BC Business
Holman-Lang-Wineries_5.jpgKeith Holman in happier times inspecting the vines at one of his former vineyards.
Keith Holman’s vision of a wine empire withered on the vine last November as his ?company, Holman Lang Wineries, went into receivership. It’s a cautionary tale for ?other vintners in the fast-growing Okanagan wine industry. Keith Holman built the largest winery company on the Naramata benchlands, only to watch the global credit crunch drive his multi-million-dollar enterprise into the ground less than seven years after he planted his first grapevine.?
Keith Holman built the largest winery company on the Naramata benchlands, only to watch the global credit crunch drive his multi-million-dollar enterprise into the ground less than seven years after he planted his first grapevine.
Even though the experience cost him everything he had, Holman says he’d do it all again in a minute. “If I knew the result was going to be the same, I would probably do the same thing again because the things I’ve learned and the places I’ve been are worth more to me than any amount of money,” says Holman, founder of Holman Lang Wineries Ltd., which until recently owned seven of the 22 cottage wineries that dot the Naramata bench region of the Okanagan. “When you’ve been worth millions of dollars, you realize there’s only so much money you need. The rest is superfluous.”
After struggling to stay afloat for the better part of three years, Holman lost control of his company last November when the courts approved a receivership application from his primary lender, the Bank of Montreal. He sat wistfully on the sidelines last winter as the receiver, Vancouver-based Wolrige Mahon, auctioned off his properties piece by piece.
The package of assets included the home and two-hectare orchard where Holman and his wife, Lynn, have lived for 30 years, as well as the life savings they invested in the winery venture, including some 55 hectares of orchard that Holman bought and paid for during his previous 25-year career as tree-fruit farmer and 24 hectares of vineyard they purchased when they entered the winery business.
Wolrige Mahon placed an estimated value of $23 million on the assortment of properties, buildings, equipment and inventory, including seven different wineries, 42 hectares of prime farmland at various locations in the region and more than 100,000 litres of bulk wine.
The largest and most valuable asset up for grabs was Soaring Eagle Estate Winery, a 12-hectare vineyard with a million-dollar warehouse, wine shop and banquet facility overlooking Okanagan Lake. Also in the mix was Lang Vineyards, a 20-year-old winery with a solid international reputation located on 3.6 hectares of mature vineyard, as well as a handful of boutique labels that Holman started or purchased during his short-lived stint as a winery mogul: Spiller Estates, Stonehill, Mistral, K-Mountain and, lastly, Zero Balance, a name that would prove prophetic.
From a distance, the demise of Holman Lang Wineries could be taken as a sign of larger malaise beneath the storybook success of Naramata’s wine tourism industry. But up close, Holman’s story is more a cautionary tale about the perils of trying to grow too big too fast and a stark reminder of the tiny region’s fragile foothold in an increasingly competitive industry.
Holman Lang Wineries began as an experiment in value-added tree-fruit marketing, when Holman was searching for creative ways to survive in the struggling orchard industry. In 2003 he and Lynn bought the historic Spiller’s Corner property on Upper Bench Road near Penticton, featuring the oldest fruit stand on the Naramata Bench, and turned the property into a fruit winery and bed and breakfast.
Less than a year later, convinced that the wine industry had reached a takeoff point, Holman decided to expand, launching Mistral Estate Winery and buying Stonehill Estate Winery, a three-hectare operation next door to the Spiller’s property.
“When we built Spiller’s and experienced the walk-in customer aspect, I could see the huge potential of what’s happening on the bench with the wine industry,” says Holman. “I’m still a big believer that the wine industry is the future in the Okanagan. To me it’s the goose that laid the golden egg.”
In 2005, with the province’s economy booming, Holman embarked on what he describes as a six-year “infrastructure building” plan, starting with the acquisition of Lang Vineyards, coincidentally located on land that Lynn’s father farmed when he settled in the area in the early 1900s. With newly planted vineyards starting to bear fruit, Holman doubled Lang’s output from 5,000 to 11,000 cases a year and claims he “still didn’t have enough product.”
That led to the purchase of the Soaring Eagle property, a rundown tract of orchard land that Holman promptly converted to grapes. Opened in 2007, Soaring Eagle’s warehouse and production facilities were designed to handle 30,000 cases annually and to serve as the production hub for Holman’s growing empire.
With economic storm clouds gathering in 2008, Holman started two more wineries – K Mountain Vineyards, a boutique operation in Keremeos, and Zero Balance, next door to Soaring Eagle – bringing the total number of labels under the Holman Lang banner to seven. But almost before the ink was dry on those deals, the U.S. subprime mortgage crisis took hold and Holman’s lenders got cold feet.
“We happened to be out there searching for new loans when subprime hit and then all of a sudden there was nothing,” he says. “We lost our lenders right in the middle of our infrastructure rebuild and survived for three years with no help at all from the banks.”
[pagebreak]
Bernhard Schirrmeister, Holman Lang’s former production manager and chief winemaker, says Holman’s marketing strategy lacked the kind of detailed planning and resources needed to achieve his vision, flaws that would have made survival difficult even in more robust economic times.
When the Holmans bought Lang Vineyards in 2005, they inherited Schirrmeister, who took on the job of developing a distinct identity for each label that was added to the fold. As Holman continued to plant new grape varieties and open new wineries, Schirrmeister’s responsibilities multiplied in scale and complexity.
“It was important that the wineries were not seen as being all under one winemaker with wines that all taste the same,” he says. “We had to say, This varietal is only for Lang, this one is only for Soaring Eagle and this style of wine is only for Mistral. It was a huge challenge.”
By the time Zero Balance and K Mountain came onstream in 2008, Schirrmeister was juggling 30 grape varieties and trying to market close to 80 different wines. But except for a handful of well-established award-winning Lang products, few of the wines had a strong presence in the marketplace.
“There was not enough importance placed on building all these different brands,” he says. “If you want to increase your sales, you cannot stop the marketing. You can’t expect that all of a sudden everyone will come running into the wine shop at your winery.”
Holman says he planned to hire more marketing staff and enlist the service of a major wine broker, but couldn’t afford to once the banks pulled out. Either way, the problem remained: the company was carrying too much overhead and not selling enough wine to pay the bills.
“We started to struggle and the bottle supplier couldn’t be paid. We had some nice wine but we couldn’t put it in bottles,” Schirrmeister says. “We had a huge volume of bulk wine sitting in tanks and barrels. There were lots of promises that big hotel chains would buy our product, but it never happened.”
In 2009, with the operation sinking fast and a warehouse full of excess inventory, Holman scaled back production and sold off about 80 per cent of his crop to other wineries. “The last season, I basically turned into a grape broker,” Schirrmeister says.
Desperate to generate cash flow, Holman also hired Vancouver wine consultant James Cluer to broker bulk wines sales in 2009. (According to the receivership documents, Cluer and his company, Fine Vintage Ltd., are owed more than $100,000.)
Schirrmeister departed in February 2010, certain that insolvency was on the horizon. “Keith always came to us and said, ‘Next week we will get the money from the bank,’ but when you hear that more than eight months in a row it starts to be a little bit suspicious,” he says. “We shook hands and both agreed it wasn’t working anymore.”
There’s no denying the growing demand for B.C.-made wines. In November the B.C. Wine Institute announced that sales of VQA wines made from 100 per cent B.C. grapes, an important industry measuring stick, have increased by $40 million since 2006, including a 14 per cent hike in 2010 “despite challenging economic times.”
But the Naramata Bench, where most wineries produce 4,000 to 10,000 cases a year, only accounts for about 10 per cent of VQA production provincewide.
By contrast, B.C.’s three largest VQA producers, Jackson-Triggs, Mission Hill and Calona Vineyards, produce more than 75,000 cases each, while medium-sized wineries such as Quails’ Gate, Inniskillin and Cedar Creek churn out around 50,000 cases of VQA wine annually.
“It’s taken us 20 years to get to that level,” says Quails’ Gate CEO Tony Stewart, brother of B.C. Agriculture Minister Ben Stewart. “Our focus has been to grow organically, and that’s how we’ve developed what we have today.”
Okanagan Valley wine industry pioneer Harry McWatters, who founded Summerland’s Sumac Ridge Estate Winery in 1981 and helped establish the VQA marketing label, says the economics of winemaking favour slow, steady growth, as opposed to the kind of rapid expansion Holman attempted.
“I get a lot of phone calls from folks with wineries who get out there and realize it’s a very capital-intensive and inventory-intensive business,” says McWatters, who now runs Vintage Consulting, offering winery owners advice on how to succeed in the industry. “If you haven’t developed a strong brand or market demand for your product and your business is built on projected sales that you don’t make, you can be in trouble awfully quick.”
Unless the owners have deep pockets, McWatters says, wineries that grow more than 10 per cent a year are bound to encounter cash-flow problems. “A lot of folks don’t understand that you can actually grow the production of grapes faster than you can grow the market for wine,” he says.
Since grapes can be sold for cash immediately after harvest, while wine can take several years to produce a return, McWatters counsels new winery owners to “share the risk by buying grapes from other growers and using profits to expand, as opposed to putting out a lot of capital.”
“If you look at it, you have to question why somebody would extend themselves in buying vineyard land and establishing a vineyard before the market was there,” he says.
Holman, however, still believes his business model was on the cutting edge and predicts others will follow in his footsteps: “What we’ve done pretty much everyone in the industry is going to have to copy, either in a big way or a small way, but they’ve got to move forward.”