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Grand Cru: Whether Building A Wine Cellar Or A Portfolio, The Personal Touch Makes The Difference

By Joseph Penner, Founder, Hill Street Realty

 

This summer, I was lucky enough to take a trip to France and visit the winemaking region of Burgundy. For three days, my wife and I traveled with a tour guide through the countryside, meeting winemakers, hearing their stories, and tasting wine. It was an incredible experience, similar to the World Series or Super Bowl for those who love wine. Winemaking in the Burgundy region dates back almost two thousand years, even prior to the Roman occupation. Modern-day winemaking started around 1336 with the Cistercians, a Catholic order of monks who branched off from the Benedictines. They built the first winery, Clos de Vougeot, which still stands today. It is an incredible building now used as a museum and worth a visit if you are ever in the area. The monks spent much time planting and working in the vineyards, as manual labor is a core part of the monks’ life, and wine was required both for their holy service as well as serving pilgrims and visitors who passed through the region. Over the years, the monks kept records of the vineyards, including the areas which produced the best wines. These records included detailed information about soil content and maps ranking locations amidst the vineyards.


Because of the physical location of the Burgundy region on various trade routes, the wine became well-known and sought after, thereby increasing the production of wine and the wealth of the monks. Originally an independent state, Burgundy was absorbed into France between 1477 and 1678, during which time the role of the Catholic Church declined. During the 1700s, the wines of Burgundy flourished, with the first major written work on Burgundian wine published in 1728. After the French Revolution in 1789, the monks were removed permanently, and the vineyard and wineries were sold off. Since that time, ownership of the vineyards has become extremely fragmented, as Napoleonic Law requires equal inheritance for all heirs. Currently, some owners may only own one or two rows of grapes in specific vineyards.


During the 1800s a system of quality control began, utilizing the records kept by the monks. This system evolved over time and included specific classifications of wine made from specific areas or “terrior.” Therefore, wine classification is based on vineyard location and does not take into consideration who makes the wine. While there are rules about certain parts of the winemaking process, if the grapes come from specific locations, the bottles carry that label. Grand Cru is the premier label, Premier Cru is number two, and Villages is number three. The final and lowest classification is Regional, which makes up approximately half the total production from the region.


As someone who has enjoyed wine for many years, I was intrigued by this system. While all wine regions around the world have requirements regarding the labeling of wine, and location is important, I had never encountered a system like this. For instance, in Napa Valley, you must have grapes from certain locations to feature it on the label, but the technique, ingenuity, and creativity of the winemaker are paramount. Contrast that with Burgundy, where the winemaking process is governed by many rules, including which varietals you are allowed to grow in your vineyard, but the quality classification depends only on where the grapes are grown.


As we traveled to different wineries, I was able to taste wines made from the same vineyards by different producers. As you can expect, the quality varied significantly, even though they all carried the same level of classification. This is probably one of the reasons why people are so confused about Burgundian wines and tend to lean toward Bordeaux, which classifies wines by the quality of the producer.


It is only by having traveled to some of these smaller, higher quality producers and spending time tasting their wines and hearing their passion for wine making that I was able to find wine I was comfortable purchasing.


On the plane ride home, I realized that this concept holds true in many different areas – including the field of investing. I have been lucky enough to work for large and small companies over the last 40 years, in many different areas of finance and real estate. When I started HSR in 2001, it was based on an idea of applying institutional techniques in an entrepreneurial setting to provide a bespoke real estate investment program that was superior to larger, sedentary companies who were not forward-thinking. About twelve years ago, I was introduced to the principals of Lido. At that time, they were much smaller, but they realized that part of their path to success was offering products that were high quality and tailored to their clientele. Products that may not necessarily be available everywhere in the market but were produced by companies that were passionate about what they do and the products they produce. I am happy to say that we are one of the products in the Lido portfolio, and I can assure you that curating a portfolio of these companies and products is no easy feat.



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