305 Hilltown Road
Company Perspectives:
Scheid Vineyards has been farming wine grapes in Monterey County since 1972. We service an array of winery clients up and down the coast of California with 13 distinct vineyard properties from Soledad down to Hames Valley. One principle has remained constant throughout our company's 30 years in business ... our commitment to delivering what our clients want. This commitment brings our vineyard team and winery client together to realize the common goal of producing outstanding wines.
Scheid Vineyards Inc. is a leading independent vineyard, controlling 5,600 acres of vineyards along California's central coast. The company, the first vineyard not owned by a winery to be publicly traded in the United States, produces 17 varieties of premium wine grapes, supplying more than 30 wineries. Scheid Vineyards' most important grape varieties are Chardonnay, Cabernet Sauvignon, Merlot, Pinot Noir, Sauvignon Blanc, and Syrah. The company produces a small amount of wine under its own label, approximately 5,000 cases a year, to showcase the quality of its wines. Scheid Vineyards contracts with wineries, usually under long-term agreements, to grow wine grapes according to the wineries' specifications. The company is managed and majority-owned by the Scheid family.
Origins
Alfred Scheid's entry into wine grape farming had nothing to do with an interest in viticulture. Scheid's interest was in finance. A graduate of Harvard Business School, Scheid spent most of his early professional career working for the well-known brokerage firm E.F. Hutton & Company. He spent a decade at E.F. Hutton working as an investment banker, enjoying his work enough to start his own investment banking firm at the beginning of the 1970s. One of the first clients of Scheid's fledgling entrepreneurial career was his former employer, E.F. Hutton, who wanted Scheid to explore the idea of establishing what would become the rage in the 1970s: agricultural tax shelters. E.F. Hutton wanted to establish a tax shelter for its senior executives, and the company asked Scheid to look at vineyards as a potential business opportunity. In 1971, Scheid began exploring possibilities, eventually focusing his investigation in Monterey County, situated between San Francisco and Santa Barbara. His findings were promising, prompting E.F. Hutton to move ahead with the project.
In 1972, Scheid, working at E.F. Hutton's behest, formed an enterprise that would become his life's work. He acquired 2,100 acres that stretched for 15 miles between Greenfield and King City. Unlike most agricultural tax shelters, which preferred to use contract farm management, Scheid formed a genuine company to provide the labor and the management of the proposed vineyard, creating Scheid Vineyard's predecessor, Monterey Farming Corporation. A second important decision was made at the start: Scheid opted against planting on speculation, preferring instead to sign long-term contracts for the grapes grown by the vineyard, a practice observed by Scheid Vineyards into the 21st century. Scheid signed a contract with Almaden and planted on the 2,100 acres under Monterey Farming Corporation's control. With the company and crops in place, there was only the question of leadership to be answered, a post Scheid accepted without relish. "I became president of the company, Monterey Farming Corporation, because nobody else wanted the position," Scheid reflected in the winter 1999 issue of Adventures in Dining. "I didn't particularly want it either," he added, "because this was really just a sideline operation."
After establishing Monterey Farming Corporation, Scheid continued with his entrepreneurial endeavors. His efforts to build his own investment banking firm took him into the field of biotechnology, a foray that again drew its impetus from his former employer. In 1982, E.F. Hutton approached Scheid about starting a biotechnology company in Palo Alto, California. Scheid started the company with $120,000 and within three years created a company with a market value of nearly $400 million. His success in Palo Alto led to the creation of another biotechnology company in Texas, but Scheid's attention was soon drawn back to the vineyards in Monterey Country. Changes in the tax laws had substantially reduced the worth of agricultural enterprises as tax shelters, which prompted some growers to abandon their vineyards. By the end of the 1980s, Monterey Farming Corporation had lost its worth as a tax shelter, and E.F. Hutton's senior executives wanted to divest their investment in the company. Scheid, who had initially assumed his duties at the vineyard with a measure of reluctance, felt differently about farming by the late 1980s. Scheid offered to buy out his partners and devote himself wholly to wine grape growing. "I wanted to get out of the biotech business anyway," he explained in his interview with Adventures in Dining. "The farming company had been a moneymaker from the first day," he added. "But more than anything, it was a labor of love."
Alfred Scheid Buys out His Partners in 1988
Scheid become sole owner of the vineyard operation in 1988, renaming the company Scheid Vineyards and Management Co. As Scheid set out, he was joined by his son Scott Scheid, who had left his job as an options trader for E.F. Hutton in 1986 to serve as vice-president for Monterey Farming Corporation. The two Scheids were joined by a third family member, Heidi Scheid, Alfred Scheid's daughter, who left her job as a senior valuation analyst at Ernst & Young LLP in 1992 to serve as the vineyard's director of planning.
By the time Scheid was joined by his son and daughter, the business of growing wine grapes had changed considerably since the formation of Monterey Farming Corporation. When the company was formed, low-quality jug wine was the predominate output of California wineries. Wineries bought in bulk, paying little attention to the quality of grapes they contracted vineyards to grow. "It used to be you'd get a call from a winemaker who'd ask you to send them 100 tons of whatever you've got," Scott Scheid remarked in an April 21, 2001 interview with Monterey County-The Herald. In the years separating the formation of Monterey Farming Corporation and Scheid's purchase of the company, consumers' tastes had changed, as premium varietal table wines enjoyed increasing popularity. Between 1980 and the late 1990s, sales of these California wines increased from 6.6 million nine-liter cases to 70 million nine-liter cases, which fueled revenue growth of premium wines at an 18 percent compounded annual rate. As a result of the growing trend, winemakers became more discerning about the quality and type of grapes they purchased and the art and science of growing wine grapes became increasingly sophisticated. The Scheids positioned their vineyard as a producer of high-quality premium grapes, reaping the rewards of the trend favoring premium varietal wines.
Scheid Vineyards was regarded as custom farmer, a role and reputation the company strengthened during the 1990s, as it honed its viticultural skills and held sway as a vineyard particularly attuned to its customers' needs. Typically, a winery client contracted for a specified area of vineyard acreage, referred to as a vineyard "block." Scheid Vineyards then farmed the block according to the specific winemaking goal of the client. The company produced more than a dozen varieties of wine grapes but devoted the majority of its acreage to Chardonnay and Cabernet Sauvignon. Nearly all of the company business was focused on wine grape production, but at the beginning of the 1990s, Alfred Scheid decided to make his own ultra-premium wine. The wine, made commercially available in 1996 to a limited audience, was produced primarily to showcase the vineyard's grapes in the company's tasting room.
Scheid Vineyards celebrated its 25th anniversary in 1997, the year the company made U.S. business history. After spending more than $11 million in capital improvements during the previous four years, the company converted to public ownership, completing its initial public offering (IPO) of stock in July 1997. Scheid Vineyards became the first independent (not owned by a winery) vineyard in the United States to trade on the public market. The company sold 2.3 million shares, raising $18.5 in proceeds from the offering.
Scheid Vineyards' IPO offered industry observers a closer look at the company's operations. The company operated 5,150 acres of vineyards at the time of its IPO, 3,470 acres of which the company operated for its own purposes. The remaining acreage was operated under management contracts with other concerns. Scheid Vineyards produced 14 varieties of premium wine grapes, including Chardonnay, Merlot, Cabernet Sauvignon, Chenin Blanc, Gewurztraminer, and Sauvignon Blanc. The company's two largest winery customers were Canandaigua Brands, Inc. and International Distillers and Vintners North America (IDV). IDV accounted for more than 80 percent of Scheid Vineyards' revenues, which totaled $19.8 million.
The company's 25th anniversary also marked a year of expansion. In June 1997, Scheid Vineyards acquired the Riverview Vineyard in Monterey County for $5.5 million. The purchase included 370 acres planted with several grape varieties, including 120 acres of Chardonnay and 100 acres of Pinot Noir. Also in 1997, the company acquired a lease option for a 655-acre property in Hames Valley in Monterey County. The year's harvest was record setting in terms of both revenue and tonnage, as Scheid Vineyard collected 15,600 tons of grapes and generated $18.6 million in revenues.
Struggles and Prosperity: Late 1990s-Early 2000s
The late 1990s were difficult years for the vineyard, as weather conditions negatively affected grape production. In 1998, unseasonably cool and cloudy weather between May and July delayed and reduced the vineyard's harvest, resulting in production falling to 10,900 tons. Revenues fell as well, dropping to $17.8 million. Late in the year, the company expanded again, providing one moment of celebration in an otherwise depressing year. In December, Scheid Vineyards signed a long-term lease for 750 acres of undeveloped land in Greenfield, two miles away from the company's headquarters. The first harvest of the vineyard, renamed Mesa del Rio Vineyard, was expected in 2001. In 1999, adverse weather conditions again stunted the company's harvest. Warm weather, which promoted wine grape growth during the summer months, never materialized to any sustained extent, delaying the harvest by three to four weeks. Tonnage for the year fell to 7,700 tons, less than half the total harvested in 1997, and revenues declined 27 percent, dropping to $12.8 million.
Although Scheid Vineyards, like all farming enterprises, was at the mercy of the weather, the company did everything in its power to ensure it secured the greatest yields and produced grapes of the highest quality. The business of growing wine grapes at the turn of the 21st century was becoming an increasingly high-technology endeavor, and Scheid Vineyards stood at the vanguard of viticultural sophistication. The company mapped all of its vineyards using global positioning system (GPS) technology, which, when used with information about soils, topography, and slopes, gave it enhanced capabilities to manage erosion. At the vine, Scheid Vineyards growers used neutron probe technology to monitor soil moisture and pressure bomb technology to monitor the amount of water in plants. The technology used by the company not only helped it to improve its farming methods, but it also provided a wealth of information to its clients, the wineries who were in a perpetual state of anxiety about their grapes. Scheid Vineyards had five weather stations on its vineyards that recorded information every 15 seconds. The information gleaned from the company's weather stations was used to compile reports, which were updated every 15 minutes and accessible via telephone.
After two years of lackluster results in tonnage harvested and revenues collected, Scheid Vineyards began the 21st century positively. In 2000, the company harvested 10,700 tons of grapes, a 39 percent increase, and generated $17.4 million in revenues, a 35 percent increase. In 2001, Scheid Vineyards recorded a 25 percent increase in sales, posting revenues of $21.7 million, but the company's most notable achievement occurred on the technological front. During the harvest, winery clients were offered the company's proprietary VitWatch program, giving the wineries, most of which were located in the Sonoma and Napa regions, an opportunity to obtain information that their distance from Monterey County precluded. By logging onto the password-protected VitWatch Web site, a Scheid Vineyard client could obtain a wealth of information related to the client's specific blocks and vines. Data concerning weather, soil moisture, and sugar percentage in ripening vines was made available. Users were provided with satellite and radar weather images, information about historical weather trends, soil moisture level, vine water stress, and irrigation profiles. Winery clients, who typically inundated Scheid Vineyards with a plethora of faxes, pages, and cell phone calls beginning in mid-August, were desperate for information about their grapes as the decision on when to pick the grapes neared. VitWatch helped calm this growing anxiety, giving wineries a wealth of data relevant to their crops, a service that was highlighted by VitCam, a stationary Web camera that users controlled to scan and zoom in on their vines. In 2002, VitCam was made mobile, allowing users travel down stretches of vineyards to examine the state, pruning, and harvesting of their grapes. "We're trying to reach unprecedented levels of service," Scott Scheid remarked in a July 1, 2002 interview with The Californian, referring to the company's VitWatch program.
Scheid Vineyards' 30th anniversary provided encouragement for future success. The company, by 2003, was under day-to-day control of Alfred Scheid's children. Alfred Scheid, who served as the vineyard's chairman, appointed his son Scott chief executive officer in 2002. His daughter Heidi, having been promoted to chief financial officer in 1997, served as senior vice-president during the company's 30th anniversary. This management team enjoyed a banner 2003, as the vineyard's harvest increased 18 percent to 20,700 tons of wine grapes, fueling revenue growth to $26.4 million. As the company prepared for the future, its attention to customer service, coupled with its sophisticated knowledge of viticulture, promised to make Scheid Vineyards one of the leading vineyards in the United States.
Principal Subsidiaries: Scheid Vineyards California Inc.
Principal Competitors: The Robert Mondavi Corporation; E. & J. Gallo Winery; Golden State Vintners, Inc.
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