttocks of Lord Byron, Duke of Wellington and Queen Victoria's father.

This preservation of Berrys' history, not just in the store but throughout the firm by way of its values and reputation, is probably as important a selling tool as the legendary quest for superlative quality and expert wine buying the Berry and Rudd families are known for.
 
But past performance is no indication of future returns. As the guardian of such an old and successful business, Simon is refreshingly aware of this. Outside its core mercantile and bonded storage business, it has a diverse corporate hospitality arm that includes wine tastings, dinners and certificated wine education courses taught by Berrys' own buyers in the historic cellars underneath St James's Street, that are always well-subscribed. "Berrys' hasn't just rested on its laurels and remained 'traditional'. It has been innovative," Sotheby's head of international wine and Master of Wine, Serena Sutcliffe, tells Families in Business. "The firm's wine events, tastings and dinners are a tour de force." That's high praise indeed from one of the global wine industry's top brass. "One of the things that brings old family businesses like ours to the ground is that they don't adapt to the times," Simon tells Families in Business. "They think they've been around for such a long time, they must have got it right and therefore they don't need to change. That could be disastrous."

That philosophy came into force this year when Simon had to close the last of four Berrys' shops in Heathrow Airport, a venture he dreamed up and rolled out in 1994 to industry acclaim. Crowded by the critical mass of larger outlets at every terminal, and the skyrocketing price of square feet at airports, crossed with tighter margins in the fine wine trade than a decade ago, Simon and his board found that the initial reasons for launching the airport shops (to capture the luxury goods market on an international stage) were better served by their international offices, and decided to cut its losses. In an otherwise bumper year, the closures were "the only blot on our landscape", says Berry. "In a way they have not made an impact on our business because we're now physically in some of the markets we wanted to reach, and our website is doing good business. But we ought to get an award for timing: the last shop closed about a week before the terrorist alerts at Heathrow, and the idea now of taking anything liquid through airports is now, of course, severely limited."
 
This year, 2006, was one of Berrys' best wine-selling years, spurred on by last year's hot, dry summer in Bordeaux and some of the best vintages in years coming to market. The firm has sold as much Bordeaux this year as they have in the previous ten years combined, Simon reckons. But this was not solely down to a good vintner's year; it was also the culmination of years of hard work put in by Berry and his team raising the profile of fine wines among regular British punters. In turn, the huge amount of fine wine sold seriously increased their customer base and vindicated Simon's efforts to bring fine wine to a younger, contemporary clientele as well as corporate customers and reliable wealthy buyers. The firm received a throng of awards this year and last from two of the most important institutions in the market, Decanter magazine's World Wine Awards and the International Wine Challenge. Those awards in turn, Simon says, showed that he and other independent specialist merchants are winning out in the crucial battle for market share against the major retailers, mail order outfits and high street sellers. "More and more people are drinking fine wines and look to us as a good source."
 
Berrys has managed to remain wholly family-owned for its entire history. Simon is resolute in his belief that family should retain a firm grip on their company, and that sprawling multi-generational holdings are as much a threat to private ownership as many families perceive outside management to be. But why hasn't the family ever decided to cash in? "We have been described as pathologically private," he muses. "I mean, it's just a great business to be in, a lovely place to work and the product we deal with is fun too. So there has always been that pull for us."

"It isn't just about being a money-making machine; our culture isn't like that. If it was, the best idea would have been to sell. And I think you can create a family firm that others want to work for." This is certainly the case at Berrys. The management is a healthy mix of family and non-family executives from the corporate world; the two family branches are headed up by John Rudd, majority shareholder in the firm ("and the guy who can fire us all if he wants," Simon notes) and a non-executive director in his seventies. John's daughter Lizzy serves as deputy chairman, while his son Edward works on the financial side. Simon's cousin Christopher Berry-Green handed the chairman role to him last January and became a non-executive director; Christopher's son David is a wine buyer for the firm and serves on the board. On the non-family side, there has been a recent re-shuffle. Hugh Sturges (previously finance director) has taken over as managing director, succeeding Tony Easter, who has been retained as as non-executive director. John Elliott, former senior partner of solicitors Boodle Hatfield, and Simon Robertson, ex-partner of Goldman Sachs and chairman of Rolls Royce, have just been joined by Philip Bowman, one time CEO of Allied Domecq and current chairman of Scottish Power, as a high profile trio of non-family non-executives.

In addition, most of the senior management positions are taken by non-family members. "We try to keep a good mix of family and non-family. When a business reaches this size, it is ridiculous to think you can successfully fill every job with family members. You need people to come in and compliment what we have already, and create something more dynamic," says Simon. "What I strive for is a business where the family injects culture and colour – instilling our values – and we leave it up to the younger family generations and the executives to interpret that using their skills." In particular, John Hutton's arrival as managing director of Berrys' wholesale outfit, Fields Morris & Verdin consolidated that. "We hadn't had a wholesale business before. John has been extraordinary, not only as a manager but in establishing us in the wholesale world, which is now a very important part of what we do," he explains. "It's awful when a family business becomes nothing more than a repository for otherwise unemployable family members. You can't run a business when you restrain talent, within the family or outside, because you're restraining good ideas."
 
After a stint within the owner-manager programme at Harvard last year, Simon and the family brought home some new ways of integrating the next generation, principally the increasingly popular rule that all family members must have worked at least two years in another firm, in a job they found themselves, before they can be considered for a career at Berrys. Instilling this rule was no easy task in a family that, Simon concedes, had a culture of "non-communication". It was a cathartic process for everybody, galvanising the family and their non-family executives into a unified team where both sides felt like equal players in the firm's future, something clearly close to Simon's heart. "Now we have reached the stage as a business where we will spread, so communication is something we had to grasp. But to go from a place where no one would talk to anybody about anything to being open was quite difficult. When the rule about work experience came into force I had to tell my sister's son, who had joined us without outside experience: 'I think it is wrong for you to be the last person here to get in under the bar – I'm not firing you but I want you to go out and get a job elsewhere.' Then I had to explain myself to his mother! You just have to ask yourself what's better for the business – to stick your head in the sand or bring issues out in the open so you can all move on. The business is what matters and all of us are just stewards of it."

Simon adds: "I've had this feeling throughout generations that the company isn't just something you can buy and sell. It's something you inherit to look after and pass on, rather than something you think you can get something out of."
 
After a very fruitful couple of years, the firm is turning its attentions to the international market. This isn't new for Berrys – the firm already has successful subsidiaries in Dublin, Hong Kong and Shanghai – but they have remained more of a 'toe in the water'. Now that the luxury market in the UK is almost at capacity, and pockets of wealth are opening Eastwards, Simon is musing on how the firm can capitalise on this. It already sells wine to mainland China through its Hong Kong office, and has started looking at Russia. However, the benefits of trading Eastwards must be weighed against the risks: the Chinese government, for example, requires all new wine exporters to furnish them with unattached bottle labels, and there have been some instances of local importers getting hold of those labels to sell fake fine wines. "The bureaucracy out there is crazy. First, where are we to get these labels from? To supply them separately would be like handing over £1000 notes. Stick those onto an average bottle and most people can't tell the difference," says Simon. "In Shanghai right now, at least 75% of all wines sold there are said to be fakes. So while in some ways that gives us the edge, because we can come in and trade on our family background and the trust we've built up over 300 years, on the other hand we'd have to fit into a market where it seems that imitation is the sincerest form of flattery, and no one stops to say it is wrong. There's just a different way of thinking out there."

Luckily, not everyone is taken in by imitation wines. On a recent trip to China, Berrys' Master of Wine Alun Griffiths was was excited to come across a Chinese wine (labelled and promoted as such) that tasted pleasingly similar to a Chilean cabernet sauvignon – only to find out that it was, in fact, a Chilean cabernet sauvignon.
At the moment, Simon says, most Chinese customers buy from the UK for investment, storing their wine in the UK and possibly selling it back to the UK or shipping it out in 20 years' time. Selling fine wine to Chinese millionaires is tantalising, but the nuances of the market could prove tricky. "Maybe it's better for our international presence that we just sell from the UK to the world than, say, setting up shop on Tiananmen Square flogging ordinary Claret. Both China and Russia are potentially huge markets for us," he concludes. "But they're also terrifying." A deal to supply fine wines and champagnes to all Virgin Atlantic flights, running until at least 2009, serves this purpose in a far less risky way.
 
At 308 years of age, the Berrys' juggernaut can't be too nervous about the risks of operating in global business. There has to be many tales of hairier times now consigned to the history books in a company so old. Whatever happens, Simon can be confident that his family firm isn't about to wither on the vine.