Toasting Sweet Taste of Success at Two Vineyards

Owning a winery isn’t all skittles and beer. Among the other headaches (which include marketing, costs of new equipment and dealing with bankers/accountants/lawyers/etc.) are fiscal problems.

Yet even when money is not a problem, there is a critical need for professional management.

As a case example of a winery that had financial problems needing a solution there is Creston Manor Winery in San Luis Obispo County. On the other side of things, there is the case of Gauer Ranch, which has anything but financial problems, yet still had to manage things properly.

Creston Manor was founded in 1982 with partners Larry and Stephanie Rosenbloom and Christina Crawford and her husband, David Koontz.

Rosenbloom was a successful insurance executive in Los Angeles. Crawford gained a measure of fame for her book “Mommie Dearest,” the tell-all story of her life with her actress-mother, Joan Crawford. The winery hired a wine maker with a Hollywoodish-sounding name (Victor Hugo Roberts) and immediately began making wine.

Embroiled in Divorce

By 1986, Crawford and Koontz, embroiled in a divorce, began to withdraw their involvement from the winery, but as co-owners they were expected to share in paying the bills. When it appeared that “the whole thing was falling to Stephanie and me, well, we had to do something,” Rosenbloom said.

To protect the winery from possible financial ruin, Rosenbloom opted to place the winery in bankruptcy, a Chapter 11 reorganization of the corporation. “But we flatly declined to talk about selling. We wanted new investors.”

By last August, new partners were found, 17 of them including Alex Trebek of TV’s “Jeopardy,” who is a wine collector of the first water. The shares owned by Crawford and Koontz were bought back and the new investors, all but three from Los Angeles, brought the winery out of bankruptcy.

All creditors were paid back 100 cents on the dollar.

During reorganization, things got hectic for the Rosenblooms. Among other problems, such as a consolidated wholesale market, there was the constant barrage of people in the news media and in the trade who had read of the bankruptcy and assumed the winery was going belly-up.

‘Nothing Worse’

“There’s nothing worse than reading your obituary even though you’re not sick,” said Rosenbloom. He said he was constantly answering questions to people with upraised eyebrows, who didn’t really believe things were fine.

Moreover, because the need to bolster sales wasn’t being met by the winery’s network of brokers, Larry and Stephanie began making sales trips, meeting with brokers, calling on mom and pop grocery stores in remote burgs. All the while, he was taking no salary from the winery.

By 1987, Larry had to make a choice: insurance or wine. He finally sold his insurance business and chose wine.

But even after the bankruptcy ended happily, the headaches didn’t stop.

“When you are using a series of brokers (instead of wholesalers), you have no control over them,” he said. “Also, we had no money to hire on-staff winery representatives.”

But after a chat with a reporter one day, he formulated an idea. The concept is called, for lack of a better term, the House Affiliates program and it is based on the concept of organizing wine brokers in many areas of the country under one corporate banner for the purpose of offering the appearance of greater unity.

Harder for the Small Fry

Rosenbloom pointed out that as Grand Metropolitan of Great Britain (which now owns Inglenook, Beaulieu, Almaden, and many other wineries), Nestle (Beringer, Chateau Souverain, Meridian) and other giant corporations consolidate and control the wholesale market, selling wine becomes harder and harder for the small winery.

“As the ‘Grand Mets’ of the world are beating you up with on-staff sales people all over the place, there’s no real way to compete with a network of brokers. Also, they have shrunk the distribution network in the last decade.

“So what we decided to do was consolidate our brokers,” he said.

It began to come together when Rosenbloom chatted about his idea with Al Wilno, who had been with NDC for 10 years before NDC went out of business. Within months, by last July, National Beverage Marketing Inc. was a reality, a publicly traded company (10 cents per share initial offering) with salaried employees.

“This is another layer in the marketing system,” said Wilno, “but it gives wineries more flexibility than with brokers alone.”

Creston Manor owns a portion of the stock in NBM, which now represents 10 wine entities including Barefoot Cellars, Parliament Imports, Vinoteca Imports, Mountain View wines and Windham of Australia.

Keys to the System

There are two keys to the system. First, NBM employees are given incentives based on their performance, which can be in stock in the company. Also, “They are like our staff on the road, which helps tremendously when we’re making sales calls,” said Rosenbloom.

“For example, when we’re in Atlanta, you can get lost going from one account to another. You spend half your time looking at maps and trying to get appointments.

“But with NBM people, we can arrange for them to help us set up an itinerary and no time is wasted. Sales trips become profitable.”

Gauer Ranch had no problems, at least none that a little money wouldn’t solve. Ed Gauer had millions.

The octogenarian and founder of the Roos Atkins chain of clothing stores (which he sold for $16.5 million in 1965) had moved to Sonoma County, bought a 6,000-acre ranch and built a rambling home half way up a mountain. There, Ed and his wife, Marion, would live in retirement.

Well, not exactly. Ed had dreams of producing a great wine from his own grapes, growing on hundreds of acres of Alexander Valley land stretching from the valley floor to 2,000 feet up. He had, after all, sold grapes to top producers, among them Chateau St. Jean Winery, and he only lacked a place to make the wine.

“I first met with Ed in 1987, and it was with an architect,” said Allan Hemphill the other day. Hemphill, former president at Chateau St. Jean, was in the process of being hired as president of the Gauer Estate Winery, which at the time had no winery.

“Ed was going to build a winery. He was 83 then, and he knew it would take two years to do what he wanted, and then more years to make a wine and get it onto the market.”

Strong Financial Background

Hemphill, who has a strong financial background, persuaded Gauer to look instead at buying an existing winery. Using sound accounting principles, they decided in August, 1987 to buy Vinwood Cellars, which had been used mainly to make wine for custom-crush accounts. Essentially, this was wine made for “private label” buyers like wholesalers and brokers.

“By buying the winery, we wouldn’t be paying long-term for bricks and mortar,” said Hemphill, who immediately saw the potential for the operation.

“It was a vertically integrated company that wouldn’t be affected much if the price of grapes went up or down. There was a way to make a profit either way,” he said.

Hemphill hired Kerry Damskey, who had worked at San Pasqual Vineyards in San Diego before that operation folded into bankruptcy, and Damskey, a graduate of the wine making school at UC Davis, immediately took control over all the custom-crush work as well as other wine making chores, including the first Gauer wines.

Late last year, Gauer--perhaps fearful of not having his financial affairs in order--chose to accept an offer estimated at $35 million for his ranch and winery. The buyer was Huntington Beach Corp., the land investment subsidiary of Chevron Corp.

It Won’t Happen

It was originally speculated that Chevron would begin carving up the attractive hillside land and build houses, but Hemphill said it won’t happen.

“Chevron has no plans whatsoever for any development here,” said Hemphill, standing beside his four-wheel-drive truck that is canted to one side in the middle of the Pinnacle Vineyard, 1,800 feet up. “Chevron bought this place as an asset play on the land itself.”

Chevron asked Hemphill to remain as president of the winery and vineyard operations, but both parties agreed that it would be best for both if it was done as an arm’s-length agreement.

“I had decided not to work for any more corporate entities,” said Hemphill, who reportedly left Chateau St. Jean after a dispute with Suntory, which acquired the Sonoma Valley property in 1984 for about $40 million. “I had worked for family-owned wineries--for the Hecks (Korbel), the Merzoians (St. Jean, pre-Suntory) and Gauer, and that was the environment in which I thrived.”

So, Hemphill reached agreement with Chevron, one he calls “a pivotal part of the deal as far as both of us were concerned.” He left Gauer Estate, formed his own independent management company, hired Damskey as his only employee, and then signed a contract with Huntington Beach to run the Gauer Estate winery and vineyards, with Damskey as wine maker.

$2.5 Million on Upgrading

Immediately, $2.5 million was spent upgrading the already modern winery with the best equipment and today, the winery, with more than 1 million gallons of storage capacity, deals in virtually all of the areas of the wine business, fine wine and commodity alike.

For instance, in addition to making fine wine under the Gauer label, it also sells some of the grapes it doesn’t use for that program. Some grapes, however, are crushed by Damskey and held in stainless steel tanks and sold as bulk wine, and the winery also does custom crushing for those with grapes but no winery (average price for a small client, about $250 per ton; more for special treatment).

Also, Gauer does “private label” wines for those who’d like to have a wine named after a restaurant or wine shop, and it stores wines in its temperature-controlled warehouse for those who don’t have secure storage facilities.

Gauer will remain the brand name even though Ed has formally retired from the wine business. “He was the man who planted the grapes and made all of this happen,” said Hemphill.

As for Gauer, he has just bought a Tennessee Walking Horse and is taking riding lessons.