OPERATIONS

John Scharffenberger, The Tastemaker

John Scharffenberger is a crucial part of the gourmeting of America. He got his start making fine chocolate and now he plans to create an American version of Iberian ham.
FROM LITTLE ACORNS DO MIGHTY PIGS GROW John Scharffenberger with the part-feral animals at the heart of his latest passion

Courtesy Subject

Advertisement

Before I traveled to rural Mendocino County in Northern California to see John Scharffenberger's wild pigs,I thought I understood the overall concept that inspired his business start-ups. Scharffenberger first made his name in the 1980s, producing a California sparkling wine. It wasn't a risk-free idea, because most Americans call any bottle of effervescent alcoholic grape juice "champagne," regardless of its origin -- and, far worse in an American winemaker's eyes, denigrate any bubbly not from the eponymous Champagne province in northeastern France. Despite such prejudices, Scharffenberger Cellars found a sustainable niche. For his next big venture, in the 1990s, Scharffenberger released a California chocolate that was uncompromisingly dark in color and high in price, at a time when almost all American chocolate was milky and mass-market. Scharffen Berger Chocolate Maker also found its sweet spot. Having profitably sold both of those companies, Scharffenberger today has a new scheme -- to fabricate a homegrown version of the world's most highly regarded and expensive ham, which is made only in Spain from acorn-fed pigs and is called jamón ibérico, or Iberian ham. Sparkling wine, dark chocolate, acorn-fed ham: Like three points in space, the projects together seemed to add up to a plane truth. Scharffenberger sought out categories in which the premium brands were European imports and then proceeded to develop American versions, cloaking his products with a comparable mystique so that consumers took the bait. In short, his was a marketing success story.

But when I listened to Scharffenberger explain his business strategy, I changed my mind. We were sitting in the comfortable living room of his rammed-earth house, in the Anderson Valley hamlet of Philo, California, awaiting the arrival of his friends and pig-raising partners, Mac and Kate Magruder, for an informal tasting of the hams that he was aging. He assured me that he never aimed to place his foods on a pedestal; on the contrary, he aspired to tear down the barriers of connoisseurship that were preventing more people from enjoying these delicacies. He had established that approach during his earliest days in the wine business. "The wine industry was spending all its time being exclusive," he told me. "Excluding people was beginning to kill the whole concept." What unified his projects, he said, was a much simpler idea -- personal enjoyment. By which he meant, primarily, his own personal enjoyment. "What I'm interested in is stuff that tastes great," he said. "I try to get things that I like, figure out how they're made, and make them."

The mission wasn't to replicate the taste of Champagne wine, French chocolate, or Iberian ham, even though those products had been his goalposts when he was heading down the field. He knew very well that a true duplication was impossible, if only because he was using different ingredients. Nor was he aiming to reproduce the aura of the foreign brands. For the foreseeable future, French champagne would command a price differential over its American counterpart, and so would Iberian ham. He simply thought that if he devised a way of manufacturing a tasty reinvention of a food product that he loved, he would be able to find people who would buy it.

When the Magruders arrived, Scharffenberger took out of his refrigerator the three hams that we would be comparing. One was a supermarket-bought Spanish serrano, purchased as a stand-in for its more august cousin, because ibérico is just beginning, on a very limited basis, to be available in this country. (Classic ibérico is made from a variety of pig that dates back to Roman times and has grazed in pastures on acorns. Serrano is cured in a similar fashion to ibérico, but with meat from a less distinguished breed of pig that has been fed a conventional diet of grain.) The other two hams on the roster were trial versions by Scharffenberger. He and Mac Magruder had trapped wild pigs in the area and then bred them, selecting for long snouts, long legs, and high bodies. That is the look of the classic black Iberian pig, and, indeed, Scharffenberger argues that the forebears of these wild pigs were brought to California by the early Spanish settlers. After breeding two wild sows that conformed to the desired Iberian profile, he had fed acorns to their offspring for four months before the slaughter.

We tried some of the small remaining sample of his second batch, from pigs that had eaten a diet of roughly half acorns and the rest grain, fruit, and whey. "It tastes a little cheesy," Scharffenberger said. But we all liked it. Then we turned to his third batch, the most recent. Although it had not had time to age enough and the texture was a little tough, the flavor was rich and earthy, in the manner of a true ibérico. Both trial hams were far tastier than the supermarket serrano.

"I want to make something evocative of those flavors, but it won't be ibérico," Scharffenberger said. "It will be -- I don't know what we'll call it. Maybe mendino." But he wasn't hurrying to bring his ham to market. He was in what he called the incubator phase, and he argued that at least in the food industry, undue haste could be calamitous. "It isn't like you're rushing to do the next amazing Internet stuff, because someone will beat you to it," he told me. He said that in the wine and the chocolate businesses, he had learned that it was essential to move "very slowly and deliberately" through a "process of the digestion of information" before placing the ball into play. Because once the game starts, you can no longer call a time-out.

One of six children of a corporate pioneer who in the 1960s built the company City Investing into an industrial conglomerate, Scharffenberger, who is 57, traces his interest in agriculture and food to a childhood in which he saw farmland disappear rapidly in Southern California. At the University of California, Berkeley, he devised a personalized major that he called agricultural geography -- "soil science and plant pathology and geology and some zoology and climatology," as he describes it. But most of his activities were extracurricular. Canvassing against the Vietnam War in the early '70s, he went up to southern Mendocino County and fell in love with the landscape. Some time later, at a dinner party hosted by friends of his father's, he met a wealthy, iconoclastic old doctor, Russell Lee, who owned some 40,000 acres of property in northern Sonoma and southern Mendocino counties. Lee hired the young Scharffenberger -- who, one gathers, was just as outgoing, personable, and articulate as the middle-aged iteration -- to inspect the different parcels and suggest uses for them. "After I graduated, I moved up to one of Russell's properties," Scharffenberger recalled. "We camped under an oak tree and by October moved into a cabin with no electricity and no running water, next to a lake. Within 10 days of my moving into the cabin, Russell had a stroke." The deal was off.

But, as so often in Scharffenberger's career, when one door closed, another opened on an even lovelier vista. His father had been hoping to sell a small New Jersey farm and use the proceeds to buy a larger ranch in California; after languishing on the market, the New Jersey property suddenly found a buyer. Almost coincidentally with the collapse of the Lee job, the elder Scharffenberger called his son and authorized him to buy a ranch in the next 60 days. Having explored the area for months for Lee, he was qualified to take on the task. For about $200,000, Scharffenberger bought almost 2,000 acres for his father, on a hillside overlooking Ukiah -- about an hour's drive from where he lives today in Philo, in the Anderson Valley -- and went to work there, at an annual salary of $12,000, constructing a vineyard. He began in 1974, and four years later, he had grapes to sell. He was learning about viticulture. Even more to his liking, he was educating himself about wine.

His sparkling-wine epiphany came shortly after he attended the wedding of a French friend, at which champagne flowed copiously. Scharffenberger brought some bottles of champagne to the wine club he regularly attended and heard the local winemakers criticize the French wine. He disagreed. He liked it. By contrast, when he tasted California sparkling wines, typically made from grapes grown in warmer Napa, he was underwhelmed. Always relatively chilly, Mendocino County in 1978 saw an unusually cold growing season. "The Pinot Noir wasn't good enough to sell, and the Chardonnay was thin," Scharffenberger recalled. "I talked to Barney Fetzer" -- the owner of Fetzer Vineyards, a leading Mendocino County winery -- "and said, 'Why doesn't anyone make sparkling wine here? It's just like the northern part of France.' He said, 'It's a great idea.' "

In fact, Mendocino County is not just like northern France. The most obvious difference is the terrain -- instead of the limestone of the Champagne region, the soil in Mendocino is sandy loam. "It's very different soil from Champagne," said Milla Handley, an Anderson Valley winemaker who was part of the tasting group. At one point, Handley had considered specializing in sparkling wine. In the end, it wasn't the soil that stopped her. She couldn't come up with a plausible business plan. The fermentation process of champagne-method wine requires a winemaker to hold on to a large inventory while the bubbles develop. What's more, it is typically sold in this country as a special-occasion product, often a gift, with a huge spike in sales at the holidays. "When I started, I thought I would do 100 percent sparkling wine," she told me. "I couldn't think of a way to break even."

But Scharffenberger was undaunted. He decided he would make wine the way a garage band makes music: as a low-cost, passionate improvisation. He invested the smallest amount possible in equipment. The crushing and pressing of the grapes was done at Fetzer. Because it would be five years before he had a product ready to market, he also made a small amount of still wine to produce some revenue. On the basis of his inventory, he was able to raise capital, starting in 1984. "I went to people in the Valley who had money, and I sold stock, about 25 percent of the company," he recalled.

In 1985, he decided he had to give up his job at his father's ranch near Ukiah and move. "I realized Anderson Valley was part and parcel of my brand," he told me. "I built a tasting room and storage facility here. It was all about the geography of the place." But he didn't own his own vineyards; he bought his grapes from growers in Anderson Valley. "I chose the Champagne model, not the Napa Valley model of the spoiled brain surgeon who wants a lifestyle," he said. "I wanted to be the proprietor, with a winery that was multivineyard, multigrower, multivintages, and multivarietals. It worked for 400 years. Why couldn't it work here?"

One of the most challenging tasks was the marketing and distribution of the wine. "The champagne business is much more like the perfume business than the wine business," Scharffenberger said. "It's about perceived value." His competitors were entertaining restaurateurs and distributors across the country or awarding premiums to distributors for new accounts. "It requires gobs of cash," he continued. "These people had it. I didn't. I had inventory and tried to use inventory to finance as much of my marketing as possible." He staged large bashes at the latest clubs in San Francisco. "I gave parties in ratty clubs for a thousand people and would invite wait staff -- in a few years, half of them would be buyers," he said. "We would buy really cheap caviar and cheap Brie. The budget was a bottle a person. It would be a thousand bottles of sparkling wine. These people still remember those parties." He was consciously crafting an aura for his sparkling wine that would associate it with fun, not snootiness. It didn't hurt that he was having fun himself.

But he increasingly felt the need to find a partner. Big French champagne companies -- Mumm, Roederer, Piper-Heidsieck, Taittinger, Moët & Chandon -- were starting or expanding their California sparkling-wine production. "I was the poorest person in the sparkling-wine business in California by the late '80s," Scharffenberger told me. "I was the only person without deep pockets or a French partner." He was looking for someone to help him build his own winery when John Fetzer, Barney Fetzer's son, invited him to a lunch for a representative of the beverage department of BSN (now Groupe Danone), a French food conglomerate best known in this country for Dannon yogurt and Evian water. Scharffenberger brought along some of his sparkling wine. "The guy really liked it," Scharffenberger recalled. "It was a done deal in four weeks."

For Scharffenberger, BSN was a dream partner. With BSN's money, he bought property in Philo for a winery and vineyards. Then, as so often happens with dreams, the reverie ended. The collapse of communism in Eastern Europe suddenly presented a great opportunity for the French company to expand its core businesses of biscuits and bottled water. To raise cash, it sold its sparkling-wine operation -- in which Scharffenberger Cellars was, as its founder says, "a little blip" -- to the luxury conglomerate LVMH in 1991. Scharffenberger stayed with his company, of which he still owned about 10 percent, but he became increasingly restless. Temperamentally, he is better suited to starting a company than to running it day to day; now, even less to his liking, he had to answer to a boss. When LVMH made a decision in 1995 to buy out minority shareholders in all its myriad businesses, Scharffenberger was delighted.

He had already begun to contemplate his next act. "I was getting involved in a redwood forestry project that I thought would be a good idea," he recalled. "It wasn't, but luckily, I didn't lose any money." He was also thinking about manufacturing an alcoholic cider, using the overabundance of apples and pears that are grown in Mendocino County. "At the end of the day, it reminded me too much of the wine business for distribution," he said. "Each state is like a different country, without the European Union."

Having cleared a tidy sum from his stock sale to LVMH -- "it paid for my house and left me a couple hundred thousand" -- Scharffenberger was looking for an opportunity. Nix to redwoods. Nix to cider. At which point, chocolate presented itself.

Back in his hippie days in Ukiah, Scharffenberger knew Robert Steinberg, a physician and foodie who, like him, was a devotee of the counterculture. Steinberg later moved to San Francisco, where Scharffenberger, who was often in the Bay Area, continued the relationship. "The last time I saw him as a doctor, he said he had six months to live -- 'and, by the way, you have a hernia,' " Scharffenberger recounted. Given a diagnosis of terminal lymphatic cancer in 1989, Steinberg survived for almost 20 more years, before his death last September at the age of 61. But when he received the grim forecast, he closed up his medical practice to focus on the things he loved. At the top of the list was food.

With another partner, who was seeking more use from an underused coffee-bean roaster, Steinberg had spent a couple of years ruminating about crafting chocolate from cacao beans. In 1996, he asked Scharffenberger if he was interested. A self-described chocolate fanatic, Scharffenberger was very interested. The other partner eventually dropped out. "Which was fine with me," Scharffenberger said, "because he didn't have money or expertise or a place that we could use for a facility." Himself, Scharffenberger had a little capital, contacts to raise more, and a strong idea on how to set up production. "You find a cheap place and fabricate everything you can fabricate and buy everything else used, which is how I did the winery," he said. In 1997, he located an inexpensive industrial building in South San Francisco and bought secondhand machinery in Europe. To benefit from Scharffenberger's food-world reputation, the new company took a bifurcated version of his name for its brand: Scharffen Berger.

Steinberg and Scharffenberger envisioned their customers as dessert chefs. They offered only large sizes -- from half-kilo up to three-kilo blocks -- suitable for commercial kitchens. But they were having trouble making inroads on the entrenched brands. "We were running out of money, and the holidays were approaching," Scharffenberger said. "I had made a $300,000 investment, basically all the money I had." To drum up a little extra cash, they tried selling some chocolate in the weekend San Francisco farmers' market, chopping up a few blocks to distribute as samples. "We sold 400 bars at $4 a bar," Scharffenberger recounted. "On Monday morning, I said, 'We have to make more bars.' " They filled their large molds partway and reduced the size of their wrappers with a paper cutter. And they never looked back. With the coming of the new year of 1998, Scharffen Berger chocolate would be sold at retail.

Scharffen Berger won prominent endorsements from such culinary arbiters as Julia Child and Jacques Pepin, and the publicity helped the company grow. Whole Foods was the first big retail customer. As the company expanded, it needed more capital and corporate management skills, so in 1999, Scharffenberger enlisted Peter Wais, a Bay Area steel-industry scion who wanted to get into the chocolate business. Wais ran the day-to-day business operations and supplied the money to buy a handsome building in the industrial district of west Berkeley. (He then leased it to the company.) But the introduction of a third partner exacerbated the frictions that already existed between the original two. "In my memory, I think I'm a little rough on Robert," Scharffenberger told me. "For the company, if you think of it like a ship, I might have had my hand on the rudder, but he was the keel that steadied the ship. He kept it on a course that made sure it was a joyous place to work and also a delicious product. He wasn't managerial. He was slow, and we had to be fast, or we couldn't have a business." Scharffenberger can easily lose patience. "We were running out of money," he recounted. "We had to get organized with a new product line, say, of this baking chocolate. It has to be packaged and in a way that's replicable, and with a marginal cost that worked. He didn't know any of that, so I explained it to him. And then he asked again, and I explained it again. At which point I would say, 'I've shown it to you twice. If you don't get it, see ya. In holding your hand, I can't sink the ship.' I got to the point I wasn't willing to run the company at his speed. He became resentful." Wais told me that his own long-range vision was to expand the company over time and that Steinberg, because of his health problems, pushed for a quicker sale. Scharffenberger's history in sparkling wine inclined him toward selling to a bigger corporation, but he waffled. "John went back and forth," Wais told me. "He liked the idea of building something up, but he also went through periods when he wanted to sell." Scharffenberger was also domineering. "John feels supported when you mirror him," Wais said. "When someone does not mirror him, he is very ill at ease."

With a third partner, the ship veered out of control. As Scharffenberger argued with Wais, he felt that Steinberg was not supporting him. The alliance crumbled. "I raised all the money from friends and family to buy Peter out and recapitalize the company, and I told Robert, 'You're not my partner anymore,' " Scharffenberger continued. "It was sort of natural for Robert to be resentful, but it was all about the company working and the product being good." Steinberg continued at Scharffen Berger, with about a 13 percent ownership stake and an ongoing role in bean sourcing and blend tasting. "At the end of the day, Robert was a very good taster," Peter Kocaurek, the original production manager, told me. "He was very analytical about flavors and what he liked about them and didn't like about them. Robert was much more interested in picking out certain flavors, and John was into the overview." But Kocaurek laughingly agreed when I told him Scharffenberger's assessment of the problem with having two bosses. "The issue," Scharffenberger said, "was that partnerships aren't a good way to run businesses for employees. Peter Kocaurek could ask me a question and Robert the same question and take the answer he wanted. When you're formulating, it's one thing, and when you're operating, it's another."

Scharffenberger's biggest nonfamily backer in the chocolate company was a venture capitalist, Jim Kohlberg, who was a casual friend and fellow foodie. "I knew there wasn't an artisanal high-end chocolate in this country," Kohlberg told me. "I thought the timing was right. Organic food was beginning to burst, and high-end food was making good headway against mass-market food." Impressed by Scharffenberger's business instincts and marketing flair, Kohlberg in 2001 helped provide the money to buy out Wais. Later, as the company grew, Kohlberg helped Scharffenberger bring in a chief operating officer. "That's when the culture changed," Nancy Arum, who was the national sales director, told me. Things became more businesslike. Willy Wonka fans will recognize the trajectory, from the golden dawn of the Wonka Bars to the workaday ethos of the Oompa-Loompas.

Once the company was operating in a more businesslike way, the next step was preordained. In January 2005, about seven and a half years after the making of the first batch of Scharffen Berger chocolate, a representative of Hershey, the enormous mass-market American chocolate company, expressed an interest in the small artisanal manufacturer. Scharffenberger says he wasn't keen on selling: Revenue was $10 million and growing rapidly. But Hershey kept raising its offer, reaching a sale price near $50 million when the deal closed in August. With a little more than a fifth of the company, Scharffenberger bagged a healthy profit. He signed a three-year consulting contract with Hershey, which he renewed for two years last August. And he looked toward his next adventure.

Like sparkling wine (what do you do with acidic grapes?) and chocolate (how can we find another use for this coffee roaster?), ham appeared on Scharffenberger's radar screen as a situational opportunity. His friend Mac Magruder raised grass-fed cattle and sold the beef to high-end restaurants, but because of a pesky problem, the meat could not be labeled organic. The cattle required an occasional wormer to treat them for parasites such as tapeworms, which would pass through their guts and infect another cow. Pigs are omnivores, and when they ate the cow poop, the pathogen was killed. Why not release pigs into the cattle pastures as pathogen neutralizers? Their feed could be essentially free, as they gorged on (in addition to cow manure) the otherwise wasted acorns from oaks that stretched to the horizon. Or so Scharffenberger and Magruder reasoned.

When I visited Magruder last fall, he was still on what he described as "a big learning curve." This was his second year as a part-time pig farmer. He was raising about 100 pigs, trying out crosses between the wild ones he had captured and two heirloom varieties, Old Spot, which was once raised for lard, and Berkshire, which has been rediscovered recently for its flavorful meat. Magruder was finding that fencing pigs, especially young ones, is a much trickier proposition than confining cattle: "It's like fencing in a bar of soap." There were other unforeseen complications, too -- for example, the black bristles of slaughtered feral pigs were harder to remove than the hair of domestic pigs. But the critical challenge was the time needed to raise the slower-growing wild pigs. That was the main reason Magruder was hybridizing them with domestic breeds. "How much value can you add to your product to compensate for the slow growing?" he asked. "Restaurants can have loins delivered for $1.70 a pound. I sell these for $4 a pound. You have to have a story. That's what John is trying to do -- to have value added." Because it was impossible to compete on price with factory farms, he and Scharffenberger needed to emphasize the superior flavor, romantic origins, and old-fashioned livestock-raising techniques of their product.

Magruder was selling all the meat except for some of the hams, which went to Scharffenberger. Although he knew Scharffenberger's predilection for the attenuated body of the Iberian pig, he remained skeptical. "John kept talking about this long pig, but this one doesn't have much back end on him," Magruder told me, as we approached one of Scharffenberger's paragons, a lean black boar. "How much story and prestige are you really going to get away with? You look at that one's rear end and this one's rear end." He pointed first to the boar and then to a waddling Old Spot sow. "It's finding something that has the right shape but will also grow. The shape of the hams will be great, but they won't grow fast enough to be economical."

Afterward, when I spoke with Scharffenberger, he emphasized that he was taking things slowly. The correct breed of pig was only one part of a large jigsaw puzzle. "My plan, just like the early days of the chocolate business, is to approve a production model," he said. "And then to see what would happen with a very limited commercialization. My interest would be to find someone who wanted to get involved in the processing." The acorns, the historic Spanish breed, the traditional curing: He knew that a good story would get customers (and people like me) interested. But if he wanted to keep them coming back, he would have to concoct a product that was reliable, affordable, and -- most important of all -- delicious.

Arthur Lubow wrote the March cover story, about apparel maker Marc Ecko.

IMAGE: Robyn Twomey
Last updated: May 1, 2009




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: