Chalone:
A Journey On The Wine Frontier
By W. Philip Woodward and Gregory S. Walter

Sample Chapter


Chapter 8

The Beginnings of a Beautiful Partnership

Growing up in Ottawa, Illinois, Philip Woodward knew about only one wine--Asti Spumante--“because my mother had gone to school in Florence and she thought that was Italy’s only wine. We had it every Christmas. For other occasions, my parents would drink Virginia Dare. Wine was definitely not part of our life.”

In 1955, at the age of 15, Phil was sent east to school at Phillips Academy in Andover, Massachusetts. When he graduated three years later, he went west to the University of Colorado in Boulder, where he majored in history and economics. It was at the university that he met Diane McQuown, who, as it turned out, came from Sandwich, Illinois, about 30 miles from Phil’s hometown. After earning his bachelor’s degree, he went on to Northwestern University to study for his master’s degree in business administration. In 1964 he received his MBA, and he and Diane were married.

“I had job offers to work in the Chicago area, which most people did if they went to Northwestern,” Phil said. “But we (Diane and I) decided we wanted to make a break, so I ended up taking a job with Jones & Laughlin Steel Company in Pittsburgh. It took me about three months to realize that that was a mistake, at least a mistake from the standpoint of my career.”

In spring of 1965, Phil answered a blind advertisement for a “consultant.” The company turned out to be Touche Ross & Company, a large CPA/consulting firm with offices in most major cities. Phil was sent to Detroit, the company’s largest office, where he was placed in a special training program for MBAs. For two years, as part of the program, he worked with the audit staff. At the end of that time, having passed the exams, he was qualified as a CPA and assigned to the company’s consulting staff.

“The reason I went to work for Touche Ross,” Phil said, “was because my true interest was small business. If I went into banking, I could get a look-see into many different businesses but only from the view of a bank office. In public accounting, I would get the same opportunity but I would see these businesses in more depth. I would see people on site, and I would see how things really work. My hope was that eventually I would find a business I liked and would get involved with it as an owner.”

Detroit turned out not to offer the small business opportunities Phil had hoped it would. But quite by chance, it offered a different kind of opportunity. Phil took his first wine appreciation course, offered in his office building by a faculty member of Wayne State University.

“It was a short course that covered everything from apéritifs to dessert wines, and it opened up a new world to me,” Phil said. “I can even remember that the first wine on the first day was Cinzano Bianco-then we ended up going with some dessert wines. Of course, this was in the 1960s, when there weren’t a whole lot of different wines from California to learn about, but there were two or three stores in the Detroit area where you could get wines like Beaulieu Private Reserve.”

In two weeks, the course ended but Phil’s interest was just beginning. He and Diane, who also had not grown up in a wine drinking family, started to buy wines and helped organize a wine club, meeting with friends once a month over dinner to taste. Each member took a turn to make a presentation on a particular wine type.

Meanwhile, after six years in Detroit, frustrated by the lack of small business activity there, Phil asked Touche Ross to transfer him. He was given a choice of five cities. When he saw that San Francisco was among the five, he hardly glanced at the other four names. Phil interviewed with the head of the San Francisco office at that time, Rick Kramer. “He told me years later that he was skeptical at first-he wasn’t sure that I would fit in with the small business group he had put together,” Phil said. But Kramer decided to take a chance on Phil and gave him a week to find a house and move to the Bay Area.

Phil arrived in San Francisco in November 1970. Within one week, he had bought a house. A lot of help in orienting himself in this new environment came from Diane’s brother, John, who lived in the town of Mill Valley in Marin County.

“John McQuown--we call him ‘Mac’--had a lot to do with introducing me to different wines while I was still in Detroit,” Phil said. “So we already had that connection with him and when we were going to move out here, he said he thought Marin County was kind of a neat place to live. I told Diane that within a week I would find five houses that we could afford and then she’d fly out here, pick one, then go back, get the kids and we’d move. I can’t imagine doing that today.”

In January 1971, the house was ready for the family. By then, Diane and the two boys-Scott and Matthew-who were respectively about two months and two years old, moved to the bayside town of Belvedere in Marin County. Phil felt he could not be happier. “I thought not too many people get this opportunity-to have my family with our two little towheads, to live in this city, to have the work I always wanted and to be near wine country. My interest in wine was perking along, and by the time I moved to California, I thought I knew a bit.”

He soon found he had been given one more opportunity-the chance to combine his new position at Touche Ross, as head of consulting for small businesses, with the budding West Coast wine industry. After only a few months in San Francisco, his consulting assignments included Touche Ross clients who were involved in Napa Valley wineries--Inglenook, which had recently been acquired by Connecticut-based spirits giant Heublein Inc., and the Seattle-based Rainier Brewing Company. Rainier at the time was co-owner of the then four-year-old Robert Mondavi Winery, and was looking for a way out of that investment. Phil’s task was to help work on the negotiations that a few years later would allow Mondavi to buy out Rainier.

“For the first time I really saw the business side of what for me was a hobby that was fast getting out of control,” Phil said. “I could see that you could make some money at this. I could see where Mondavi was headed, and so I thought, maybe this industry is where I could find something I really like and feel passionate about.”

Shortly after his work with Rainier, Phil went to work with another Touche Ross client, Bud Van Loeben Sels, who was in the process of trying to raise money for what was then Oak Knoll Vineyards.

“I did a lot of work for Bud. It was one of those things where they needed the credibility of Touche Ross to raise money, and he got me involved in just about anything I wanted to do in terms of putting together the prospectus and selling it,” Phil said. Once again Phil saw what a business startup was like-the energy, the excitement. And he loved it.

“I probably worked on that account for a good year,” said Phil. “Maybe it was six to nine months. In any case, it was quite a while, and Bud made me an offer to come and run it as President. I seriously considered it, but I really just felt that it wasn’t the right time.”

Little did Phil know that his decision to turn down the Oak Knoll Vineyards job would lead him to closer to the job he really wanted.

In early 1971 Phil began to do some consulting work to help a few small wine shops in San Francisco set up accounting and inventory control systems. Since this work was separate from his work at Touche Ross and since the shops could not afford to pay him money for these services, Phil asked that they pay him in wine. One day, having finished a small job for Esquin & Esquin Imports, they gave him a bottle of 1969 Chalone Pinot Blanc.

“Chalone--I’ve never heard of it,” Phil said. “So I took this bottle home-I didn’t even know there was a winery in Monterey-but I thought it was one of the best white wines I had ever had.”

Phil went back to Esquin & Esquin and asked who had made the wine. “I’d like to meet this guy,” Phil said. They told him, “His name is Dick Graff and you can’t get a hold of him because there aren’t any phones where he lives on the Chalone property.” Chalone was somewhere in Monterey County, they said, but Graff could be reached in San Francisco once or twice a week--he was selling barrels for a company owned by Peter Newton, called Sterling Imports.

“So I called him,” Phil said. “I told Dick that I would like to meet him and thought his wines were great. So we had lunch at the Tadish Grill in San Francisco. He brought the 1969 Chalone Chardonnay. That wine blew me away, too. I thought it was incredible.”

Phil was inspired. He asked Dick if he would be willing to meet with his brother-in-law, John McQuown.

“Mac had been living in California since 1964, and whenever I visited him before I moved out West, we would drive north and go to wineries together. We both loved wine,” Phil said. “At the time I met Dick, Mac was working at Wells Fargo Bank in the management services department. He agreed to meet with Dick but said he was very busy and could only stay a half hour. Well, if that’s all the time you have, fine, I told him. Just bring your best bottle of white Burgundy.”

The three men met for lunch in San Francisco at Julius’ Castle restaurant on Telegraph Hill. Mac brought a 1966 Louis Latour Corton Charlemagne and Dick brought another bottle of the 1969 Chalone Chardonnay. First the half hour passed, then an hour, then another hour.

At the end of a three-hour lunch, Phil and Mac were thrilled with the Chardonnay and in awe of what Dick had told them about Chalone. “As much as we both loved wine,” Phil said, “we never really thought we’d be able to get into the winemaking business.” But listening to Dick, they were encouraged. Perhaps, after all, it just might be possible to be involved in some way.”

Phil summed up his feelings about Dick Graff and that pivotal lunch: “He knew a lot about the subject matter. He was obviously a smart guy and somebody who you just liked-you had to like this guy. But we never had any discussions about getting into business together. I knew what he was kind of doing. He was starting a little wine business from a property that his mother had bought at an auction. But Dick never really pushed it very hard, at least in the beginning. But we both liked Dick a lot.”

“Mac and I had talked a lot about getting into the wine business, but we had pretty much decided we were never going to be able to do that. But after we met Dick and heard his story, we thought maybe we could at least own a vineyard.” Phil and Mac thought they could buy one together in Napa Valley. They thought they could sell the grapes and maybe even build a second home there.

Phil and Mac had already looked at several vineyards in Napa Valley; none were quite right. They had also heard that Lee Stewart’s Souverain property was for sale, so they drove up to take a look. “We went over the place and we thought it was great,” Phil remembered. “But the problem was that there was a house on the property, and Lee Stewart wanted $100,000 for it and $300,000 for the rest. We didn’t want the house, not at that price, and he wouldn’t sell the property without it. So that deal fell through.”

They looked at several other properties and had gotten to the point where they were almost ready to buy a property on Zinfandel Lane near St. Helena. “We thought we needed somebody else to take a look at it with us,” Phil said. “So I said, ‘Why don’t I ask Dick? He would tell us.’ So we did, and we brought Dick up to look at it and Dick gave us his opinion on the property.”

At the end of that day, the three men stopped at a bar in St. Helena to talk and it was there that Dick made a suggestion to the discouraged Phil and Mac. “You know, if you guys are really interested in a vineyard, I have a property at Chalone that I don’t own, but a friend of mine does. Maybe you’d be interested in buying that?”

The land Dick referred to was on the benchland-a 160-acre quarter section near Chalone. If Phil and Mac developed it, Dick promised them, he would buy their grapes. The land was the Hall property that Bob Nikkel had bought and agreed to hold until Dick could take it over. But it was clear that Dick would not be able to buy it. So, Phil and Mac decided to take a drive, visit Chalone and the Gavilan benchland, and see what Dick was so excited about.

“One night after work Mac and I drove down there, and for the first time we saw Chalone. We got there in the early evening. I remember because it was still light outside-we never would have found it otherwise,” Phil said. “The first thing that struck me about the place was that it was really remote. I mean this place was so remote and so different than anything we had ever seen in terms of vineyards, we couldn’t even believe it was there.”

Dick was there with two other men-one was an investor, the other a friend. Dick made them all dinner and they talked about the Chalone story and plans for the future. Phil, while fascinated by the story was skeptical. “We got the story, but then you looked around. There was no water; there was no electricity-no utilities of any kind. You couldn’t even have a phone,” he said. “How could anyone live up here and really seriously think about having a business?” So, although they liked Dick and his wines a lot and decided to invest $1,000 each in Chalone, they still believed their destiny resided in a vineyard in the Napa Valley.

After that first visit, Phil and Mac drove to the benchland many times to go over the property. They looked at the almond orchard that was on it, at the house where no one had lived for 30 years, at the other old farm building. And for the next several months, they considered it.

During these months, Phil began to feel that perhaps his dream of being involved in a small business might be realized by Chalone. But he also felt that, unless Chalone raised a considerable amount of money, it was not going to last. It was clear that Dick, whom he felt he knew well by then and respected highly, was tremendously talented and dedicated. It also became clear that the business aspect of a winery was not the best place to put Dick’s talent. But Phil felt it was the natural place for him.

Phil was also rethinking the “vineyard only” plan. “The more we looked at it in terms of what it was going to take to develop it, the amount of money and who was going to run it, the more we realized that this vineyard development thing could not stand on its own,” Phil said. “You relied on the fact that you were going to sell the grapes to an entity that, frankly, had no money and no management. So that’s when we began thinking that if we were going to do this, then maybe I should leave and be on both sides.” In other words, Phil would be the General Partner of the new vineyard property along with Mac, while at the same time, work with Dick on the winery side to put together a viable company.

“If I could just find a way to keep going, to support my family while I got started in wine, I felt eventually the business could support us,” Phil said. “By late 1971, I was sure that that was what I wanted to do.”

Phil spoke to Dick. He told him he would quit his job-he could not continue to work for a public accounting firm and for Chalone at the same time-and would put all his efforts into raising money for Chalone and selling its wine. If Dick would agree to the idea, Phil would become Chalone’s chief financial officer, Mac would be placed on Chalone’s board of directors and, as soon as Phil left Touche Ross, he would also be on the board.

Dick agreed, and Phil set about making plans. He intended to leave his job in June 1972, which gave him a few months to cover all details and complete his current projects at Touche Ross. He was about to enter the wine business, and he was a happy man. And then he discovered another monumental event was to happen in June 1972. Diane was pregnant.

“I had to rethink everything,” Phil said. “I had already borrowed money from my mother. I had taken a second mortgage on my house. I had taken the job at Chalone, and, at $500 a month, I could last five years. If at the end of five years it didn’t work, if I hadn’t turned Chalone around, I would be out of money. Now, with Diane pregnant, I thought, I cannot take the chance. I will not be able to go through with this. But Diane was wonderful. She supported me; she was with me. She knew how much I wanted this.”

In June 1972, Diane gave birth to twin girls, Anne and Karen. That same month, Phil and Mac bought the 160-acre Hall ranch from Bob Nikkel for $50,000. Now, to develop their new benchland property, they created Macwood of Monterey (McQuown-Woodward) as a partnership. It began with three partners: Mac, Phil and Phil’s mother. Two years later after Mac and Diane’s father visited the benchland, he told his wife he, too, wanted to be part of it; six weeks later, before he had talked to Mac about it, he died. When Mac went home for the funeral, his mother told him about his father’s wish. “He wanted to be a limited partner,” she said. “Why can’t I take his place?” And so the Macwood property became a partnership of Mac, Phil, their two mothers and the bank.

“We were going to plant vineyards and sell the grapes to Chalone,” Phil said. “We were going to renovate the old house and have a weekend place. It seemed quite achievable-with the bank’s help.”

In August 1972, having delayed his plans only two months, Phil left Touche Ross and went to work for Chalone.

Very quickly, however, Phil and Mac began to have doubts about their plans for the Macwood property. Chalone was in such poor financial condition; how would it pay for their grapes? And even if it could eventually pay, how would they make enough money to manage their loans on the property? Profits in the wine business, they soon realized, came from wine, not grapes. Perhaps what they ought to do, he reasoned, was to buy a bigger piece of Chalone itself. In September 1972, Phil and Mac each bought another 1,000 shares at $20 a share. Meanwhile, to augment his salary from Chalone, Phil took a part-time job with one of his former clients. For one year, he would work nights and weekends as a consultant on mergers and acquisitions.

“I couldn’t afford to only do Chalone,” Phil said. “So one of my former Touche Ross clients, Bob Green, gave me the ability to work for him for a whole year to find acquisitions. At the time, he was CEO of Community Psychiatric Centers, which he had taken public. He agreed to pay me the same thing that I was making at Touche Ross for a whole year.”

With Phil now working full time, Chalone needed an office in San Francisco. And Phil’s first coup was to get one at 655 Sutter Street. It was tiny and in the basement but the rent was right-it was free. The building was owned by Jerry Draper, who also owned the Esquin & Esquin wine shop and import business where Phil had first heard of Chalone. Draper planned to renovate the building, move the wine shop in and rename the property the Vintners Building. Chalone became his first tenant.

“The office was just big enough to hold two desks and a telephone,” Phil recalled. “That was our office for the first year; after that, when the renovation was complete, we were to move to the second floor and pay rent. That’s how we began. I was selling what little wine we had. I was raising money, keeping the books, and answering the phone-although it didn’t ring very much. I needed someone to work with me, so I asked my sister Wendy who had just graduated from the University of California at Berkeley if she would help temporarily until I could find someone to take her place.”

Phil worked hard to get Chalone’s wine into the city’s restaurants and retail shops. Mostly, he worked hard to raise money. With Mac’s help, as well as that of Conger Fawcett, Chalone’s attorney, he was able to sell $200,000 worth of shares. Chalone had never seen that kind of money.

“Conger Fawcett helped us put together all the things legally, and there were certain restrictions on what you could do, but essentially what I did was just follow any lead I could,” Phil said. “Mac knew a lot of people, Dick knew people, I knew some. Most of the people were clients of Touche Ross who I knew had an interest in wine, and so we went to them with this idea. What made it a little bit easier than a startup was that Dick actually had wine he had made in 1969 that was outstanding. The 1970 vintage was good; the ’71 vintage was very good. The point is that we did have some wines to taste and a brand name to show people who had an interest in investing in a winery.

“The fact that we were so remote and so completely out of the mainstream didn’t seem to make a whole lot of difference to most people. If they really cared about wines and they wanted to be a part of a wine company, I went anywhere they would listen to me,” Phil said. “We had New York investors, we had Texas investors, and usually they would be professionals who had the money and discretionary income and a love for wine. They wanted to be involved and looked at it as a long-term investment.”

That’s not to say this period wasn’t filled with its share of sleepless nights for Phil Woodward. He had just made a “cold turkey” career jump from a comfortable role as a consultant with a huge national firm to an entrepreneur in an undercapitalized, labor- and capital-intensive business. How did he cope?

“The best thing I had to fall back on was all the experience I got at Touche Ross in the accounting and tax areas; this time probably gave me more of the tools to work with than anything else. At least I felt I knew where to start,” Phil said. “But it was a total culture shock. In those days I did everything from delivering the wine to selling the stock.”

But he had to admit to himself that it felt good. No, it felt great!

And at the end of the first year with Chalone, Phil’s part-time job ended as planned and, he said, he learned to live on less money than he ever thought possible.

* * * * *

When Phil and Mac bought their Macwood property, they had planned to develop 100 acres in vineyards. The first 24 acres were planted in 1972, followed by 26 acres more in 1973 and 20 acres in 1974. After that, they stopped for a while; they were out of money and did not want to borrow more. The Macwood company, after all, consisted only of the two brothers-in-law and their mothers.

The 1972 harvest, the first for Phil, was one of the winery’s worst. He, Dick and Dick’s brother, John Graff, worked hard, but again, the birds had pecked open and eaten most of the grapes. “We never even labeled the 1972 Pinot Noir,” Phil said, “and most of our white wine that year was not very good. I saw that there would not be much of anything to sell, and I realized we were going to have to raise more money just to stay afloat. And that’s what I did. I sold more stock in the corporation.”

That vintage-what there was of it-was made where all Chalone’s wines had been made, in the tiny winery Philip Togni had created out of Will Silvear’s chicken coop. It was wildly primitive, romantic, challenging. But if Chalone was going to develop into a viable, competitive winery, Phil decided, it would need a modern winery. That, of course, meant that he would need to raise still more money. And he did.

“Mac and I had a friend, Roland Masse in Marin, who built houses,” Phil said. “So we asked him if he would build a winery for us. He came down to Chalone and said, ‘How am I going to build a winery where there’s no electricity?’ But he knew us and so he said he would do it.

“The first thing he did was to move down to Chalone. He moved down there into a trailer. He then built the winery by using generators. He had one guy who moved down, too, and worked with him. He and Dick designed the winery, and then Roland put it on paper, got the permits, and he and Dick built it together. Dick went down and got his electrical union license, got his plumbing license, and did all the plumbing and electrical,” Phil said.

They labored through 1973 and much of 1974, finishing just in time for that year’s harvest. The new building was large enough to handle 12,000 cases of wine.

“If we could make that much wine and I could sell it for about $10, $12 a bottle,” Phil reasoned, “we’d have no problems. We would all be able to make a nice living.” Up to then, Chalone had been making about 2,000 cases a year-almost.

The last vintage made in the chicken coop winery was 1973, and it was a wonderful vintage, a fine and fitting farewell to the past and Phil’s first try at working the harvest. The first vintage in the new winery, in 1974, was not only equally good in quality, it was also the largest crop Chalone ever had. The old winery could never have handled it.

Now that Chalone was a corporation, it had to hold annual meetings. The first, in 1973, was held in Dick’s little house. There were six people present and the meeting lasted 10 minutes; afterward, they drank wine and talked about what they would like to accomplish in the coming year.

By the time the next annual meeting was held, Phil had sold considerably more stock, and about 25 people were expected-far too many for Dick’s house. It was held instead in the A-frame house that Phil and Mac had just completed on the Macwood property. After the business roundup, food and wine were served.

At the 1975 meeting, almost 50 people came, some in campers and others with sleeping bags; later, a catered lunch accompanied the wines. It was a meeting, but it was also a party.

Later, Phil Woodward took stock of his progress. He was three years into his five-year plan. The 1972 harvest was a disaster, but 1973, 1974 and now 1975 were fabulous vintages. Things were going just as he had planned.

“They were heady years-1973, 1974, 1975. We were getting shareholders. We were getting money. We had three good vintages. We were right on track.” He was going to make it after all.

 

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