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North Bay Business Journal

Monday, August 27, 2012, 6:30 am

Impact Napa 2012: Jayson Pahlmeyer and Brian Hilliard, Pahlmeyer Wines

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    Pahlmeyer Wines

    811 St. Helena Hwy. S., Ste. 202, St. Helena 94574, 707-255-2321, pahlmeyer.com

    Jason Pahlmeyer, Brian Hilliard

    Jason Pahlmeyer, Brian Hilliard

    Since starting his quest for the ultimate Napa Valley expression of a Bordeaux wine blend in the early 1980s, Jayson Pahlmeyer has provided a stage for several rising winemaker stars, such as Randy Dunn and Helen Turley.

    Production varies from 10,000 to 15,000 cases a year, depending on output from estate grapes and vines under decades-long contracts.

    The large selection of wines under the Pahlmeyer label, many vineyard-designates, range from Napa and Sonoma Coast chardonnay wines (from $70 a bottle) to Bordeaux blend Pahlmeyer Proprietary Red ($115 for 2008, $125 for the pending 2009 vintage). There’s even a nearly all-merlot wine in the lineup.

    The 2-decade-old Jayson second label has a Bordeaux red blend ($55) as well as North Coast chardonnay and pinot noir selections.

    Mr. Pahlmeyer will be a panelist at the Impact Napa 2012 conference the morning of Aug. 30. He and winery President Brian Hilliard spoke with the Business Journal about the tough business climate in the past three years and opportunities for increasing demand from the next generation of fine-wine lovers.

    What are the main challenges facing the Napa wine industry and your winery?

    Jayson Pahlmeyer: Water supply, definitely, is the first issue. Next are labor and the cost of producing wine. Things becoming very expensive.

    Brian Hilliard: The price of real estate is not going down.

    Mr. Hilliard: Challenges specific to Napa are creating bridges between generations of consumers. A long-standing stalwart for Napa wineries have been baby boomers, and now we’re trying to jump on the Millennial bandwagon. It’s not easy.

    Globalizing the Napa brand is a challenge. It’s a different competitive marketplace than a few years ago. Napa really runs the risk being more like Bordeaux than it wants to be.

    Issues facing Pahlmeyer are economic uncertainty and Millennials. What we all went through when the bottom fell out of the economy in 2008 was devastating. To go through that again would be devastating for us and everyone else. We had to actively adapt business practices to help weather it.

    Millennials are the future for us, and we need to figure opportunities to penetrate that.

    Mr. Pahlmeyer: The large core of our sales are to baby boomers. Going forward, we want to make ourselves and other Napa Valley wineries appealing to up-and-coming wine buyers.

    Mr. Hilliard: Our water concerns aren’t nearly as deep as concerns for the Napa wine industry. We have a strong water supply on our Atlas Peak vineyard. Our Wayfarer Farm Vineyard on the Sonoma Coast is more challenging. We’re basically a dry barren desert for most of the year, and it’s not a plentiful natural resource. Without water in the vineyard and in production, our industry would not exist.

    Mr. Pahlmeyer: At Wayfarer, we drilled two $10,000 dry holes called “wells.” But California water-conservation rules allow reservoirs if rainfall wouldn’t run off your actual acreage. Because Wayfarer is on a hillside, we run pipes to collect rainwater. We have an overly designed capacity reservoir, so we’re personally fine. With global warming, if we lose rainfall, we’ll lose the vineyard.

    Mr. Hilliard: There are a number ways addressing Millennials. Some are works in progress, so we can’t divulge information this point. But it’s around diversification of the portfolio to appeal to a broader audience. We recognize we’re a stalwart brand in Napa and appeal to baby boomers and collectors, and there’s a definite personality associated with us.

    There is a youthful movement in this industry in consumers and people in the production side.

    With the blogosphere and people getting information in more ways, we’re trying to change our company so we’re more in tune at consumer level and there’s a genuineness with the more youthful movement. We just hired two very young, very talented winemakers (Napa Valley Director of Winemaking Kale Anderson and Sonoma Coast consulting winemaker Bibiana González Rave), and that’s helping in many ways in connecting with younger consumers in a way we’ve never done before.

    Mr. Pahlmeyer: Taking the winery and focus from the old guard to the new guard is my daughter (Communications Director Cleo Pahlmeyer), who has been involved with the winery for seven years. She’s moving up through ranks and appeals to the newer generation.

    How is the winery approaching globalization?

    Mr. Hilliard: We export a good amount of Pahlmeyer relative to our size — 3 percent to 4 percent — and it’s a quite profitable percentage of our business. We take the same approach to export as in U.S. We’re very thoughtful where we go to, rather than leave it to an importer to manage the brand.

    The Napa brand has global reputation, but it’s not to same level as more established European cousins, like Bordeaux or Burgundy. Napa’s goal to be top of pyramid for U.S.-produced wine and top of the pyramid for wine produced globally.

    Mr. Pahlmeyer: Sonoma is getting a tremendous reputation by itself separate from Napa. If you go back in the history of France, its various wine regions developed on their own over 2,000 years. They learned which varietals to grow where. In Sonoma, we’re learning to plant more Burgundian varieties, and in Napa, more Bordeaux varietals. Each valley is getting its own reputation. They don’t have to fight one another.

    Where do you see the industry going in the next five to 10 years?

    Mr. Hilliard: I hope after five years passes we’re breathing a bit easier in the state of the economy. What’s happened in last three years was very difficult to go through. The period in next two years will be going from excess inventory and a dilapidated economy to a shortage of supply and what we hope to be an improving economy. A shortage of inventory is difficult for winery to get through, as is surplus of inventory.

    We’re all looking back and feeling pretty good about the way we’ve come through it and ways we’ve adapted to weather significant financial storms going forward. Some of the ways we’ve done that is certainly not rocket science: reduce operating costs as much you can without sacrificing quality, practice cash management to preserve as much cash as possible, use lease programs for barrels instead of buying barrels, be start in deferring nonstrategic capital investments.

    It’s tough if you have the wrong attitude. Push the envelop to find new lower-cost ways to do business that do not effect quality. Vintners want to be in a strong financial situation going forward have to do business differently.

    We, unlike a number of wineries, have a really good model that has worked for us since Jayson started. We’re a virtual wine company. We do not own our own winery but have an alternating proprietorship relationship with custom crush businesses, Napa Wine Co. in Oakville and now Paul Hobbs’ Crossmark facility in Sebastopol. Having a virtual wine company out of the box, whether Jayson realized it at the time, is smart because he was able to put money in the most meaningful areas.

    Mr. Pahlmeyer: (Early Pahlmeyer winemaker) Helen Turley said if you want to get First Growth or Grand Cru (French wine classifications), you need to control your own vineyards. When people ask where I make wine, I say, “Right across the street from Opus One!”

    How much do you plan to grow or contract your business in the next 12 months?

    Mr. Pahlmeyer: We do not have any grand plans of growing our business. We do plan to judiciously grow production to meet demand.

    Mr. Hilliard: In the next few years, our business actually is going to contract. In the next two years, we’ll be selling the 2010 and 2011 vintages. Those two vintages were tough for Napa. There was not enough extraordinary fruit from those vintages to make great wine.

    The goal outside of two years will be thoughtful growth. We’re a luxury wine company and always will be, so growth will be measured in bottles and not cases.

    How has the financial crisis, economic recession and very slow recovery affected sales?

    Mr. Hilliard: The difference between now and January 2009 is like night and day. We can go and call on accounts, and our loyal (direct-sales) customers are purchasing more than they did last year and the year before. We’re seeing good indicators for us. We’re doing well.

    Mr. Pahlmeyer: Luxury wine is a highly discretionary product and is paid for with discretionary income. But during this “great recession,” what really saved our bacon was our loyal direct-to-consumer customers. When restaurants shut their doors and distributors passed up on full allocation, they were still ordering wine.

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