In September 1976 William Jaeger, a member of the partnership that owned Freemark Abbey Winery, had to make a decision: should he harvest the Riesling grapes immediately, or leave them on the vines despite the approaching storm? A storm just before the harvest is usually detrimental, often ruining the crop. A warm, light rain, however, will sometimes cause a beneficial mold, botrytis cinerea, to form on the grape skins. The result is a luscious, complex sweet wine, highly valued by connoisseurs. The Winery Freemark Abbey was located in St.

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Freemark Abbey’s grapes came from an ideal climate in the central and southern parts of the valley. Winemaking Wine is produced when the fruit sugar, which is naturally present in the juice of grapes, is converted by yeast, through fermentation, into approximately equal molecular quantities of alcohol and carbon dioxide. Sparkling wines excepted, the carbon dioxide is allowed to bubble up and dissipate. The wine then ages in barrels for one or more years until it is ready for bottling.

By various decisions during vinification—for example, the type of wooden barrel used for aging—the winemaker influences the style of wine produced. The style adopted by a particular winery depends mainly on the owners’ preferences, though it is influenced by marketing considerations. Usually, as the grapes ripen, the sugar levels increase and the acidity levels Professor William Krasker prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1980 by the President and Fellows of Harvard College.

To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1 This document is authorized for use only in Introducci? n a la administraci? n (Iouri Gorbanev) 2014 by Ana Carmenza Neira from January 2014 to July 2014. 181-027

If the grapes are harvested at 25% sugar, the winemaker can produce a wine with the same 10% alcohol but with 5% residual sugar; this wine is sweet and relatively full bodied. A third and rare style results when almost-ripe Riesling grapes are attacked by the botrytis mold. The skins of the grapes become porous, allowing water to evaporate while the sugar remains. Thus, the sugar concentration increases greatly, sometimes to 35% or more. The resulting wine, with about 11% alcohol and 13% residual sugar, has extraordinary concentration, and the botrytis itself adds to the wine’s complexity.

Freemark Abbey had already produced a botrytised Riesling from its 1973 vintage. Jaeger’s Decision Problem From the weather reports, Jaeger concluded that there was a fifty-fifty chance that the rainstorm would hit the Napa Valley. Since the storm had originated over the warm waters off Mexico, he thought there was a 40% chance that, if the storm did strike, it would lead to the development of the botrytis mold. If the botrytis did not form, however, the rainwater, which would be absorbed into the grapes through the roots of the vines, would merely swell the berries by 5-10%, decreasing their concentration.

This would yield a thin wine that would sell wholesale for only about $2. 00 per bottle, about $0. 85 less than Jaeger could obtain by harvesting the notquite-ripe grapes immediately and eliminating the risk. Freemark Abbey always had the option of not bottling a wine that was not up to standards. It could sell the wine in bulk, or it could sell the grapes directly. These options would bring only half as much revenue, but would at least avoid damaging the winery’s reputation, which would be risked by bottling an inferior product.

If Jaeger decided not to harvest the grapes immediately in anticipation of the storm, and the storm did not strike, Jaeger would probably leave the grapes to ripen more fully. With luck, the grapes would reach 25% sugar, resulting in a wine selling for around $3. 50 wholesale. Even with less favorable weather, the sugar levels would probably top 20%, yielding a lighter wine selling at around $3. 00. Jaeger thought these possibilities were equally likely. In the past, sugar levels occasionally failed to rise above 19%.

Moreover, while waiting for sugar levels to rise, the acidity levels must also be monitored. When the acidity drops below about 0. 7%, the grapes must be harvested whatever the sugar level. If this happened, the wine would be priced at only about $2. 50. Jaeger felt that this event had only about . 2 probability. The wholesale price for a botrytised Riesling would be about $8. 00 per bottle. Unfortunately, the same process that resulted in increased sugar concentration also caused a 30% reduction in the total juice. The higher price was therefore partly offset by a reduction in quantity.

Although fewer bottles would be produced, there would be essentially no savings in vinification costs. The costs to the winery were about the same for each of the possible styles of wine and were small relative to the wholesale price. 2 This document is authorized for use only in Introducci? n a la administraci? n (Iouri Gorbanev) 2014 by Ana Carmenza Neira from January 2014 to July 2014. Freemark Abbey Winery 181-027 Winery Label 3 This document is authorized for use only in Introducci? n a la administraci? n (Iouri Gorbanev) 2014 by Ana Carmenza Neira from January 2014 to July 2014.

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