Doing the Right Thing

At Paterno International's three California wineries, quality comes first.
Put quality first. Simple enough, so why doesn't every winery do it? They say they do; but let's face it, it's not showing in all wines. As more wineries go corporate, it's important to take note of those who've adopted and practice the three-word philosophy, to make compelling wines without wretched excess.
    Over the years, we've noticed that the "practice" part of the equation is accomplished best when, at the helm, there's a wine passionate visionary CEO, with business acumen, gleaned from many years in the wine business. Next, attention to grape growing is spearheaded by an equally wine passionate viticulturist, who offers a well-weathered, rough hand in greeting. This person shares a quality-first concept with the director of wine making and winemakers. Lastly, each winery in the corporation places emphasis on a particular varietal in a style commensurate with an appellation and does not change its mission statement as market preferences ride the tide of consumer fickleness.
    Recently, we found those marks in three California wineries, Alderbrook in Dry Creek Valley of Sonoma County, Chimney Rock in the Stags Leap District of Napa Valley, and Rutherford Hill in Napa Valley. These three wineries are owned outright, or in part by the Terlato Wine Group (TWG), which is wholly owned by the Terlato family, whose Chairman and CEO Anthony (Tony) Terlato entered the wine business in 1955, working in his father's Chicago wine and spirits retail store. A year later, he joined his father-in-law Anthony Paterno in Pacific Wine Company. Eight years later, at age 29, he transitioned Pacific to a distributor of internationally-sourced premium wines, which by the early 1970s, was known globally as Paterno Imports and now as Paterno Wines International. From its portfolio of about 40 renowned brands, Paterno markets more than 36 percent of all imported wine, selling in America for over $14 per bottle.
    The question arises: why did Tony Terlato get into the California wine business in 1996? "It's true," Terlato said, "I made producers such as Santa Margherita, Chapoutier and Pio Cesare well-known in the U.S. But I didn't own anything except the name of an import company. I had no equity in the top brands I sold. I wanted to leave equity to my sons and grandchildren. I saw an opportunity to take Rutherford Hill, which in the mid 1990s was a flagging winery, and make it world class, particularly with Merlot. I wasn't chasing the Merlot market because it was getting hot then. I believed specific vineyards within Napa Valley could grow Merlot on a par with Cabernet Sauvignon. I believed with the right people working for TWG, we could make all decisions based on the quality - quality first - because quality endures."

WHERE IS STARTED
TWG's entry into California winery ownership began at Rutherford Hill. "The goal today," said winemaker Dave Dobson, "is never to be satisfied about where we are but to continually run trials and experiments to define the correct oak mix of coopers, toasts and forests for each given Merlot vineyard." That's today, but to really understand improving an image, the Rutherford Hill story is best told by Tony Terlato, who took us back to the late 1980s and early 1990s when Rutherford Hill production dropped from 100,000 cases annually to 60,000. The owners asked Paterno to be the sole U.S. agents marketing the wine. "You need to make better wine," was the first thing Terlato advised. The environment of the 1980s had changed. In the early 1990s, it was clear that a number of wineries were poised to do great things.
    Terlato influenced Rutherford Hill to pay more attention to the vineyards and to make better grape selection to produce better wines. Efforts brought production back to 85,000 cases but then the owners decided they did not want to go through another economic cycle and decided to sell. "At that time," Terlato continued, "I had no intention to buy a winery. Besides, Paterno had a marketing contract with 14 years remaining." The owners had a number of interested buyers, one of whom, Terlato admitted, he could not work with for the next 14 years because the owner's interest would have been selling cases and he was looking to sell quality. "We spent a lot of time image making and brand building," Terlato told the owners. "OK," they said, "make us the same offer and we'll sell the winery to you." Terlato insisted that he did not say OK in two minutes but as history notes, he is the owner. "If I build a producer's brand and the owner leaves with a successful image after a 20-year contract expires, what has our company got?" Terlato questioned. "Sure, we made money marketing brands but in the final analysis, we don't own anything."
    The 1995 vintage of Rutherford Hill Merlot was in the barrel when TWG became owner. TWG conducted a tasting of over 40 barrel lots. Disliked lots, amounting to a potential 14,000 cases, were identified. Terlato's decisions: don't bottle it; sell it; bottle only the wines that were liked. That dropped Rutherford Hill production to 62,000 cases. "After that," Terlato revealed, "Paterno's CFO did not talk to me for a week. He told everyone I was crazy. We don't look back on it because it was the best thing we ever did."
    Our palates, however, looked back on decisions with a retrospective tasting of Rutherford Hill Merlots. A big change was evident between 1994 and 1997. The next quality rise came between 1997 and 2000. Then, through the 2002 barrel sample, it just got better. "It's only the beginning of where we're going," Terlato stated. "Merlot's popularity rose in this period. Once it did, there were those who tried to make it inexpensively. They were happy to put Merlot on the label. People who tasted those wines for the first time were disappointed."
    "It's not difficult to make great wine. You need the soil, equipment, a talented winemaker and then you've got to really want to do it. You have to get up every morning with only one thought in mind - make the product better and don't let anything take you off the track."
    Where does TWG and Rutherford Hill want to go with Merlot? "We're not a case-driven company," Terlato answered. "If we were, we would not have Angelo Gaja in the Paterno portfolio. Over the last 50 years, I've done business with Baron Phillipe de Rothschild, Robert Mondavi and Angelo Gaja and I respect them. I want to make wines equal to those produced by people I respect most. I believe that if Christian Moueix could do it, we can."

Eleanor and Ray Heald
©2004 by Quarterly Review of Wines.