The Shaking Giant of America (2)
Castello Winery, Napa Valley.
"Dad, are you still feeling uneasy?"
Matthew asked cautiously, looking at his father’s face, which had been set in a grim expression for some time. Ever since their visit to the Mondavi Winery, Joseph had been deep in thought, his face clouded with worry.
"It’s Warren Winiarski. You might not realize it because you’re still young, but he is a legendary figure in Napa Valley. You have no idea how much of an impact it has that such a man has joined another winery."
"But he’s getting old... honestly, it wouldn't be strange if he passed away at any time."
"Robert Mondavi is living past ninety. The time when it wouldn't have been strange for him to pass away 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 create?"
Matthew pondered for a moment, his expression slowly hardening.
"At least five...?"
"Hmph! If it’s that monster of an old man, he’ll churn out more than ten."
Napa Valley was already home to legendary wineries that stood before Castello. For such a legend not to retire quietly, but to move to a small winery with renewed passion? It was no exaggeration to say that dark clouds were gathering over the future of Castello Winery.
"But given the small scale, wouldn't there be a limit to their growth?"
At Matthew’s cautious observation, Joseph nodded this time.
"That is the only part that gives me some relief. The inherent limitation of Redwood. The winery is small. Unless a super-premium cult wine appears that costs over ten thousand dollars per case (12 bottles), the winery’s growth is bound to be limited. Besides, such wines require a matured story, and with a history of only a few years..."
"And I heard that the blending secrets of the original Stag's Leap can never be leaked to the outside. Even if he went there, it might not be of any help..."
"That doesn't matter. With the vast amount of knowledge he possesses, do you really think he’ll only make the same kind of wine?"
"Hmm... that’s true."
Just then, an employee entered from outside and spoke.
"Sir, you have a visitor."
"Show them in."
Knowing who it was, Joseph didn't even ask for a name and sat on the reception sofa. Soon, the door opened, and a handsome white man in his late forties walked in.
It was Mark Harrington of Harrington Vineyards, known for producing the best Pinot Noir in Sonoma.
"You’re here."
Mark raised a hand to greet Matthew before plopping down into a seat.
"Did you have a good trip to Mondavi?"
"Yeah, it’s definitely different from last year. His energy seems to have faded quite a bit."
"Hmm... I see. He has lived a long life, after all. What did Robert say?"
Mark, who had already heard that Joseph had met Mondavi, asked with a look of indifference. He likely already anticipated the result. As expected, Joseph stopped pouring the red liquid into his wine glass and gave a bitter smile.
"He said he no longer has that kind of energy."
Mark snorted as if mocking the idea.
"He’s always been a man uninterested in these things. What did I tell you? Besides, Robert is practically Warren’s mentor, so he won't be interested in keeping Warren in check. He’s likely only interested in Continuum, which he made with his second son."
"If he thinks about the future of Continuum, shouldn't he be joining forces with us even more?"
"Before he dies, he’ll be busy enough passing on his knowledge to his children; do you think he has the energy to spare for anything else?"
Feeling that there was some truth to this, Joseph nodded while taking a sip of wine. Then, he suddenly looked at Mark and asked.
"You said that Asian young man came to Siena’s birthday party before, right?"
Anticipating what he was about to say, Mark raised one corner of his mouth and gave a wry smile.
"Are you curious about how that guy is going to use Warren?"
"Even Matthew here doesn't know much about that Asian guy. Other than the fact that he understands wine to an incomprehensible degree."
Mark chuckled. Matthew’s words were exactly how he felt.
"You know it well, don't you? Well... as it happens, Redwood signed a contract with the Grendel Hill Vineyard in the Russian River Valley."
"What?"
One could say there wasn't a soul in Napa Valley who didn't know the relationship between Harrington Vineyards and Grendel Hill. For Joseph, who understood that subtle but sensitive relationship, his eyes widened at the incredible coincidence.
"So, I proposed to that Asian guy that we should make an event wine together, pushed by the California state government, to commemorate the re-tasting of the Judgment of Paris."
"You intended to make that wine with Grendel Hill grapes?"
"That’s right. It was an event wine destined for overseas, so I thought it wouldn't compete with our winery. It was a bit of a scheme, but he refused, saying he wasn't interested at all."
"He refused even when the state government was pushing for it? Haha..."
Most wineries would jump at such an opportunity with both arms open. While Napa Valley wines sell for higher prices than others, warehouses are still piled high with stock, so it’s common sense to jump at the chance to dispose of it all overseas like winning the lottery.
However, the fact that he could turn down such an opportunity meant that he had the confidence to dispose of all the wine he produced even without the backing of the California state government.
"He’s a guy who knows wine well and has confidence to boot. You don't think Warren is actually learning something under that guy, do you?"
"Are you asking that seriously?"
Mark responded as if it were absurd, but Joseph felt strangely bothered.
"I don't know much about that Asian guy. But I know Warren well. That old man never speaks nonsense. He’s sly and enjoys jokes, but at least when it comes to wine, he’s not a man to say strange things."
"Even so, what can you do? Isn't it better if he’s learning? He’ll probably die while learning something at that age."
"You’re talking as idly as Matthew."
"Hahaha! Don't lose your energy, Joseph. I actually thought it was a good thing when I heard Warren joined Redwood."
"Really?"
At Joseph’s disbelieving gaze, Mark leaned forward and stated his thoughts clearly and deliberately.
"Real estate is shaking. Wall Street is collapsing. Warren isn't the important thing right now."
"Then what is?"
"Think about it, how much debt Napa’s wineries are living in. If interest rates rise sharply, they won't be able to hold on, and good properties will flood the market. That is exactly what we should be aiming for."
"Targeting wineries directly?"
"Exactly. Who knows? Even if we didn't get Stag's Leap, we might get our hands on a decent property."
Joseph gave a bitter smile.
"Indeed, since Pinot Noir is your specialty, your thinking is different from mine."
Mark shrugged. In fact, Joseph wasn't wrong. Since Napa Valley was dominated by Cabernet, Joseph was deeply concerned about Warren’s movements, but to Mark, it was someone else’s business.
The market for Pinot Noir was solid, and the reputation of Harrington Vineyards was firm, so even if Warren released a phenomenal Cabernet Sauvignon from Redwood, it was a world away for Mark.
However, that was exactly why Redwood receiving Pinot Noir from Grendel Hill was all the more annoying.
"Think positively. Ah, anyway, hurry up and make the event wine for the California state government and send it over. The state officials keep asking for data. You can easily earn ten million dollars from this, so don't worry too much about other wineries. My only concern is that this event might be downsized because of this damn subprime crisis."
Having calmed Joseph down, Mark patted Matthew on the shoulder and left the office.
"Damn it... that fox..."
Matthew’s face twisted at his father’s annoyed expression.
"It seems he’s only interested if it’s Pinot Noir."
"He’s a fool. If Redwood grows, they’ll be producing far more Pinot Noir than they do now, but he doesn't know that..."
"Then what should we do?"
"What do you mean, what should we do? From now on, you go to school and study and research without rest. They say wine is half marketing, but in the end, the center of evaluation is the quality of the wine, and that comes from research."
"I understand."
Matthew answered with a hardened face.
June. Two hedge funds under Bear Stearns, one of the five major investment banks in the U.S., announced a suspension of redemptions after suffering massive losses from failed investments in subprime mortgage bonds. The fear that derivatives that had received the highest rating (AAA) could actually become worthless began to spread on Wall Street.
However, even at this time, Napa’s wineries were closer to vague fear. They couldn't yet predict how the shaking of the financial market would engulf the wineries.
When S&P and Moody’s downgraded the credit ratings of tens of billions of dollars worth of subprime-related Residential Mortgage-Backed Securities (RMBS) all at once, and Bear Stearns’ two funds entered bankruptcy proceedings, it was just a feeling of fear that the giant called America was shaking. But from August, everything began to change.
In August, when France’s largest bank, BNP Paribas, abruptly suspended redemptions for three funds, a fear that banks could not get their money back spread, leading them to refuse to lend to each other. As a result, the LIBOR rate, the interest rate banks use to borrow from each other, skyrocketed, and the interest on the funds borrowed by wineries began to soar as well.
"This, this... to think it would come to this? It’s a huge relief that your winery has almost no debt."
Amidst the despairing news that continued day after day, Warren shook his head.
"I paid off most of the debt when sales were good last year."
Because I knew the situation would reach this point, I had repaid most of the loans regardless of interest rates and saved up capital.
"Perhaps Michel Wine or Antinori are also shaking significantly. They would have borrowed funds to acquire Stag's Leap."
When acquiring a company, it is rare to do so with only one’s own capital. Most borrow bank funds, and since it was nearly 200 million dollars, they might be deeply regretting the acquisition of Stag's Leap by now.
"If you were going to sell it anyway, you sold it well."
"It depends on their situation, but from my perspective, that’s true. It wouldn't have mattered much if I had kept it, but if I had tried to sell it after this incident, I would have had to lower the price significantly."
While we were talking about this and that, worrying about the shaking market, a guest arrived. A guest who had promised to come around this time—it was Christopher White.
"Hello. You’ve been doing well, right?"
Even though it was summer, he was neat and always well-groomed, looking as dashing as ever. However, seeing his somewhat dark complexion, Warren asked.
"We’re doing well, but... well, is something wrong?"
Christopher let out a deep sigh right away.
"Whew... you see. It’s not just the U.S. right now; the whole world is in chaos, isn't it?"
"That’s true."
"Because of that, the distribution network is completely falling apart."
"Is that so?"
"Wine distribution usually involves borrowing money to buy wine, selling it, and then paying back the money. But since interest rates have skyrocketed, they are canceling all wine contracts."
"Oh my..."
Problems were arising even in areas I hadn't expected.
"Fortunately, thanks to Redwood, we have saved up capital, so it’s not a big problem, but other wineries are likely in a desperate situation right now. There is a high possibility that overseas export contracts will be canceled one after another. It might be different for wines with a solid overseas fan base like Mondavi or Stag's Leap, but for mediocre wines, distribution companies are reducing their share, so many contracts will be canceled."
"Hmm... I suppose so."
"I heard that Silver Oak right next door is in chaos too."
Since it was Silver Oak, which I had been bickering with right next door, I asked back without realizing it.
"Silver Oak? Are they having a lot of problems?"
"They say their exports to Europe have completely fallen through. The funds that were supposed to come in this year will be frozen, and since interest rates have skyrocketed... it depends on how much they borrowed, but if the scale is large, it will be a major problem."
Christopher shook his head with a pitying expression.