Chapter 131: America in Turmoil (2)
TL: Hanguk
Napa Valley, Castello Winery.
"Dad, are you still upset?"
Matthew asked cautiously, looking at his father's face, which had stayed tense the whole time. Ever since the trip to Mondavi Winery, Joseph had worn a dark expression, lost in thought over something.
"It's Warren Winiarski. You can't appreciate it because he's still alive, but he's a legendary figure in Napa Valley. You have no idea how big an impact it'll have that a man like that has joined another winery. That's why."
"Still, he's getting on in years... honestly, it wouldn't be strange if he died any day now."
"Robert Mondavi is over ninety and still going strong. The time when it wouldn't have been strange for him to die was thirty years ago."
"Oh..."
"Let's say that old man lives just ten more years. How many new wines do you think he could make?"
Matthew thought it over for a moment, and his face slowly stiffened.
"At least five...?"
"Hah! A monster of an old man like that? He'd put out more than ten."
There were already legendary wineries in Napa Valley that ranked ahead of Castello. And rather than quietly retiring where he was, one such legend had carried a fresh passion to a small winery instead? It was no exaggeration to say that this had cast a thick bank of dark clouds over the future of Castello Winery.
"Still, the operation itself is small, so wouldn't there be a limit to how much they can grow?"
For once, Joseph nodded at Matthew's cautious opinion.
"That's the one thing that gives me a little relief. Redwood's inherent limitation. The winery is small. Unless they come out with an ultra-premium, cult-tier wine that goes for more than ten thousand dollars a case (twelve bottles), there's bound to be a ceiling on how far a winery can grow. And a wine like that needs a story of long maturation behind it, and with a history of just a few years..."
"And from what I've heard, the original Stag's Leap blending secrets can never be leaked to outsiders, right? So even with him joining them, it might not do much good..."
"That doesn't matter. With all the knowledge he has, do you think he'd only make the same wine?"
"Hmm... that's true too."
Just then, an employee came in from outside and spoke.
"Sir, you have a visitor."
"Show them in."
Joseph, who already knew who was coming, sat down on the reception sofa without even asking who it was. Soon the door opened and a handsome white man in his mid-to-late forties walked in.
It was Mark Harrington of Harrington Winery (Harrington Vineyards), known for showcasing the finest Pinot Noir in Sonoma.
"You're here."
Mark raised a hand to Matthew in greeting, then plopped down into his seat.
"So, how'd the visit to Mondavi go?"
"Yeah, definitely different from last year. He seemed to have lost a lot of his energy."
"Hmm... I see. He has lived a long time. What did Robert have to say?"
Mark, who had already heard that Joseph had met with Mondavi, asked with a look of complete disinterest. It was probably because he'd already guessed the outcome. Sure enough, Joseph paused as he poured the red liquid into a wine glass and gave a bitter smile.
"He told me he doesn't have that kind of energy anymore."
Mark gave a scornful snort.
"He's never been the type to care about this sort of thing. What did I tell you? Besides, Robert is practically Warren's mentor, so he's not going to show any interest in keeping Warren in check. The only thing he cares about is Continuum Estate, the one he founded with his second son, I'd bet."
"If he's thinking about Continuum's future, all the more reason he should join hands with us, isn't there?"
"He's got his hands full just passing on what he knows to his children before he dies. Do you really think he has the spare attention to pour into anything else?"
Perhaps feeling there was something to that, Joseph took a sip of wine and nodded. Then, all of a sudden, he looked at Mark and asked.
"You said before that the Asian young man came to Sienna's birthday party, right?"
Mark, who could guess where this was going, lifted one corner of his mouth into a wry smile.
"You're curious about how that guy's planning to put Warren to use?"
"Even Matthew here doesn't really know much about that Asian fellow when it comes down to it. Just that he knows an almost incomprehensible amount about wine, nothing more."
Mark let out a small laugh. Matthew's words matched his own feelings almost exactly.
"He's got it right, then. Hmm... of all the times, it was right then that Redwood signed a contract with Grendel Hill Vineyard over in the Russian River Valley."
"What?"
In Napa Valley, it was safe to say there was no one who didn't know about the relationship between Harrington Winery and Grendel Hill Vineyard. Joseph, who understood that subtle but delicate relationship well, opened his eyes wide at the absurd coincidence.
"So I proposed to that Asian guy that we make an event wine together, the one the California state government is backing to commemorate the Judgment of Paris re-tasting."
"You were planning to make that wine with Grendel Hill grapes, then?"
"Right. It's an event wine, and since it ships overseas, I figured it wouldn't compete with our winery. It was a bit of a clever angle, but he turned it down flat, said he had no interest at all."
"Even with the state government backing it, he says no? Ha ha..."
Any ordinary winery would normally roll up both sleeves and jump at an opportunity like this. Napa Valley wines might sell for more than those from other regions, but even so, the wine piled up in their warehouses was mountainous, and when a chance came along to offload all of it overseas, the sensible thing was to pounce on it as if they'd just won the lottery.
And yet, to turn down even an opportunity like that was not a decision anyone could make easily, not without the confidence that every bottle they produced could be sold off even without the California state government's support.
"He knows wine well and he's got confidence to boot. Surely Warren isn't actually learning something under that guy, is he?"
"Are you asking that seriously?"
Mark responded as if the idea were absurd, but for some reason it nagged at Joseph.
"I don't know much about that Asian guy. But I know Warren well. That old man never talks nonsense. He's sly and he loves a good joke, but when it comes to wine, at least, he's not one to say anything strange."
"And even if he is, so what? If anything, isn't it better if he's still learning? At his age, he'll just pick up a thing or two and then keel over anyway."
"Now you sound just as carefree as Matthew."
"Hahaha! Don't go wearing yourself out over this. If anything, when I heard Warren had joined Redwood, I even thought it was a good thing."
"Really?"
At Joseph's disbelieving look, Mark leaned forward and laid out his thinking slowly and distinctly.
"Real estate is shaking. Wall Street is collapsing. Warren isn't what matters right now."
"Then what does?"
"Think about it, how much debt the wineries in Napa are carrying. If interest rates spike, they won't be able to hold on, and good properties will come flooding onto the market. That's exactly what we should be going after."
"You're saying we go straight for the wineries themselves?"
"That's right. Who knows? We may not have landed Stag's Leap, but we might just pick up a decent property yet."
Joseph gave a bitter smile.
"You're a Pinot Noir man through and through, so we definitely see things differently."
Mark shrugged. Joseph wasn't wrong, really. Napa Valley was Cab country, so from Joseph's standpoint Warren's movements were a serious concern, but to Mark it was as good as somebody else's problem.
The market for Pinot Noir was solid and Harrington Winery's reputation was just as rock-solid, so even if Warren rolled out an incredible Cabernet Sauvignon at Redwood, to Mark it was a tale from another world.
It was precisely for that reason that Redwood taking on Grendel Hill's Pinot Noir grated on him all the more.
"Look on the bright side. Oh, anyway, hurry up and decide which wine we're putting out as the event wine for the California state government and send it over. The state's contact keeps demanding materials from us. We can easily clear ten million dollars off this, so don't fret too much over the other wineries. The only thing I'm worried about is whether this damn subprime mess is going to end up shrinking the whole event."
Having calmed Joseph down so lightly, Mark gave Matthew's shoulder a couple of pats and walked out of the office.
"Damn it... what a sly fox..."
At his father's irritated expression, Matthew's own face twisted.
"I guess if it isn't Pinot Noir, he just doesn't care."
"He's being a fool. If Redwood grows, they'll be churning out far more Pinot Noir than they do now, and he doesn't even realize it..."
"So what should we do?"
"What do you think? From now on you're going to school, and you're going to study and research without a break. They say wine is half marketing, but in the end the quality of the wine is what everything is judged on, and that comes from research."
"Got it."
Matthew answered with a hardened expression.
June. Two hedge funds under Bear Stearns, one of the five largest investment banks in the United States, suffered enormous losses from failed investments in subprime mortgage bonds and announced a halt to redemptions. The fear that derivatives once given the highest rating (AAA) could in reality turn into worthless scraps of paper had begun to spread through Wall Street.
But even during this period, what Napa's wineries felt was closer to a vague dread. No one could yet predict how the turmoil in the financial markets would come crashing down on them.
Up until S&P and Moody's downgraded the credit ratings of tens of billions of dollars' worth of subprime-related mortgage-backed securities (RMBS) all at once, and Bear Stearns's two funds entered bankruptcy proceedings, the feeling had been simply one of fear at the sight of the giant that was America beginning to wobble. But once August arrived, everything started to change.
In August, BNP Paribas, France's largest bank, abruptly suspended redemptions on three of its funds, and all at once a fear that banks would never get their money back spread among them, until they began refusing to lend to one another. As a result, the LIBOR rate, the interest rate banks use when borrowing from each other, shot up, and the interest on the money the wineries had borrowed began to soar right along with it.
"Well, well... things have come to this? It's a real blessing that your winery has almost no loans to speak of."
Amid the despairing news that came day after day, Warren shook his head.
"Last year, when sales were good, I paid off pretty much all of the loans."
I had known things would come to this point, so regardless of whether rates were high or low, I had repaid most of my loans and built up a reserve of funds.
"Ste. Michelle and Antinori are probably reeling badly too. They'd have had to raise capital to acquire Stag's Leap."
When a company was acquired, it was almost never done with one's own capital alone. Most acquisitions were financed with bank money, and since this was a sum of nearly two hundred million dollars, by now they might well be deeply regretting that they ever bought Stag's Leap.
"If you were going to sell it anyway, you sold at the right time."
"It depends on their situation, but from my point of view, yes. I'd have been fine either way even if I'd held on to it, but still, if I'd tried to sell after all this, I'd have had to drop the price by a lot."
As Warren and I worried over the wavering market and talked about this and that, a visitor arrived. The guest who had promised to drop by right around this time, none other than Christopher White.
"Hello. You've been keeping well, I hope?"
Even though it was summer, he was as crisp and impeccably put together as ever, looking sharp as always. But noticing the somehow gloomy cast to his face, Warren asked.
"We're doing fine, but... is something the matter?"
Christopher heaved a deep sigh right away.
"Whew... here's the thing. Right now it's not just the United States, the whole world is in an uproar, isn't it?"
"That it is."
"And because of that, the distribution networks are falling apart completely."
"Is that so?"
"The way wine distribution usually works is you borrow money to buy the wine, then sell it and pay the money back, but with interest rates skyrocketing, everyone's canceling their wine contracts."
"Oh no..."
Trouble had cropped up even in corners no one had foreseen.
"For us, at least, it's not a huge problem, thanks to the funds we've built up through Redwood, but right now the other wineries are probably in a real bind. There's a strong chance their overseas export contracts get canceled one after another. With wines that have a solid base of fans abroad, like Mondavi or Stag's Leap, maybe not, but for middling wines, the distributors are cutting back their share, so a lot of contracts are going to fall through."
"Hmm... I expect so."
"Even Silver Oak, right next door here, is in chaos, from what I hear."
Silver Oak was the neighbor we'd always been squabbling with right next door, so before I knew it, I asked back.
"Silver Oak? Have they run into serious trouble?"
"Their exports to Europe have apparently fallen apart entirely. The funds that were supposed to come in this year are going to be locked up tight, and with interest rates spiking... it'll depend on how much they've borrowed, but if the scale is large, it's going to be a serious problem."
Christopher shook his head with a pained expression.
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