Thursday, September 15, 2016

Visit to Terre Margaritelli, Torgiano, Umbria

Friday was a "You Day" on our Art in Voyage tour of Umbria and surrounds. A number of our colleagues had opted to go horseback riding followed by a wine tasting and lunch at Terre Margaritelli in Torgiano. I wanted to go visit Paolo Bea and arranged with Jennifer McIlvaine ( to crash the wine tasting and lunch after which we would go on to Paolo Bea. This post reports on our visit to Terre Margaritelli.

The Margaritelli Group is a leading wood-products manufacturer with a focus on indoor and outdoor materials as well as materials for railway superstructures. In the post-WWII period the company was best known for the manufacture of wooden railroad ties. When concrete ties began to increase its market share -- to the detriment of wooden ties -- Fernando Margaritelli turned the business over to his son asking only for a tractor and a plot of land so that he could grow grapes and make wine for the family.This is the origin story of the precursor to the 60-ha estate that is today's Terre Margaritelli.

According to Federico Bibi (Estate Manager), Fernando died in the 1980s and, while the property was maintained in good order, winemaking ceased. In 2000, Guiseppe Margaritelli decided to revive Fernando's passion so he enlarged the existing property and began planting vines. In 2004 the decision was made to push beyond selling the entire grape production and to begin producing a small amount of wine. Federico hd been advising the estate along the way and in 2008 they asked him to come on board to manage the project on a full-time basis.

Federico Bibi in the Terre Margaritelli Vineyard
The estate is located in Miralduolo in the commune of Torgiano, a region accorded DOC status for its wines in 1968 and DOCG status for its Rosso Riserva in 1990. The Torgiano appellations are shown as the orange-colored blotch in the heart of the map below.

The growing area is 60 ha in size with the largest of its two plots measuring 52 ha. The plots rest on clay soils at elevations ranging between 200 and 250 m. The vines range between 9 and 16 years old and are planted at 4000-5000 vines/ha. The primary white varieties are Trebbiano and Grechetto and the reds Sangiovese and Canaiolo but varieties such as Viognier, Fiano, Chardonnay, Malbec, Merlot, Cabernet Franc, and Cabernet Sauvignon can also be found on the estate. In all, a total of 15 different varieties are planted in the vineyard.

The estate's overarching philosophy is one of sustainability and this permeates every aspect of its grape-growing and winemaking activities. The vineyards are certified organic, rendering the estate the largest organic producer in Umbria.

No pesticides are used in the vineyard even though conditions are rainy and the vines are susceptible to downy mildew. In some cases the vines are sprayed with organic preparations. Natural fertilizers are employed to meet any nutrient deficiencies. First, the inter-row spaces are planted alternately to beans/grains and grass. Beans are a well-known nitrogen fixer while grains are rich in organic nutrients. The inter-row residents have shallow root systems so they compete with the vines for near-surface resources, forcing the vines to dig deeper in the hunt for water and nutrients. This stress results in higher-quality fruit.

Grape harvesting at the estate can be done by hand or machine with the final choice determined by the quality of the grapes and weather conditions. If rain is in the offing, for example, and the grapes need to be harvested on that day, they will most likely be machine-picked.

Each variety is assigned to its own block in the vineyard, with each block harvested and vinified separately. There is no selection in the case of machine- harvesting -- as far as I can see -- as the harvested grapes are dumped directly into the destemmer before being pumped into the Press. Fermentation is facilitated by selected yeasts.

Wood is very important to Margaritelli as a group so they wanted to ensure that they were using products that would accrue the benefits of oak-aging without compromising the qualities of the fruit. Towards that end they partneerd with the Wine Institute to determine the impact of different oak forests on wine. They bought oak from 20 different forests while the Institute bought wines from a single producer. Those wines were aged in the different barrels and it was determined that there were major differences between the wines after one year of aging.

Coming out of this experiment, Terre Margaritelli determined that French white oak from the Bertrange forest best met its requirements. Their barrel-maker of choice is Toutant.

After completing our tour of the vineyard and cellar, we went back into the offices for a light lunch and a tasting of selected Terre Margaritelli wines. The lunch was prepared by Jennifer and was stunning. Not a piece of meat in sight for the main courses but freshness and complexity ruled the day.

The first wine tasted was a 2015 Costellato, a Bianco di Torgiano DOC which is a blend of Trebbiano (50%), Fiano (20%), Chardonnay (15%), and Viognier (15%). According to Federico, the Trebbiano contributed freshness, drinkability, acidity, and citrus to the blend while the Fiano contributed perfume and acidity. The Chardonnay was harvested early so that it could contribute complexity and freshness. The Viognier contributed herbal notes. The wine was aged two months in stainless steel and two months in bottle.

Citrus, freshness, melon, salinity, freshness, and a clayey minerality. An Assyrtiko without the sharpness. I liked this wine.

The 2015 Greco di Renabianca is a 100% Grechetto which is labeled Umbria Bianco IGT. This wine is named after a 12th century soldier, recalling the myriad battles between towns that took place in the flat lands below the estate. Aged 2- 3 months in barrique and 1 year in bottle. This wine brought to mind sweet hazelnuts, eucalyptus and white fruits. Lime, spice and a rusticity on the palate. Powerful.

The 2013 Mirantico is a Rosso di Torgiano DOC and is a blend of Sangiovese (50%), Canaiolo (20%), and Malbec (30%). This wine is aged 6 months in barriques and 1 year in bottle. Light in color but powerful. Florality, spice, red fruits with an elegant palate entrance. Light on its feet with nice, long, berry finish.

The final wine was the 2012 Freccia Degli Scacchi, the Torgiano Rosso Riserva DOCG. This was 100% Sangiovese aged 24 months in barrique and 24 months in bottle. Cherries, blackpepper, roses. Powerful on the palate with spice and tannin evident. This wine did not engage my palate to the extent that I expected it to.

This was time well spent. Federico and his team have excellent product but they also have a story to tell; and do an excellent job of telling it.

Now on to Paolo Bea.

©Wine -- Mise en abyme

Tuesday, September 13, 2016

The "personalization" -- and demise -- of the concept of terroir in 17th-Century France

The concept of terroir transited the 16th-17th century divide on the back of Olivier de Serres 1601 book Le Theatre d'Agriculture and its received wisdoms of the primacy of nature and man working within its confines (holistic farming).

Olivier de Serres 
During this period the concept of terroir accrued mostly positive or neutral connotations. Terroir did not leave the 17th century with the same standing with which it had arrived. Let us first trace the evolution of the definition of terroir during the subject century and then ennumerate the forces which led to its decline. As was the case for my post on terroir in the 16th century, this effort draws heavily on Thomas Parker's Tasting Terroir: The History of an Idea.

Before we examine the 17th-century defnitions of terroir, I would like to place the concept into its modern framework so that the reader has a reference point for comparison purposes. Fraser sees the concept being primarily used today among "culinary enthusiasts" to map a food or wine to its specific place of origin. The taste of terroir (goût de terroir) is "the spectrum of appreciable flavors or fragrances created by the unique physiographic constitutionof the plot of land where a given product was grown and produced."

Now let us look at 17th-century definitions (Parker):
  • Nicot's Thrésor de la langue francaise (1606) -- identifies terroir as any specific municipal plot, soil, or land appropriate for one agricultural crop or another.
  • Furtière's Dictionnaire universal (1690) -- land considered according to its nature and qualities, and with respect to agriculture. Continuing on with the definition, however, Furtière switches from terroir as a determinant of planting decisions to terroir as a flavor component and introduces a decidedly negative note into the frame: "One says that a wine has a taste of terroir when it has some disagreeable quality that comes to it from the nature of the terroir where the vine is planted."
  • Charles Pajot's French-Latin dictionary (1694) translated goût de terroir as virus terrenum, meaning "poison or stench of the earth."
  • Furtière's 1701 edition stipulates that terroir "is also used figuratively for a bad habit acquired in one's place of birth. The people from,the provinces cannot rid themselves of a particular vice from the terroir strongly opposed to politeness ... One says that a man smells of the terroir in order to say that he has the deficits one ordinarily attributes to people of his land."
As can be seen in the definitions above, terroir had made its way from being specifically about land -- and being non-contentious -- to being highly personalized and having a decidedly negative bent. How did terroir transform from innocuous to Hillbilly?

According to Parker, the transformation has its roots in the formation of the Academie Francaise in 1635. The goal of this body was identification of, and adherence to, a pure cosmopolitan tongue and, given the nature of Parisian society, that language was associated with the Parisian set; to the detriment of the provinces. So, the people who were most associated with terroir could only contribute polluting elements to the new language.

The search for purity dictated that language impurities be excised. And this was not only restricted to language. According to Parker, "the desire for a pure cosmopolitan tongue ... spread from, speech to taste, affecting trends in cuisine as segments of the population attempted to lose whatever regional patina they themselves might have by pointedly seeking pure and natural foods" (Some of these taste pursuits are pointed out in my post on the lead-up to the Burgundy-Champagne battle which originated in this timeframe.). Terroir was used in this period to indicate adulteration and disorder and its notion as the "scourge of the country bumpkin" was repeatedly reaffirmed during the second half of the century (Parker).

Terroir also suffered as a result of changing agricultural mores in the later 17th century. In de Serres Theatre d'Agriculture, agriculture and terroir were primary. And the agricultural zones, and their inhabitants, were well regarded. A sea change was afoot, however, with the English Garden, a "structure" that could be deployed in "pure" Paris, gaining primacy. And with the rise of the garden, the sense of working within the bounds of nature "withered on the vine."  A garden was not dependent on terroir. The appropriate environment could be created  -- despite nature -- to support the garden's requirements. Design and esthetic became the order of the day with Versailles becoming the quintessential example where one of the world's most beautiful gardens was created in a previously undesirable terroir.

According to Parker,
Rather than allowing for diversity in soil, La Quintinie (Louis XIV's chief gardener) sought out terroir that was perfectly neutral, resembling what he qualified to be good water. Thus, forty years after the first attempts to purify the French language of terroir in Vaugelas, and in the years following Dominique Bouchour's asessment that the best language should be as pure and neutral as water, the same esthetic appeared in the French garden. In each of these iterations, the bodily influence of the earth was seen as a corruption that blemished the immaculacy, essence, and expression of nature's best fruits and vegetables.
At the end of the 17th century then, terroir was a "crass and unruly manifestation of nature in humans and in plants, one that nature was meant to refine, if not altogether expunge."

©Wine -- Mise en abyme

Thursday, September 8, 2016

Carmine Estate and its wines

The Carmine Estate is a 125-ha property located in the shadow of Monte Tezio in a valley 1 km outside the small village of La Bruna. The valley was recently bought by the current owner and rehabilitated from the disrepair into which it had fallen post its abandonment 50 years ago in the farm-to-city exodus experienced by the area.

The valley is blocked from most weather systems by surrounding hills but still manages to accumulate between 950 and 1100 mm of rain annually. This much water results in significant downy mildew problems, a situation that is not simplified by the estate's adherence to organic farming principles. According to David Lang, Estate Manager, "copious amounts" of copper sulfate is sprayed on the plants but they are still subject to substantive crop loss. For example, the basic red contained 8% Sagrantino in 2013 and none in 2014, the latter a direct result of lower Sagrantino production in 2014.

Of the 125 ha, 5.7 ha have been planted to vine. A significant amount of prep work had to be done before the actual vines were planted. Heavy machinery had to be brought in to pull up the old vines and to remove the boulders and the large oak trees that had sprung up in the vineyards since their abandonment. The old pipes leading from the dam to La Bruna were asbestos-lined and so had to be dug up and replaced, while the dam itself had to be refurbished (with mechanisms employed to preserve the fish living in its waters).

The initial planting was 15,000 vines and, while the plan is to avoid irrigating mature vines, newly planted vines need water. This was done manually, a tedious, tiring, time-consuming process. In keeping with its organic philosophy, no fertilizers or pesticides are utilized in the vineyard. The varieties planted are Trebbiano Spoletino (1.7 ha), Merlot, Sangiovese, and Sagrantino. The estate utilizes the services of an external viticultural consultant for advice in counsel in vineyard decisions.

David Long, the aforementioned Estate Manager, brought over a few bottles of the estate's wines for us to taste. The overriding sense that I got was a lack of concentration, attributable, most likely, to the relative youth of the vines. The role of the significant amount of rainfall that the area receives should not be discounted however.

The 2015 Trebbiano was fermented in stainless steel and is characterized primarily by its acidity. This wine would benefit from proximity to food. Light-bodied with a medium finish.

The 2013 Vino della Chiesa is a  blend of 55% Sangiovese, 35% Merlot, and 10% Sagrantino. This wine was stainless-steel fermented and aged in 250 and 500 L oak barrels. A light, red fruit nose with some bramble characteristics and a slight pungency. Tannic sour fruit on the palate accompanying a spiciness. Bitter finish. Light-bodied and non-complex. The 2104 version of this wine was a 55%/45% Sangiovese-Merlot blend and showed more dark fruit and savoriness and less tannin and acid than the 2013. Slightly vegetal.

The final wine was the 2014 Il Campanile, a blend of Sangiovese (74%), Sagrantino (18%), and Merlot (8%). This wine was aged in French barriques. It is softer in style than the preceding two reds and exhibits a little more complexity. This wine will also benefit from increasing vine age.

©Wine -- Mise en abyme

Thursday, September 1, 2016

Terroir as a concept in 16th-century France

In his sweeping treatment of ancient versus modern wines (Inventing Wine), Paul Lukacs identifies the seminal terroir events in France as the demarcation of the Burgundy vineyards by the Cistercian monks beginning in 1098 and the AOC system implemented in the early 20th century. But this apparent terroir desert misses the true formative period -- as well as the ups and downs -- of this concept, beginning during the Renaissance and continuing for two centuries thereafter. A period and history that is detailed in Thomas Parker's Tasting Terroir: The History of an Idea. I summarize Parker's history in a number of posts beginning herein with terroir in the 16th century.

According to Lukacs, the wine drunk during the Middle Ages was "ancient"; that is, it was either oxodized, sour, and additive-filled or a dried-grape sweet wine. And consumption was not based on sensorial characteristics. Rather, wine was drunk for spiritual communion, water purification, bodily nourishment, or social status. Thus there was no culture of wine drinking within which a concept of terroir would gain traction.

In France, creation of such a culture fell to the literary set with the works of Rabelais, the poets of the Pléiade, and Jacques Gohory leading the way. In the first two cases, the god Bacchus was the protagonist. According to Parker:
In the pages of Rabelais, Bacchus is a force not only of inebriation and folly, but also of conviviality, universality, and great wisdom. In the group of sixteenth century Renaissance poets known as the Pléiade, Bacchus often connotes enjoying friendship and maximizing the pleasure of daily life. But there is another element at play ... Bacchus appears in a naturalistic register of farming and place-specific wines, deployed not to celebrate culinary culture in itself, but to create linguistic identity and foster poetic inspiration. Instead of standing for a force of inebriation, he represents lucidity; instead of defining terroir in negative terms, he circumscribes it positively in a discourse on place and the origin of language.
Jacques Gohory's 1549 publication Dissertation on the Vine, Wine, and Harvest was the first technical book on wine written in the French language. According to Parker, the work was "a mix between a practical manual of viticulture and winemaking, an apology for wine itself, and a joyous fictional foray of consumption." Gohory's work normalized wine, provided pragmatic information in a place-specific optic, bolstered wine's reputation by appealing to its scientific and philosophical underpinnings, and provided the linguistic tools and specialized vocabulary in French that would be needed to understand working vines and making wines (Parker).

The "medical science" community also contributed to the concept of terroir during its formative years. Charles Etienne, a physician, wrote a Latin text in 1554 (translated into French a decade later as L'Agriculture et la maison rustique) which laid out in great detail wines from the various regions of France and other European countries with comments on their individual longevity, force of character, and potential impact on health. Etienne claimed that terroir affected taste, with lighter wines coming from Paris and its surrounds (the best wines and well suited to urbanites, the studious, and persons living sedentary lives) while wines from warmer climes "burnt the entrails and encumbered the mind."

Jean Bruyérin-Champier, physician to Francois I, wrote a Latin text called De Ri Cibaria in 1560 wherein he detailed categories of food, their history, and the sources of best production. He posited that France's wines were the most agreeable and healthful because of its soils. Julien Le Paulmier, also a physician, had his Treatise on Wine and Cider translated from Latin in 1589. This book, according to Parker, provided a "nuanced depiction of terroir" in a wine- and cider-specific text rather than in a broader agricultural context. Le Paulmier identified terroir as "one of the governing forces of a wine's merit or defects in flavor and constitution" and held that a good gourmet should be able to discern the qualities and defects of a wine or cider, its terroir of origin, and its age. He also held the belief that the taste of terroir was itself a defect because earth or minerals (its characteristics) were "dirty, unpleasantly earthy, or lacking in elegance."

The most full-throated exposition of terroir in that period was contained in the 1600 publication of Olivier de Serres titled The Agricultural Theater and the Management of Fields. This seminal agricultural manual had terroir front and center with 87 distinct mentions (Parker). De Serres held that "the climate and terroir (note that these are two distinct elements to him) provide wine with its taste and force in accordance with their properties so that it is completely impossible to account for the diversity of wine by the species of grape." De Serres viewed the knowledge of terroir as an essential element in planting decisions rather than as a sensorial pursuit.

Published in the first year of the 17th century, De Serres' work would have necessarily drawn on the works that preceded it. According to Parker, its view of terroir was both modern and early modern.
... modern because the French recognized that physiographic aspects of the land had an effect on flavors and because there was a nationalistic and nostalgic relationship between people and specific places as illustrated through agricultural production. Early modern in the sense that, as far as food was concerned, terroir was most often used in the technical context of deciding where to grow particular crops than in the context of culinary appreciation.

©Wine -- Mise en abyme

Wednesday, August 24, 2016

Context and conclusion of the Burgundy-Champagne 100-year war

On February 2nd, 2016, Gargantuan Wine posted a scintillating piece on the 100-year (mid-17th to mid-18th century) battle between supporters of  Burgundy and Champagne for the primacy of their favored wine at Court, and, as a result, in the realm. Since reading that post I have encountered a book (Thomas Parker, Tasting French Terroir) which places the battle within a wider context. I share Parker's perspective in this post.

As I will cover in a future post on the topic, the concept of terroir has had a roller-coaster existence during the course of its French history. And this period was one of its down times. Further, terroir was not confined only to wines and foods of regions; the word could be used to denigrate a person, a region, or a population. For example, Paris, was the center of French society (and, therefore, the center of the universe). But as you ventured away from this center, you encountered increasing terroir; that is, less refinement and more country bumpkinness. And so with the wines of France.

Nicholas Abraham de la Framboisière, the Royal Physician of Henry IV and Louis XIII, in some of his early 17th-Century writings spoke of white- and rosé-colored wines as being produced closer to Paris (and thus more cosmopolitan) while lighter to darker reds could be found in Burgundy and Bordeaux. The latter wines, according to de la Framboisière, contained more terrestrial elements; in a time when that was considered unsavory. The table below (compiled from Parker) captures de la Framboisière's characterization of white and red wines.

In the mid-17th Century Champagne was a still wine but, according to Parker, was "already imbued with prestige" and was "long the choice of royalty and other elites." In this timeframe it was considered bad form for a wine to reflect terroir. Charles de Saint-Évremond, the most refined epicurean of his age, captures both his love of Champagne and aversion to terroir in the following passage (Parker):
If you ask me which of these wines I prefer, ... I would say to you the good wine of Ay is the most natural of all wines, the healthiest, the most purified of any odor of terroir -- and of the most exquisite pleasurability in its flavor of peaches, which is unique to it, and the best in my opinion of all flavors.
Potrait of Charles de Saint-Évremond.
By Sir Godfrey Kneller - Collection of James stunt,
Public Domain,

It was in this timeframe that the skirmishes described in Gargantuan Wine began. Medical texts of the latter half of the 18th Century favored Champagne because it supposedly contained a large proportion of water which led to "healthful, frequent urination" (Parker). The battle royal was kicked off by Guy-Crescent Fagon (Louis XIVs Physician) who indicated that the frequent urination associated with Champagne was caused by excessive tartrates and that Burgundy would be the King's drink henceforth because Champagne was too acidic for his stomach.

Despite the efforts of the Champagne proponents, red wines gained a foothold at Court and across the land. During this same timeframe, the light, still red wines produced in Champagne began to lose favor in the Parisian markets, forcing the Champenois in ever greater numbers towards an effervescent wine (Parker).

When the smoke of battle had cleared, the following outcomes could be discerned:

  • France had modified its drinking practices
  • The status of red wines had been elevated
  • The French had begun to take the first steps towards a new, 18th-Century view of terroir.

©Wine -- Mise en abyme

Wednesday, August 17, 2016

Practical implications of the Vietti sale

One of the most significant events in Piemonte so far this summer has been the recent purchase of Vietti by Krause Family Holdings for a figure north of €50 million. I shared my thoughts on the deal in a recent post and review its practical implications herein.

The acquisition and sale appear to have been more opportunistic than strategic. Krause has reportedly long been on the hunt for Langhe properties and recently bought the Enrico Serafino property for around €6 million. In the case of the Vietti owners, there is no tradition of vintner-selling of property in the region (Elena, Luca's wife, even said that during our recent tour of their facility), nor has Luca previously evinced any broader vision -- for his winery or the region -- which would serve as evidence of a strategy-based sale. Rather, in his discussion with Tom Hyland, he indicated that the family had been approached by Krause. In the podcast with Levi Dalton, Luca indicated that the family discussed the offer and, while everyone did not agree with the direction, the decision was taken to accept the offer. So the evidence clearly points to tactical decisionmaking (and that is a statement of fact rather than a judgment).

With the foregoing in mind, let us take a look at the potential synergies that may accrue to the Krause family as a result of the acquisition. First, it should be noted that Vietti and Enrico Serafino were acquired in separate transactions by the holding company. This implies separate and lengthy due diligence activities and a judgment that each would be profitable in its own right. And that each would be managed separately in order to meet its individual ROI goal (That being said, it should be noted that the cost of the Vietti acquisition was almost 10 times the cost of the Serafino acquisition and that the cachet gap is probably of similar size.).

In both the Hyland and Levi Dalton interviews, Luca indicated that his remit would remain Vietti but, in the Hyland interview, he indicated that both he and Mario Cordero would act as consultants to Enrico Serafino (It cannot hurt Enrico Serafino to have one of the leading vintners in Piemonte providing advice and counsel regarding its operations.). And the relationship is already bearing fruit for Krause in that Dalla Terre, the long-time distributor of Vietti in the US, has now agreed to distribute Enrico Serafino wines in the US. It is not clear that that would have happened without the current linkage.

The figure below shows the location of the sources of Krause Barolo-targeted Nebbiolo grapes. The data included on the map was culled from a variety of sources to include the Vietti website (instrumental in identifying single-vineyard designates), Barolo MGA (Vietti plots in Barolo crus not previously identified), Galloni (Perbacco and Barolo Castiglione sites), and the Hyland interview with Luca (Enrico Serafino sites).

In his discussion of the Barolo Castigliione and Perbacco grape sources, Antonio Galloni stated that he had, on previous occasions, asked Luca why some of the components had not been bottled as cru wines and had been told that the "sites were not consistent enough from year to year to merit vineyard designated bottlings." In discussing the deal with Tom Hyland, though, Luca indicated that the holdings of the two estates might allow for the development of future vineyard designates. When I look at the map above (and assuming accuracy of the data), I do not see significant enough vineyard overlap to overcome the objections to designates raised with Antonio.

In discussions with Antonio, Luca said that the Serafino holdings might provide him the opportunity to improve the quality of the Perbacco and Barolo Castiglione wines. The question is why? Especially when, as Antonio stated, these wines are already of very high quality. If the winery cannot raise the price of the wine to accompany this increase in quality, then it has embarked on a fools errand. And customers may be resistant to a price increase based on a qiuality improvement that they may not be equipped to detect.

Further, the CEO of Enrico Serafino may be resistant to a potential decrease in the quality of his/her portfolio to benefit the Vietti labels. Just last night I saw a job listing on Linked In for a CEO for Enrico Serafino with clear responsibilities for attainment of the unit's business goals. That is not to say that Krause will not institute mechanisms to incentivize resource-sharing, but they are still in the early phases of building what could be a much larger portfolio of properties (The Vietti sale could give permission to other willing vintners to pursue a similar path and if they could sell and still retain autonomy -- a la the Vietti model -- then Krause would be the preferred home.).

On the other hand, if Krause sought to really extract the synergies of its charges, the potential exists for doing Vietti vineyard designates from sites -- Le Coste, for example -- that it had no access to prior to the sale and to fill the gaps that this might create in the Enrico Serafino portfolio with Perbacco and Barolo Castiglione grapes. This, of course, assumes that these sites merit single-vineyard designation. And, if they merit such designation, the return to the enterprise would be much higher if they were Vietti rather than Enrico Serafino designates. Such an approach would also meet Luca's promise of not increasing the number of bottles produced by Vietti.

From a Krause portfolio management perspective, if growth on the Vietti side exceeds any negative impact on the Enrico Serafino side, then it would have been a win for the enterprise. The challenge for them then, is to put mechanisms in place to allow team play and win-win situations.

Luca has talked about a partnership and it has not been readily apparent to observers. But this may be the area where that partnership plays out. If he can create new products and, in his inimitable style, drive them into the markets successfully, that would result in significant ROI from the Krause Enrico Serafino investment; albeit in a backdoor way. And Luca, having played a principal role in the realization of that new revenue source, could share in the proceeds.

So may, just maybe, this acquisition could have been strategic after all. Krause could have seen the potential of marrying his under-exploited crus with a legendary single-vineyard-producing estate and approached Luca with the idea. The selling point for Luca here would have been monetizing the Vietti property while remaining in control and, in addition, creating new single-vineyard designates from properties which were not available to him. Finally, the family could continue to benefit through sharing in any upside from the agreement. Obviously I have no facts to back up the foregoing but it falls within the realm of possibility.

©Wine -- Mise en abyme

Monday, August 15, 2016

Some thoughts on the Vietti sale

My first encounter with Luca and Elena Currado was at the Galloni Vietti Rocche di Castiglione Retrospective on May 10, 2016, where I had the honor of sitting next to Luca. I found him to be warm, personable, knowledgeable, and committed to his craft. My next encounter with the family was a visit to the estate in June of this year as a part of the launch of Suzanne Hoffman's Labor of Love. Elena led our group on that tour and tasting.

With Luca and Elena at Galloni Vietti
Retrospective earlier this year
Elena Currado and Suzanne Hoffman on our
visit to Vietti on June 3 of this year
After this level of interaction with the principals, and having been singularly impressed with the quality of the wines, I drank the Kool-Aid. I bought into the story of the artisanal family farmer whose positioning was perennial -- even though I had published posts on my site about the Burgundization of Barolo and the implicit risk for its way of life. So, like many other lovers of the concept #piemonteispiemonte, I was shocked when I saw a tweet from Suzanne which linked to the Wine Spectator article announcing the sale of Vietti to Krause Holdings for, according to estimates, upwards of €50 million.

In a Levi Dalton podcast following the sale announcement, Luca defended the deal against vocal criticism. In that session Luca was sometimes defiant, sometimes sheepish; open, but guarded; and was short on some details. He posited the arrangement as a partnership rather than a sale, saying that it provided the opportunity for the Vietti and Krause families to pursue other projects together in the future.

The problem, as Luca sees it, is the families of current farmers not wanting to renew contracts as they come to an end. As the price of the land continues to rise, the farmers, or their heirs, see more benefit in cashing out rather than renewing contracts. And with intense competition for the land, because of the current standing of the region's wine in the world, the prices are being bid up to stratospheric levels. He mentioned something on the order of €1 million per ha.

The risk to the winemaker is a potential reduction in the quality and quantity of his/her wines. If a key supplier of grapes to one of your key wines is bought out, and you no longer have access to those grapes, and can't replace it with grapes of a similar quality, then your wine will suffer a quality deficit. If you are unable to replace the grapes period, then you suffer both a quantity and quality falloff.

So the question can be asked, ok, if these plots are coming on to the market, why don't the vintners buy them? While Barolo is doing very nicely today, the cost of the land will require that the vintner take on unsustainable levels of debt in order to make acquisitions. And would need to keep going back to the well time and again in order to stanch the bleeding.

By entering into this deal, according to Luca, he has taken steps to ensure that the quality of the Vietti brand is protected going forward and there is potential for even increased quality. This happens in a number of ways. First, he now has access to the fruit from the prior high-quality Serrafino acquisitions that the Krause's have previously made. This, coupled with the fact that the deal says that the number of bottles produced by the estate will remain constant, means that he can substitute the high-quality fruit from those acquisitions for some lesser quality fruit in some of his offerings. Also, with a bigger capital pool, Vietti/Krause will be able to bid successfully for some of the properties from which they source fruit if/when those properties come on the market.

One of the things that Galloni fretted about in his thoughtful and lengthy assessment of the deal, was the fact that the Vietti family retained no ownership.  Luca, in his Levi Dalton interview, stressed that "the family" made the decision to enter into the deal with the Krauses. They had lengthy discussions and, while everyone did not necessarily agree with the direction, at the end of the day it was a family decision. One of the things that he kept saying was that the deal would allow The Krause and Vietti families to pursue additional projects in the future. But the structure of any such "future deals" is not readily apparent.  As Galloni points out, the current deal has the no ownsership stake in the new entity for the Vietti family. And with the escalating price of land, I find it hard to see a reason for Vietti to take the money earned from the sale of their property and invest it into higher priced land in the future. All evidence points to an employee-only relationship between the Currados and Krause holdings on a go-forward basis.

Now what are the implications of all this for the broader Barolo. There is potential for this being the tip of the spear. In a tight market, Vietti now has a competitive advantage over its neighbors. It's sources of supply are guaranteed and it is sitting on capital with which to make future acquisitions. In the podcast Luca described a property that was coming on the market but he would not bid on it because the vintner who sourced grapes from that property was a friend. With the Krauses as partners, that property could have come into his portfolio through a Krause acquisition, allowing him to hide behind the "they did it" mantle. No self-respecting market player can allow a participant to acquire and retain this type of competitive advantage without a response at some time down the road. Within that environment, the Vietti purchase is just the tip of the iceberg for Barolo: (i) All of the other vintners are facing the same pressures that Vietti was facing and drove them to this decision. (ii) Luca says there are a number of potential investors sniffing around the valley; therefore, it is only a matter of time before some of the folks seek to monetize their investments while preserving the fundamentals of the business.

The issue becomes how does the character of the Vietti business change as a result of the change of ownership. Will Luca spend as much time in the vineyard (or on the road) with all this cash burning a hole in his pockets? Will the management challenges of running a portfolio of assets diminish the level of his personal focus on vineyard and marketing activities? Only time will tell.

Luca should not be surprised at some of the negative reaction that the deal has generated. Some avid Vietti fans feel as though the deal amounted to a bait and switch. They bought into the advertising and the "story" of the artisan against the corporate juggernaut and, suddenly, one of the key players turns up on the "other side."  And people do not react well when they feel betrayed. In that regards, the dissemination of information about this major change in strategy was handled poorly. Vietti had a number of stakeholders: family members, distributors, retailers, restaurants, consuming public, and the Piemontese. Only one stakeholder component was prepared for this news: the family. For everyone else it was a shock. And people react negatively to shocks. Luca did admit that the news got out earlier than they would have liked.

This is potentially the beginning of a new phase in the story of the Langhe Hills. In his article Galloni speaks to a new concept: The Bordeauxification of Piemonte. One can only pray that such a fate does not befall this region. The families, the wines, and the place have combined to carve out a special place in the heart for Piemonte lovers, be they region-resident or not. We hope that the dam holds.

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