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Sunday, Oct 25, 2020

Ex-bankers plough their money into vineyards in England, hoping to beat Champagne at its own game

Former London financiers’ passion for the grape has seen English wine go from being a novelty or joke to a respected product. Most produce sparkling wine, given soil’s similarity to that in Champagne, and its quality is so good French are investing in UK wineries to hedge their bets

Nicholas Coates does not miss the commute. In the latter years of his investment banking career, which he left at the age of 47 after working at Royal Bank of Scotland and ING Barings, he’d catch the 5.41am train to London and arrive back at his manor house in the Hampshire countryside in the UK, around 10.30pm.

Now Coates, 60, just walks through the rose garden between his home and the bucolic headquarters of Coates & Seely, a maker of English sparkling wine that he co-founded to take on Champagne at its own game.

It’s a calling that beckons a growing number of financiers. Bankers, hedge fund managers, and corporate lawyers are quitting London’s financial sector for England’s burgeoning vineyards. They’re buying up land in Kent, Sussex, and Hampshire and planting grapes among fields once reserved for wheat or cattle.

The path from rainmaker to winemaker is well travelled. Historically, financiers fled to the chateaux of Bordeaux, the rolling hills of Tuscany, or sunny Napa Valley. So when Coates began telling friends and family in 2007 of his ambition to challenge Champagne in his wet and grey backyard, there wasn’t a great deal of enthusiasm. His father likened the venture to building a car in North Korea and going up against Rolls-Royce.

Since then, English wine has changed from a novelty or joke into a serious contender. In 2019, Coates & Seely’s sparkling 2009 La Perfide – named for “perfidious Albion”, an 18th century French playwright’s characterisation of Britain – beat out French rivals to win a trophy at the International Wine & Spirit Competition in London, sometimes called the Oscars of Alcohol.

“I wouldn’t want people to think that it’s easy, because it’s phenomenally hard work,” Coates says in his living room, where the walls are hung with unsmiling portraits of his family’s bewigged ancestors. “A lot of our blood, sweat, and tears went into this.”

Other financiers who’ve taken to the life of the English vintner include Mark Driver, who left Horseman Capital Management to start Rathfinny Wine Estate; Eric Heerema, a former lawyer and asset manager who acquired Nyetimber; and Ian Kellett, who bought Hambledon Vineyard after a career at Dresdner Kleinwort Benson. Billionaire Michael Spencer, the founder of NEX Group, owns a stake in the Chapel Down winery.

The unusually hot summer of 2018 encouraged more producers to join the fray. For all its dangerous downsides, global warming also makes it possible to regularly ripen grapes at latitudes once considered marginal for cultivation. Overall output of wine in England and Wales increased to 13.2 million bottles in 2018, from 5 million in 2015, according to trade body Wine GB. The area under vine has risen 83 per cent since 2015, to more than 8,800 acres (3,600 hectares).

Vintners have focused on sparkling wine because the English growing regions’ chalky soil is similar to that of Champagne, and producers of one of France’s signature luxury products have responded.

Vranken-Pommery Monopole last year introduced Louis Pommery England brut in partnership with Hattingley Valley in Hampshire, planting vines on about 100 acres in the area. It plans to begin harvesting in 2021.

Famed producer Taittinger joined with UK distributor Hatch Mansfield to create Domaine Evremond in Kent. The project, which initially included 50 acres of vines, will expand to more than 100 acres when a second round of planting takes place next year, according to the British partner’s managing director, Patrick McGrath.

For the likes of Vranken-Pommery and Taittinger, producing in England is a way to hedge bets and protect a key market no matter what happens with Brexit (the withdrawal of the UK from the European Union). The UK is Champagne’s biggest export outlet, with 27 million bottles shipped in 2018, according to trade organisation Comité Champagne. That is more than double the total production of wine in England and Wales, most of which is consumed domestically.

“The UK has historically been the shop window for the world, in that Champagne producers want their wines showcased here, where there is established demand,” says Davy Zyw, sparkling wine buyer at merchant Berry Brothers & Rudd. “But there’s a finite volume for vintage Champagne, and we’ve got a quality product that’s home-grown and can compete at that level.”

Demand for British wine has been fuelled by greater availability at retailers such as upmarket grocer Waitrose, which carries more than 100 choices, as well as at pubs and restaurants. British Airways toasted its 100th anniversary by offering first-class passengers a 2015 blanc de noirs from Hattingley.

Yet there’s concern that the land grab will result in a near-term glut if British drinkers’ thirst does not keep pace with the growth in supply and overseas sales are slow to take off. “A lot of people have got very thought-out businesses, but I’m fearful a few have rushed in without thinking it through,” McGrath says.

Many new ventures are self-financed, as banks are reluctant to back businesses that have to contend with unknowns such as weather. These include Rathfinny, a 600-acre estate in Sussex with views of the English Channel. The business, created by hedge fund defector Driver, released its first vintage last year.

Heerema, a Dutchman who bought Nyetimber 13 years ago, expects the industry to consolidate if some players are unable to bear unexpected expenses. Since the first vines were planted at the estate in the 1980s, Nyetimber has grown into England’s biggest sparkling wine producer, making more than one million bottles a year from vineyards across England’s southeast. Heerema wants to almost double output over the next decade.

The cost of making Nyetimber “all comes out of my own pocket, and although we don’t disclose our financials, I can assure you it’s very significant”, he says in the estate’s offices in London’s Mayfair district, a favourite haunt of hedge fund managers and Russian oligarchs. Although Heerema is focused on building the brand, he says he’d “certainly listen” if a big Champagne producer made an attractive offer.

Winemakers are often motivated by convivial factors beyond the bottom line. In October 2007, a year after retiring from a career building high-yield debt markets in Europe, Coates flew with his family from London to Bordeaux to visit Christian Seely, a friend who was already in the wine business. Coates had known Seely since their days studying at Insead business school near Paris.

The Englishmen stayed up drinking fine wine and watching their home country lose to South Africa in that year’s Rugby World Cup final. In the early hours, Seely opened a second bottle of Pol Roger Champagne, uttering a maxim variously attributed to Napoleon or Winston Churchill: “In victory one deserves it. In defeat, one needs it.”

It was then that Coates suggested planting vines in the south of England. To his surprise, it turned out that Seely, who heads the management of about a dozen prized vineyards around the world owned by French insurer AXA, had been trying to sell a similar business proposal to his stepfather. They hired talented winemakers from Champagne to help them bottle a range of wines that now start at £31.95 (US$42) per bottle.

“You need to learn from someone, just like the Romans did from the Greeks,” Coates says, slipping into navy velvet slippers to stoke a crackling fire. “For us, the Champenois are the Greeks, and we aspire, one day, to be the Romans.”

Because of the similarities between Champagne’s terroir and the English turf, there’s a “huge value delta” between the two regions, Coates says. A hectare (2.5 acres) of vineyard in Champagne can cost more than US$1.1 million, 10 or 20 times the cost of a similarly sized plot in England.

Still, would-be investors must take a long view: Coates & Seely took about eight years to break even.

After securing key accounts in the UK, including the Jockey Club, a horse racing consortium, and the Historic Royal Palaces, Coates wants to build his sparkling wine brand on the international stage. It’s already gained a foothold in key Parisian battlegrounds such as the George V Hotel and chef Alain Ducasse’s flagship restaurant. It’s now sold in eight countries, and Coates has hired his son Tristram to drive more expansion abroad over the next decade.

“After that, I have a hammock out in the garden, and my ultimate dream is to swing in the hammock as permanent life president of the company and be paid to do absolutely nothing,” Coates says. “If anyone was ever going to write my obituary, I wanted a bit more on it than ‘investment banker’. ”

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