Vintage 21st Century

By Francine Russo/Florence

On a clear evening in Florence, from a rear terrace of the 15th century Palazzo Frescobaldi, you can see the lighted campanile of Brunelleschi's late masterwork, the Santo Spirito Church, commissioned by a Frescobaldi in the mid-1400s. The church is almost 150 years younger than the family's 700-year-old business. Now the Frescobaldis, best known for their sumptuous Brunello di Montalcino wine, are coming out of the Middle Ages, forming international alliances that would impress even their arch rivals, the Medicis, and embarking on a marketing strategy for the 21st century.

Italy is one of the world's top wine producers, but no Italian firms rank among the world's 20 biggest vintners. With 50,000 small companies bottling wine and the best land in limited supply, no Italian company, not even a big name like Antinori or Banfi, has more than a 1% domestic market share. Italian wines are identified by region (or appellation, such as Chianti or Barolo) rather than by brand. Growth potential in Europe is dampened by the fact that in the change from an agrarian to an industrial society, wine consumption in Italy and France has plummeted from 180 liters a person in 1900 to 40 liters now. And yet, over the past five years, Marchesi de' Frescobaldi has doubled sales, to $40 million, and hiked its profit margins from under 13% to better than 20%.

While it helps to be sitting on some of the best grape-growing land in Tuscany, Frescobaldi's successes--and its ambitious plans--are just as much the product of modern management, led by chief operating officer Giovanni Geddes da Filicaja, 55, the first executive from outside the family. When he joined the firm in 1995, Geddes brought his experience as CEO of the Italian subsidiary of Remy-Cointreau and COO of Antinori wines, one of Frescobaldi's toughest competitors. "Giovanni brought a more professional mentality," says patriarch and chairman Vittorio Frescobaldi, 70, with a laugh. "We needed to change the mind-set." To do that, Geddes hired staff from the likes of Procter & Gamble and Arthur Andersen to work with family members. "I convinced the family that everything had to make financial sense," says Geddes.

Under his leadership, the company has added 360 acres of new vineyards, financed by a novel bond offering in the fall of 1998. Five thousand bonds in ECUs (European currency units) were issued, entitling buyers to purchase at wholesale price a six-bottle case from each of the 1996 to '99 vintages of its prized Brunello di Montalcino. The bonds sold out in three days and raised about $12 million.

A riskier Geddes move was planting new vineyards with grapes used in popular blended wines. One result: Frescobaldi's '97 Lamaione, which Wine Spectator calls "a monster Merlot." Says Geddes: "In the changing world of wine, branding is more important, and recognition comes from being in places like Wine Spectator."

Geddes is doing more in America than getting mentioned in magazines. In 1995 he engineered the first Italian-American joint venture with California's Mondavi, a fifty-fifty partnership in which the two companies jointly hold the Luce della Vite corporation, which owns two Tuscan estates. A shared board develops marketing and distribution strategies, and winemakers from each company collaborate on the wines. The resulting lines are designed to compete at three different price levels, an essential for mass competition in the global market. Luce is made from a blend of Sangiovese and Merlot grapes grown entirely in Montalcino. Its limited production of 11,000 cases a year sells out within 60 days, retailing for about $75 a bottle; 17,000 cases of Lucente, the next rank down, disappear at $28 a bottle. Danzante, with fewer quality constraints, yields 150,000 cases. Since its release in 1997, the Luce line has burgeoned--with new plantings--from $1 million in sales to an expected $12 million in 2000, about $6 million of it in the U.S.

In Italy the company is pursuing a unique vertical marketing strategy by launching its own wine bars. The first, opened in 1999, is a 270-sq.-ft. nook at Florence's international airport, where Frescobaldi wines lure customers from among 9 million travelers a year. "In its first 12 months," says Geddes, "it did nearly $1 million in gross sales."

Geddes plans to double Frescobaldi's business by the end of 2004, with 60% coming from Frescobaldi-owned lines and 40% from the Mondavi partnership. "There will be fewer cases, but we'll be getting more than double per case," he promises. When Geddes looks out from the Palazzo Frescobaldi toward Santo Spirito, he can't help thinking of the family history. "But," he adds, "you have to be able to connect the past with the future."