Time in a bottle

Trading chips for sips, an ex-CEO finds growing grapes and making wine can be more complex than creating software.
By David Bailey

Max Lloyd stands atop a ridge in northeastern Guilford County. A steady breeze from the nearby Haw River combs his hair as he surveys long rows of neatly espaliered chardonel vines. It’s high noon in the dead of summer, and an unsparing sun beats down on the surrounding clover, its leaves seared to the color of burnt umber. It hasn’t rained in 15 days, and unlike other farmers around him, Lloyd is loving it. While nearby corn withers, Grove Winery grapes load up on sugar and minerals, foreshadowing what winemakers call a vintage year. Rain would change the equation, especially late in the summer when the state often gets so much. Why? “Never allow anyone,” as one winemaker says, “to put a quart of water in your spaghetti sauce at the very end.”

Lloyd, 46, hopes that the ridge above the river where he planted his eight acres of vines will provide the sort of microclimate that has made the Loire, Rhône, Sonoma and Napa valleys internationally famous. It was only last year that the Haw River Valley — 868 square miles in Alamance, Caswell, Chatham, Guilford, Orange and Rockingham counties — became North Carolina’s third American Viticultural Area, federal recognition of its potential to produce distinctive wines. It has a longer growing season, Lloyd says, than the Yadkin Valley and Swan Creek AVAs, giving late-season reds — cabernet sauvignon, sangiovese and cabernet franc — time to reach full flavor. Plus, he says, sifting large particles of river sand and gravel through his hands, the valley’s soil is perfect for grapes: “This unique soil is not only mineral-rich but also allows excess rainfall to be quickly taken away from the grapevine’s roots, generating lush, intense flavors,” he explains.

But nobody knows whether any of the state’s AVAs will produce wines to compete or compare with those of the West Coast or even Virginia. “The entire state of North Carolina is still one big experiment, specifically for French vinifera wines,” says Lenna Hobson, who, with her husband, Frank, has been making Ragapple Lassie wines in Booneville for nearly a decade. “Which varietal, which root stock and which clone has been largely a crap shoot. This is why most vineyards end up pulling up vines and replanting them as part of their hunt for the right choices.”

The uninitiated might think the reason Europe and California produce the best and most expensive wines on the planet comes from terroir, the combination of their climate and geography. But superb wines are produced not merely because terroir is ideal but because people in those places have been making wine for generations, even millennia, and know what to do under less than ideal circumstances — after a rainy summer, for instance. Asked if he thinks North Carolina has what it takes to compete with world-class wine regions, Jerry Douglas, who has been at Biltmore Estate’s winery in Asheville 25 years and is senior vice president of marketing and sales, says, “I do. I believe we are still searching for the right expression of grapes in each area, but it will take time and commitment. This is a business that takes multiple generations to establish.”

“I disagree,” Lloyd says. “Ravenswood in Sonoma and Sullivan in Napa and Barboursville, Horton and Linden in Virginia made an international name for themselves in less than two decades. After a decade of harvests, you should have a pretty good statistical sample of what a vineyard block can do in different types of years.” Whoever is right, the reputation of North Carolina’s wine industry is up for grabs. And as its 80-plus wineries lurch awkwardly into adolescence, some think that reputation is in peril, Lloyd included. “I think it’s important that people’s early experience with North Carolina wines be good.”

“Absolutely revolting,” opines New York critic Nick Passmore after sampling one of five bottles Business North Carolina sent him from a medium-size, established Tar Heel winery. “Totally artificial floral flavor, not unlike those air fresheners one buys in gas stations.” Of another, BusinessWeek.com’s wine columnist says, “Muddy and undrinkable. Even the color’s wrong — dull, faded and lifeless.” In his tasting notes, he writes: “What are these people doing?”

“The next 10 years could be a painful and expensive 10 years trying to reacquire customers whose first experiences are bad,” Lloyd says, “and that’s something veteran winemakers talk about all the time.” Winemakers such as Mark Friszolowski, general manager of Childress Vineyards in Lexington, who spent years at Pindar Vineyards helping to improve the reputation of Long Island’s winemaking district. “The danger of establishing new regions,” he says, “is that some of the wine will be made by inexperienced wineries. Our long-term goal is to get the producers to think in terms of some type of quality alliance so we can help the newer and small producers produce drinkable wine.”

Ouch.

Growing wine on the East Coast is definitely more challenging than the West Coast, Australia or the New World locations where water is piped in and irrigation can be controlled,” Lloyd says. And he should know. “I came at the winery as a farmer, attracted to the agricultural side,” says the former high-tech entrepreneur who fell in love with wine in the early 1990s on a business trip to California. A software engineer with Charlotte-based SAI-Amex, he was doing a product rollout at a Sonoma hospital. “One afternoon I wandered down to Gundlach Bundschu, walked right into the winery. It was unlocked. And who’s there but Lance Cutler, their famous winemaker. He was as friendly as could be.”

Soon, Lloyd was rubbing shoulders with legendary winemakers at Ravenswood and Sebastiani as he volunteered to clean tanks for free. He often would be invited to long dinners at which a dozen or more wines were sampled, some of which would become world-renowned. For the son of a Burlington Industries executive, raised in Greensboro on sweet tea and suckled on Bud Lite at Carolina, tasting those wines was nothing short of an epiphany: “Where has this been all my life?” he asked himself. “This is incredible.” Lloyd learned how almost desertlike conditions and lots of sunshine in the Sonoma Valley loaded the grapes with sugar and flavors that produced wines of dizzying intensity.

In 1993, he and his father put in 11 rows of grapes on a small farm near Altavista, Va. “We did everything wrong that you could do.” As he added vines each year and bought a second, 30-acre farm overlooking Smith Mountain Lake in 1999, Lloyd learned tricks of the trade, such as planting on well-drained soil, capturing as much sunlight on leaves as possible, rigidly trellising his vines and orienting rows north to south. His career had taken off after he hitched his star to companies creating software to design computer chips. His jobs took him to the Silicon Valley — where he got more time with California winemakers — then to Oak Ridge, Tenn., and finally to Durham as CEO of ViASIC Inc. Over the years, he often found himself at the right place at the right time, cashing in as the companies he worked for were gobbled up. “I came away with a little jack in my pocket,” he admits.

In 2001, after looking at 40 farms in the Triad, he bought 44 acres in Osceola, a crossroads about 20 minutes from Greensboro and within an hour’s drive of Chapel Hill, where he lives with his wife and three children. “When I saw the sloping land, the sandy soil, the fields with good air movement and water drainage, I knew it was the best place to grow grapes near the Triangle.” Despite 80-hour workweeks and a lot of travel, he found time to hire a vineyard manager in 2002, put up a building in 2003 and get bonded in 2004. In 2006, he left ViASIC, though he’s still on its board.

What started as a hobby farm became serious business as, bit by bit, his investment in land, buildings, stainless-steel holding vats, bottling equipment, farm machinery and staff of seven exceeded $1 million. Since 2007, Grove Winery LLC has been nominally profitable, he says, with revenue in “the three- to five-hundred thousand” range. One reason is that from 2004 through 2008, sales in its tasting room grew 30% annually before flattening last year. That brings up another key to a winery’s success — eking out a profit between what it costs to produce a bottle of decent wine and selling it at a price that pulls in people.

With an ocean of not just passable but highly drinkable wines from around the world available in the $8 range, why do so many North Carolina wines cost more than $10 a bottle, with many in the $15-$19 range? “When you see a great $8 bottle of cabernet sauvignon,” Lloyd says, “know that the grapes have been mechanically harvested in a desert area that’s irrigated with outside water and [the wine] manufactured in a factory setting.”

Except for the desert part, isn’t that something North Carolina winemakers can do? Lloyd tried last summer and produced three wines for under $10, not one of which he’s ashamed of — one won a gold medal. He did it through a combination of skill, ingenuity, pure luck and compromise. For the first time, rather than hand picking, he used a Louisburg-based Foster Family harvester on 15% of his crop. As he had in the past, he used a mobile mechanical-bottling service out of Harrisonburg, Va. Most of all, he got creative with blending and aging.

Take his Jug House Blush. “This came from a business decision,” he says. This past summer he had made wine with raspberries he had been given by Chinqua Penn agricultural experimental station near Reidsville. It was, in a word, awful. Grove also had a surplus of wine made from his highly productive traminette grapes. “I wondered what would happen if I put the two together, and it was pretty good, but it needed some pop. And we knew where we could get it: strawberries. But my goal was to add as little strawberry as I could, because I can sell all the strawberry wine that I can make.” The result looked and tasted a lot like the ever-popular white zinfandel. The blush not only won the coveted double-gold medal at last year’s State Fair, “it sells like sliced bread.” He also decided to make an under-$10 merlot, but what to do about aging, with barrels costing more than $1,000 each and the time that wine spends in them adding to the cost. The solution? Oak chips added to wine in stainless-steel storage.

A survey conducted for Business North Carolina by the N.C. Department of Commerce’s Wine & Grape Council found several wineries — including Duplin, Lake Road, Old North State, Brushy Mountain and Ginger Creek — reducing prices in response to the recession. “Aiming for the ‘lower priced’ range will not be easy for most N.C. wineries,” says Joyendu Bhadury, an associate dean at UNC Greensboro’s Bryan School of Business and Economics. He and executive-in-residence Sam Troy studied the business-development needs of the Piedmont wine industry. It’s important, they concluded, to have “some offerings in the $10 or less category and still have their premium wines priced higher.”

“It’s not where we were going three years ago,” Lloyd says, “and it’s not where we’re going with the majority of our wines, but it’s where we’re going to give our customers an option.” That, he hopes, will get more people into the winery. With under-$10 wines as stepping stones, he hopes customers will move on to try some in the $12-18 range. “And a couple who drinks our $15 cab once a week may decide to start drinking my $40 cabernet sauvignon on special occasions, like a birthday.”

Economies of scale and proximity to goods give wineries in established regions such as California a distinct advantage. Bulk grapes, available from there, New York and even Australia, can be had for $800 a ton. Bulk grapes from North Carolina run $1,500 a ton. “But if you grow grapes the way I like them to be grown,” Lloyd says, “they cost more like $2,200 a ton” — which is why he grows 80% of what goes into Grove wines. Then there’s the shipping cost from out of state or country for almost anything that has to do with winemaking, from corks and bottles to equipment such as steel tanks and presses.

And though grapes and barrels are the most expensive components, cost of packaging is not negligible. For 8.9 cents, you can get a plastic cork. For 10.9 cents, you can get a synthetic cork from Zebulon-based Nomacorc LLC. Want a really nice, long natural cork like the ones in finer wines? They’re 55 cents each. Bottles can be had for as little as 40 cents each, provided you don’t care about their shape or weight. Really nice ones, à la Française, begin at around $1. Labels can run 26 cents each. And fine wines traditionally have a front and back label. Lloyd’s Jug House Blush sports an evocative photo of antique wine bottles. The photographer’s fee was $200. “Damn, that’s depressing,” he says, doing the math. “That adds 8 cents a bottle to a $10 bottle of wine.” Just getting a bottle maker in North Carolina would really help things, he says.

The under-$10 category is especially important for retail. If you walked into the Greensboro Total Wine & More store last summer and counted its selection of North Carolina wine, you would have found 127. Of those, 58 were priced under $10. “If you’re looking for volume, [under-$10] is important,” Biltmore’s Douglas says. “Approximately 85% of wine sold in the U.S. is under $10.”

However, with a 55-cent natural cork, a 65-cent bottle and 52 cents spent on labeling, the container, without a drop of wine in it, costs something like $1.72 — 17% of the $10 price. Add the 30% that distributors charge, and you need to make wine for less than $5 a bottle to turn a profit. It can be done, and Lloyd, at least if awards mean anything, has done it. But making good wine for $5 a bottle takes not only skill but also luck.

Of those 58 choices in the Greensboro wine shop, 38 were sweet. Lloyd learned the hard way that you had better have sweet wine on the shelves to satisfy the Southern penchant for syrupy tea and soft drinks. Using native muscadine stock that flourishes during its hot, humid summers, North Carolina led the country in wine production by 1835. From the turn of the century until prohibition — which got a head start here in 1912 — as many as 25 wineries produced a sweet, potent wine that probably was not much different from that made by Rose Hill-based Duplin Wine Cellars Inc., the largest winery in the Southeast (cover story, April 2006). Duplin, Lloyd concedes, does a really good job, and winemakers have a lot to learn from its under-$10-a-bottle strategy. “From a purely business point of view, it makes much better sense to make sweet wines,” he says. For one thing, native grapes are cheaper than vinifera because, being naturally suited to the state’s climate and soil, they’re more plentiful. And a drinkable sweet wine is easier to make than a refined dry, whether white or red, the latter being particularly challenging.

Writing software, Lloyd says, is horrendously complex and takes both intelligence and creativity. “I think wine is even more complex. With software, by definition there’s a known number of inputs and variables. But with agriculture, not only is the number of variables infinite, the important variables can change on a daily basis.” That’s why winemakers, not exactly a humble bunch, stand in awe of good vineyard managers.

“There is no single technique we can employ in the cellar that is greater than the influences we exert in the vineyard,” Childress’ Friszolowski says. “Vine spacing, water management, canopy, crop load and harvest time are all critical. It is often said that a winemaker is only a babysitter for the grapes on their way from the vineyard to the bottle.” It also explains why new vineyards and new winemakers often make — and sell — mediocre to execrable, spit-it-out-on-the-floor wine.

I’ve probably been a part of more than half a dozen startups, some successful, some unsuccessful, and I thought I knew a lot about business,” Lloyd says. Running a vineyard and a winery, though, requires a wide range of competencies. “You’ve got a manufacturing plant, which is very heavily regulated. You run a retail operation. You run a tourist destination. You’re a party and event planner.” In other words, it’s easy to focus on something other than the quality of your wines, especially for newcomers.

Perhaps the most common challenge facing the industry is distribution. “All interviewed,” the UNCG report says, “are almost unanimous in having strong misgivings about the commitment of wine distributors and wine retailers in furthering and advancing the sales of N.C. wines.” Friszolowski agrees: “It is extremely difficult under present market conditions to build a wine brand in today’s market. Wine distributors are only interested in established brands or new brands with big marketing dollars.” So what’s a Tar Heel winemaker to do? “Our advantage over West Coast wines and imports is that we can tell our story to the consumer better than they can,” he says.

Lloyd’s partner, John Gladstone, markets and self-distributes Grove wine from Durham to Winston-Salem, some days spending six to eight hours on the road to visit retailers and do tastings. “It’s just part of the business,” he says. “We realized that in order for us to get our name recognized and get in more stores and distribution points, it’s what we had to do.” Grove works with Atlanta-based Empire Distributors Inc. and Asheville-based Great Smoky Mountains Wine and Spirits, but Gladstone says nothing beats seeing those who sell his wine in person. “It’s still difficult because there’s the perception that N.C. wines are inferior, but with that face time — and tastings — we’re able to break down that resistance.” Sales in restaurants and stores grew 600% last year, Lloyd says.

Still, he concedes, “as an investment, wineries are generally lousy.” Especially compared with computer-chip-design software during the dot-com boom. Then again, “if I had put my million dollars into the stock market, I would probably have taken a 40% haircut. Instead we’ve got an ongoing, profitable business that’s creating jobs and is paying taxes and is growing. And it’s fun.”

In television commercials during the 1970s, Orson Welles quoted pioneer California vintner Paul Masson: “We will sell no wine before its time.” North Carolina’s wine industry is probably decades away from any semblance of maturity, but time will definitely tell how well its wine will sell.