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So, with that, I had the makings of a completely vertically integrated system: designing, building, and managing the vineyard; harvesting the fruit and turning it into wine; then bottling it with a private label and returning it back to the customer who may be president, CEO, chief evangelist, or COO of dot-com A, dot-com B, or dot-com C. All these pieces just continued to come together beautifully so that now, here in 2009, we have this wonderful winery that's completely serious in terms of winemaking and totally organized around respecting the sustainably farmed vineyards that we've designed, built, and managed, so that we can control it all from start to finish. Then we took the best that Don had to offer — all this beautiful stonework and stucco, and all this cool, found timber from his ranch in La Honda — and made a beautiful hospitality space [in this warehouse] where we can sell all of our estate-branded La Honda wines right out the front door to the public.
NM: You began with the intention of creating vineyards for high net worth clients wanting 'to live the California dream,' which for them wasn't complete until they had their own vineyards from which wine could be produced and bottled. But to what extent is La Honda's own wine sourced from the fruit of these clients' vineyards?
KW: All of the fruit from each of the vineyards in the portfolio comes here to La Honda Winery in Redwood City. There are then basically two scenarios. In the first one, the private client retains 100% of their fruit from which we make their private wine. In that case, we harvest that fruit, bring it into the winery, make it according to their specs, and bottle it with their label — all for a fee. It then goes right back to the client, with no other consumers out in the public seeing it. And that scenario applies to perhaps a quarter of our vineyards. The second scenario is where clients defer to me to take the fruit, vinify it, and return some of it back to them in the form of a few bottles that are blended with some fraction of their own fruit — all with no fees involved. In that case they have me make all decisions: how to vinify and then blend it, when to bottle it, how long and in which kind of oak to age it. These wines go under the La Honda label. The entire arrangement of that second scenario [the majority of my business] is on a barter basis. We don't actually buy any fruit at all!
NM: Okay, now that is a very different business model! There's a flow, a circulation of give and take, an exchange of resources. It's very yin and yang.
"We really have a one-of-a-kind model that I don't believe exists anywhere else in the world."
KW: Yes! This truly is unique. That word is overused in this industry, but we really have a one-of-a-kind model that I don't believe exists anywhere else in the world. The model is intended to be win-win, all the way. The clients are willing to spend a lot of money on farming because it's their fruit — the unlimited farming budgets are what allows us to grow perfect fruit, which makes its way into these award-winning La Honda-brand wines. There is none of the usual pricing tension between grower and winery.
NM: Allow me to play devil's advocate for a moment. With all the costs involved in doing this, is it really worth it for the client, just so they can have a cellar full of their own wine?
KW: Let's say it costs $100k to install a vineyard. You regard that as an investment, and set it aside. Now let's just say it costs $10k to farm the vineyard for the year and harvest the fruit and get it to the winery. And let's say it's another $10k to convert that fruit into a finished product in bottle with cork, capsule, and label. That's $20k. Now let's say that for the $20k, the client got 500 bottles — that's $40 per bottle. Wow! After all that (high-end farming and custom winemaking, with a first-class bottle, cork, capsule, and label), their cost per bottle for a world-class wine is no more than it would have cost them to go out to a fancy restaurant and buy a mediocre bottle for the same price. But because of the way my model is designed, it might seem like a fortune — $20k is a lot of money for an individual to pay for an inventory of wine — except if you're a dot-commer up the hill who really loves wine and has a cellar to fill, and it only costs you $40 a bottle to have your own château-quality private wine. The model really works. That's basically the first scenario I described. In the second model, the client takes a percentage of their wine back with them, in bottle with the La Honda label on it. And it's either some kind of a blend or, when the vineyard warrants it (in my opinion as a winemaker and marketing person), will get a vineyard designation. [The remaining percentage of wine the client leaves with me] is in the exact same package, but something I market and sell myself under the La Honda label.