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Once-Dominant Sherry Clans Losing Fight To Hold Off Multinationals

June 18, 1988

JEREZ DE LA FRONTERA, Spain (AP) _ After flourishing for two centuries, many of the family-owned wineries that turned the Spanish sherry trade into a billion-dollar-a-year business are on the rocks.

As the industry slowly emerges from a decade-long crisis, multinational corporations have won control of some of the best-known sherry houses and have lost pitched battles for others.

In addition, policies aimed at boosting sagging sales, prices and prestige in traditional markets like Britain may hurt some smaller companies that rely on bulk sales rather than brand names, executives and owners said recently.

Last year, sherry makers sold 160 million 750-milliliter bottles worldwide, down a third from 1979. Sales to Britain plummeted from 101 million bottles to 50 million bottles over the same period.

″The sector is going to have to suffer through a readjustment period if it wants to survive. There will be a process of natural selection,″ said Jose Joaquin Ysasi-Ysasmendi, chairman of Pedro Domecq.

Only two of the seven companies whose representatives meet regularly at a roundtable reserved for the biggest sherry firms now actually belong to famous families - Osborne and Gonzalez.

John Harvey and Sons; Croft; Sandeman; and Bobadilla have been sold to outsiders. The British multinational Allied Lyons controls Pedro Domecq, founded in 1730 and the oldest of the major wineries or bodegas.

All true sherry comes from grapes grown in a 45,000-acre triangle of vineyards around Jerez, a few miles in from Spain’s Atlantic coast. Sherry is aged according to a process that blends wine from each harvest’s grapes with that of preceding years.

Shakespeare called the wine ″sacke,″ but the name that stuck was sherry, an Anglicized version of Sherrish, the Moorish name for Jerez.

For generations, the trade has been controlled by the descendants of a few dozen English, Irish and Spanish families that took charge starting in the mid-18th century.

That all began to change in the early 1980s when a combination of bad planning and poor timing left many family businesses easy prey for multinationals on the prowl for bargains, executives and owners said.

During a six-year sales boom that peaked in 1979 at 22 million bottles, many wineries went heavily into debt to plant new vineyards. But the boom faded as production costs were driven higher by the spike in world oil prices, leaving the indebted wineries swimming in underpriced sherry.

″Everyone planted like crazy, and when we looked up we realized we had far more vineyards than Jerez needed,″ said Lorenzo Diez Lacave, who sold the 200-year-old family business Diez-Merito to the now-defunct Rumasa holding company in 1982.

Allied Lyons and Canada’s Seagram Co. were among the other giants snapping up sherry houses.

Not everyone was forced to sell out, however. Osborne board member Enrique Osborne said his family was able to retain ownership of the business it has run in nearby Puerto de Santa Maria since 1778 because managers were quick to recognize the potential of brandy.

Once a sideline in Jerez, brandy made from the same sherry grapes accounted for 60 percent of sales last year.

Osborne is now the sector’s biggest group with 1987 sales of $339 million. The company has diversified into foods and owns its own food distribution network.

Gonzalez-Byass, the leading sherry producers with 11.5 percent of the market and 1987 sales of $205 million, mostly in sherry and brandy, is also family owned. General Manager Arcadio Saldana said the company foresaw the sales boom, planted early and had already established its market when the crunch came. He said Gonzalez-Byass has increased profits each year since 1983.

The Gonzalez family recently won an 18-month battle to keep the Byasses from selling to Seagram by buying out their longtime English partners this month.

Pedro Domecq had group sales of $232 million and profits of $12.3 million last year. Allied Lyons controls more than 50 percent of the company’s stock through its own holdings and its subsidiary Hiram Walker, which owns a large number of shares, several executives said.

Board member Jose Ignacio Domecq Gonzalez said it was difficult to maintain a strong family presence in many bodegas because shares have been spread out with each successive generation. He said at least 120 Domecq heirs now own part of the company.

Osborne, Gonzalez-Byass, Pedro Domecq and the other major wineries see boosting sherry’s price and image as the key to the sector’s full recovery.

The Jerez Regulating Council has urged growers to rip up vines and encouraged wineries to distill low-quality must to blend with other products in an effort to dry up excess stocks.

The government-sponsored council recently told vintners they would have until March 1993 to eliminate barrel sales, which make up 40 percent of total exports and have been blamed for driving down prices.

Nearly all the barrel sales go to Great Britain and the Netherlands, where exporters say unauthorized blending is not an uncommon practice.

Spanish exporters have also stepped up their campaign against British and Irish ″sherry,″ cheap-to-produce blends of rehydrated grape juice, alcohol and sugar whose success in the BritishIsles has reflected sherry’s failure to retain its traditional customers.

The European Economic Community has pledged to force British and Irish producers to drop ″sherry″ from their labels by 1995.

End Adv Weekend Editions June 18-19

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