Pinot Noir (2)
I pedaled my bike like a madman until I reached the vineyard, tossed my bag into the storage shed, and headed up the slope. As I climbed the path between the lush rows of grapevines, I could see the skeleton crew of workers busy cleaning the drip lines. Further off, I spotted Mom and Dad checking the soil's water potential.
"Our son is home early today?"
As soon as she saw me, Mom lifted her sun visor and beamed.
"I finished up a bit early. Were there any additional orders for the vinegar?"
Dad, who had been meticulously checking the SWP (Stem Water Potential), looked up and replied.
"Actually, yes. We got an order for another thousand bottles next week. If we leave the boxes at the entrance like last time, Mr. John Anderson will come by to pick them up."
"A thousand bottles? Dad and I can handle that between the two of us."
"That's true. We can bottle the vinegar over the weekend and have it ready by dawn."
"But Dad?"
"Yeah?"
"Have you thought about what we should do with the money from the vinegar sales?"
For a split second, Mom and Dad exchanged a look of confusion.
"Well, that's..."
"You were planning to pay off the bank loan, right?"
"That, and we need to keep some cash on hand in case of an emergency, don't you think?"
"You're right. I agree with that. However..."
"However?"
I struggled with how to explain it, but realizing there was no other way, I decided to meet the challenge head-on.
"There's a movie coming out this October called Sideways."
"Sideways?"
"Yes. It's a film about wine and love, so to speak."
"And?"
"I read the synopsis, and it's all about Pinot Noir. Here, sit down for a second."
I guided my parents to the shade of a grapevine, sat down on the dirt myself, and began my pitch.
"Pinot Noir is a different grape variety than the Cabernet Sauvignon we grow. It’s a variety from the Burgundy region of France; it has thin skins and a light ruby color."
Mom’s eyes sparkled as she asked, "So it's quite different from ours?"
"Exactly. Cabernet has thick skins and a deep color, so it possesses a completely different charm than Pinot Noir."
"Oh—and?"
"The point is that the movie’s main theme revolves around Pinot Noir. As you know, Hollywood films don't just end when the credits roll; they have a massive influence on the public. So..."
Just as I was about to launch into a long-winded explanation, Dad cut me off.
"So, you're saying that people who watch the movie will go looking for Pinot Noir, and demand will skyrocket?"
Clap!
I clapped my hands and pointed at Dad.
"That’s exactly it."
"Hmm..."
I expected him to shut me down immediately, but to my surprise, Dad fell into deep thought. Come to think of it, even though he had failed, he *had* run a business before.
"But what if the movie flops? What if it fails?"
The fact that he was asking this meant I had piqued his interest enough; I felt I had already cleared half the hurdle of convincing him.
"Dad, let's think about this. We secure the Pinot Noir, and the movie fails? Then we just sell the wine. As long as the price doesn't crash, the risk of us taking a major loss is minimal."
"Hmm..."
"But what if the movie is a moderate success or better? The price of Pinot Noir will soar, and we’ll make a huge profit."
"So, your plan is to make money that way?"
I leaned forward, pouring all my sincerity into my voice.
"Dad, I don't want that money just so we can buy a bigger house or a nicer car."
"Then?"
"More capital means we can expand our farm and facilities on a larger scale. It’s already true, but as time goes on, economies of scale will dominate agriculture. The larger the farm, the lower the cost per unit area, and the higher the profit. If we diversify our varieties, we can overcome the instability of relying on just one."
Mom, who had been listening, spoke up with a worried expression.
"But what if we take a huge loss?"
"We'll work hard to make sure that doesn't happen. We started with only ten thousand dollars, after all. And we’ve already made more than that just by making vinegar. We have a farm capable of producing 50,000 liters, but we’ve only made 20,000 so far—if we sell all of that, the profit will be immense. Crops don't just disappear."
"That's true..."
Perhaps because she had the experience of farming, Mom was easily persuaded. Dad, biting his lip in contemplation, finally spoke.
"So, the bottom line is that you want to use our current funds to buy up Pinot Noir in advance... but where would we store it?"
"Ah, don't worry about that. There are places called Custom Crush facilities where you can rent someone else's winery equipment to process your grapes. When we sign the contract with a Pinot Noir farm, we’ll secure a multi-year supply agreement, contract it at the barrel stage, and move it to a Custom Crush facility."
"Oh, so you move it from the vineyard to a contract processing facility?"
"Exactly. If we lease the barrels or tanks there and just pay a monthly fee, the initial costs aren't that high."
"But wouldn't the monthly costs be a problem?"
"For a winery that consistently produces quality wine, the monthly fee isn't a problem. Because we sign contracts with restaurants by the case. For instance, a restaurant representative comes to the winery, tastes the wine in the barrels, signs a pre-order for a certain amount per case, and pays 20-30% as a down payment."
"So, how much are we talking about?"
Dad seemed to be struggling with the math, so I did the calculations in my head for a moment before answering.
"Let's calculate based on a cheaper price point for Pinot Noir. If it's about 12 to 13 dollars a bottle, that's a low-end 'daily wine' price, right? A wine case usually holds 12 bottles. So that's about 150 dollars per case."
"Right."
"If we sign a contract with one restaurant for 50 cases, that's 7,500 dollars. If we sign with 10 restaurants..."
"75,000 dollars? And if we get 30% as a down payment, that's 22,500 dollars. Not bad at all."
"See? And that's not the end of it. Even if we get a large sum of money from the initial contract, if we ever need cash in a hurry, we can take out an ABL (Asset Backed Loan) using the barrels in the warehouse as collateral. Usually for about 60% of the value."
Having run a business before, Dad understood everything in an instant, his eyes beginning to gleam.
"Which vineyard do you think would be best?"
He was asking which farm we should target.
"Anderson Valley and Sonoma County. Both are known for high-quality Pinot Noir. But since they aren't 'daily wine' grade, the initial costs will be higher."
"If the movie takes off, wouldn't something a bit higher-end than daily wine sell even better?"
"Of course."
"Alright. We can't just go like this; we need to prepare."
"Prepare?"
"We can't show up looking like this. We need to look presentable. You, iron my suit for tomorrow. I need to head to the bank right now."
Dad rushed off in a flurry. Mom watched him go, then turned to me with a blank expression.
"Hey, if Pinot Noir is so good, what about ours? Is it not good?"
"Oh, Mom. That's not it. In Napa Valley, the price of Cabernet Sauvignon is usually around 3,900 dollars per ton, while Pinot Noir is around 2,100 dollars. Ah, that's the price for the raw grapes, before they're made into wine."
Mom’s eyes went wide with surprise.
"That's nearly double!"
"Exactly. That’s why the previous owner, Mr. John Anderson, sold off all the decent grapes he had. It’s a shame he went bankrupt while owning such a good farm. Tsk, tsk, tsk..."
"I suppose so."
"The fact that wine prices have been falling for the past few years probably didn't help."
"Wine prices are falling? Why?"
"Everyone and their dog is producing wine, so prices have dropped quite a bit. The raw grapes for Cabernet are expensive, but the wine itself... let's just say it's complicated. Funny, isn't it?"
"Then what should we do? Should we keep selling vinegar?"
"Exactly. Our farm is safe. We’ve already secured a solid sales route for the vinegar. And we’ve put so much care into growing these grapes; we’ll let about half of them age in barrels and wait for the right moment. Cabernet Sauvignon actually increases in value as it ages."
"Then, will the Pinot Noir you and Dad are planning to buy be any different?"
"That's a different story."
I smirked. After the release of Sideways, the price of Pinot Noir would jump 15% in the first year and another 25% the following year, bringing immense wealth to Pinot Noir wineries. So, it was bound to be very different from Cabernet Sauvignon.
The next day, I went to school, but under the pretense of being sick, I finished only my morning classes and headed straight to the Russian River Valley in Sonoma County with Dad.
"Is this place really the best?"
"Pretty much."
It wasn't the case right now, but after the movie Sideways came out and Americans started going crazy for Pinot Noir, the Pinot Noir from the Russian River Valley would be recognized as having the highest value.
"Why is it the best? Is there a reason?"
"Good question. First, Pinot Noir needs a large daily temperature range. At least 10 to 15 degrees Celsius. 22 to 28 degrees during the day is ideal. At night, 10 to 15 degrees is perfect. If the daytime temperature is too high, the sugar content becomes excessive, which isn't good."
"Oho—"
"And Pinot Noir loves sea fog."
"Sea fog?"
"Yes. The morning fog preserves the acidity while suppressing the rise in sugar content. If you get a sea breeze on top of that, it’s the best. When you consider the terrain and the soil, the Russian River Valley is one of the best-optimized regions in the world."
"Wow... I see."
Dad nodded, then asked again.
"But I've been thinking—increasing our facilities with the money we save is one thing... but how do you plan to expand the farm? All the suitable land is already being used for agriculture."
"I'm not talking about buying empty land, obviously."
"Then? You want to acquire an existing farm? Like Redwood? Hey, is that easy? Redwood only came up because it went bankrupt by pure luck. There aren't many farms like that, are there?"
"Who knows? We'll see what happens..."
I already knew. In the latter half of 2004, a massive wildfire would sweep through California.