BUSINESSWEEK ONLINE : NOVEMBER 13, 2000 ISSUE
INTERNATIONAL -- LETTER FROM FRANCE

A Vineyard's Bitter Fruit (int'l edition)


Count Alexandre de Lur Saluces looks like the ultimate blueblood: Dressed in jacket and tie, he strolls in front of his chateau, a pile dating back to the 15th century and topped by tidy stone turrets and parapets. Vines stretch down toward the Ciron River, a tributary of the broad Garonne. This is Chateau d'Yquem. Standing outside the village of Sauternes, 50 kilometers southeast of Bordeaux, the estate produces what could be the world's most famous wine--a luscious, opulently sweet white that, in some vintages, sells for thousands of dollars a bottle. The Lur Saluces family has put its name on this pale-gold nectar since 1593, always drawing it from grapes afflicted with Botrytis cinerea, or noble rot.

The rot may be noble, but the vineyard itself has had an ignoble chapter in its recent history. Over the past decade, the tranquil-looking chateau was the scene of a struggle that pitted the power of French tradition against the raw force of the global marketplace. And the marketplace appears to have won.

Lur Saluces wanted to guard tradition by keeping d'Yquem under his own family's control. But many of his relatives and fellow shareholders, who rarely received any returns on their stakes, were angered by his imperious ways. After years of fighting, the count sold out last year to the giant Louis Vuitton Moet Hennessy ( LVMHY) conglomerate, owner of Moet & Chandon champagne, Louis Vuitton luggage, and the Givenchy and Dior fashion houses. The count, who once feared LVMH would devalue his family's wine by creating a d'Yquem perfume and d'Yquem fashion accessories, now works for his former enemy as a simple employee.

JEFFERSONIAN APPEAL. The bitter battle represents an all-too-common saga in the French countryside, particularly in the world of wine. Family-owned properties face a double whammy: high inheritance taxes plus the need for funds to modernize. Victorious corporations, meanwhile, confront other conflicting forces: tradition vs. modernity, quantity vs. quality. The twist is that corporations may end up being better guardians of French heritage than are impoverished, divided families. ''If we tried to leverage Chateau d'Yquem, we would risk destroying its mythical image,'' says Pierre Gode, president of Louis Vuitton and No. 2 in the LVMH organization.

D'Yquem is indeed mythical--an exquisite and exceptional wine. Thomas Jefferson, an oenophile, bought it by the case. When the 1855 Bordeaux classification was made, d'Yquem warranted a category of its own: premier cru superieur, or first great growth, surpassing premier cru, or first growth, which includes such illustrious names as Lafite-Rothschild and Latour.

Every year's production represents something of a miracle. Instead of waiting for the grapes merely to ripen, the masters of d'Yquem let the grapes shrivel and go nearly moldy. This noble rot concentrates flavor, producing the singular balance of sweetness and fruit for which d'Yquem is noted. Skilled workers harvest the crop grape by grape, returning to each vine up to 12 times over a month, waiting for the perfect moment to pluck. At d'Yquem, one vine yields a single glass.

Another thing d'Yquem yields in small amounts is money. When Lur Saluces took over in 1968, the chateau was producing an average of only 66,000 bottles a year; a good Bordeaux house such as Chateau Margaux makes 400,000. The next few years were marked by poor harvests. Then, the oil crisis slashed demand and prices plummeted. A bottle of d'Yquem back then sold for a mere 35 francs--about $5. Prices began to rise only in the 1980s.

''FINEST DIAMOND.'' By all accounts, Lur Saluces has done an admirable job of burnishing d'Yquem's luster. Tractors replaced horses, collapsing cellars were renovated, and unused acreage was planted. All this upped production in good years to 100,000 bottles. In such years, sales reach about $10 million. ''Alexandre Lur Saluces polished the finest diamond in the wine world,'' says an admiring Count Xavier de Pontac, president of the Syndicat des Grands Crus Classes de Sauternes.

And the director lived a life appropriate for an ambassador of luxury. Under his aegis, dinners at d'Yquem became a celebration, with celebrities in attendance: Champagne as an aperitif, followed by first-growth red Bordeaux (he is particularly fond of Chateau Petrus), finished by an older d'Yquem and Havana cigars. You wouldn't know it by appearances, but Lur Saluces owned only 7% of the chateau, and his son, Bertrand, 2.2%. His older brother, Eugene, owned the largest chunk, 47%.

The rest of the property was split up over the generations among more than 40 other Lur Saluces and the related Hanguerlots. And therein lies the rub. Most small d'Yquem owners lived in Paris or other cities and most received little in the way of dividends. ''Many were struggling to pay the rents on their apartments,'' says Bertrand Hanguerlot, a representative of the disenchanted family members. Even Eugene, the primary owner, hardly ever set foot on the property, living in relative squalor in Paris.

Not surprisingly, these silent shareholders seethed. They were scandalized when about $200,000 was spent for an ultramodern toilet. Lur Saluces never invited them to his fetes. He never gave them a bottle of d'Yquem, even though entire cases went to journalists--your correspondent not included--and Bordeaux officials. ''We were shut out of management,'' complains Hanguerlot. Lur Saluces says he was just making necessary investments to safeguard the d'Yquem brand.

The open conflict began in 1992, when Lur Saluces tried to formalize his control so that he could pass the property on to his eldest son. The other shareholders, who by this time included the count's daughter and other son, went looking for a buyer. They persuaded Eugene to sell part of his holding, too. On Nov. 28, 1996, LVMH bought a 55% stake for about $100 million.

VENGEFUL PACT. Lur Saluces went ballistic. He believed LVMH and its owner, Bernard Arnault, would ruin d'Yquem. Lur Saluces sued to stop the sale. ''Arnault wants to make perfume and call it d'Yquem,'' he claimed at the time. ''For 30 years, I've fought against diluting the name of d'Yquem. Arnault buys brands and does just about anything with them.'' The court battles in both Paris and Bordeaux stretched on for 30 months. Each time, Lur Saluces lost, although he won the PR skirmishes. Journalists, restaurateurs, and wine merchants all took his side, portraying capitalist greed as ready to destroy delicate French traditions.

By spring last year, both sides were ready to settle. Lur Saluces approached Arnault and said he was prepared to sell out--on certain conditions. (Neither Lur Saluces nor Arnault will discuss the negotiations.) The count wanted a premium on his shares alies. Although the return on LVMH's investment is a mere 2% a year, he insists that there is no desire to leverage the d'Yquem brand. ''We're not in this for cash flow or profitability but to develop our image of quality,'' he says.

Lur Saluces agrees. After denouncing Arnault as the devil incarnate, he now praises him as d'Yquem's savior. ''Arnault understands this is a jewel to be protected,'' he says. ''I was wrong to suspect him.'' He is not so tender about his own family: ''My family was motivated by childish jealousy,'' he says.

And d'Yquem the wine? As extraordinary as ever. To finally celebrate the LVMH arrangement, Lur Saluces invited Arnault and Gode to lunch at d'Yquem last April. For dessert, he served an 1899. ''You could taste the entire century in your mouth,'' recalls Gode. For less prestigious visitors--your correspondent among them--a bottle of 1995 vintage is opened. Lur Saluces picks up his glass and sips. A smile comes over his previously impassive face. The pain from the long battle of Bordeaux finally dissolves.

By WILLIAM ECHIKSON
EDITED BY PATRICK SMITH
Brussels Bureau Chief Echikson has written about French food and wine for the past decade.

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