Sales are slipping, and the biggest winemaker in Beaujolais is accused of mixing plonk with his finest crus.
By Vivienne Walt

(FORTUNE Magazine) – FOR MONTHS THE winegrowers of Beaujolais have been looking forward to their best vintage in years. A spectacularly dry, temperate summer has baked the sandy soil to perfection, leaving the vines creaking under the weight of the famed gamay grapes.

Then the bacchanalian dreams turned corky. In a move that sent shock waves over the rolling hills, Beaujolais's regional prosecutor in late August announced he had opened a preliminary investigation of wrongdoing against Georges Duboeuf, by far the area's biggest wine producer, whose overwhelming clout in the market has earned him the moniker le roi de Beaujolais. His company, Les Vins Georges Duboeuf, exports about a million cases a year to the U.S. alone. Prosecutor Francis Battut said in a statement that "everything was being mixed" in Duboeuf's production facility--"Beaujolais with Beaujolais-Villages, cru wines with Beaujolais-Villages, and so on." If Battut has his way, Duboeuf could be charged with mixing lower-grade Beaujolais-Villages grapes with those reserved for the finest cru wines, and then labeling those vats as containing various crus. The mélange, which government officials discovered in a spot check last January, comprised just 189,000 liters, or about 50,000 gallons, of Duboeuf's annual production of about 270 million liters. Duboeuf blames an underling and says the plonk never left the vats, which would make it an error rather than fraud. Still, the violation of France's appellation laws is considered deeply serious, and if convicted, George Duboeuf and his now-fired production manager could face hefty fines and perhaps even prison for misrepresenting their product.

"This has been catastrophic for me," says Duboeuf, a wiry 72-year-old with thick gray hair. He began his career at 18 selling wine from the back of his bicycle, and by the 1970s became famous for foisting Beaujolais nouveau on an unsuspecting world on the third Thursday of each November--a marketer's dream in which wine shops and restaurants around the world compete to be the first to sell the region's grape juice even though it has barely reached adolescence. Most serious wine people consider nouveau a crime of sorts, but not in Beaujolais--it is a boon to all the region's growers. As for the 50,000- gallon mistake, Duboeuf insists it was a "shocking human error" by the employee, who oversaw the company's sprawling Lancié plant, a state-of-the-art facility that opened in 2002. Still looking a little stricken, Duboeuf guided FORTUNE around the plant's gleaming new computer room, where workers in white lab coats now enter the specifications of each parcel of grapes before it hits the conveyer belts. He says the revamped procedure has built-in checks that prevent contradictory data from being entered. "This new system is perfectionist," says Duboeuf, his lanky teenage grandson in tow. "We have a tracking system now with an eight-person team. It is impossible for this to happen again."

Perhaps. But those assurances have scarcely quelled the anguish in Beaujolais. Winegrower Ghislain de Longevialle, who calls Duboeuf the "emblematic figure" of Beaujolais to the outside world, says he thinks Duboeuf was guilty of an error rather than willful deception--but still fears that this one mistake could taint Beaujolais's reputation abroad. "I'd prefer all this media publicity to be about what great wine we'll be making this year," he says, standing in a pink sun hat amid the dozens of young French students hired to harvest his grapes.

Beaujolais can ill afford scandal right now. Sales of French wine have been slipping for years. Hip young French people are increasingly sipping cocktails and beer, shunning the often tired vin de table that lubricated the family dinners of their childhoods. Competitors in Chile, Australia, South Africa, and countless other places have been aggressively marketing high-quality, fruit-forward wines that, unlike those with French labels, don't require a degree in oenology to choose in the supermarket. The political feud over Iraq cut into French wine sales in the U.S.; they fell 15% to 20% in 2002 and 2003 and haven't fully recovered. And the euro's climb in value has put the best French wines beyond the reach of many Americans. In July, Beaujolais producers rolled out a print campaign in the U.S., showing cool young Americans sipping wine poolside from plastic cups.

Shortly before 40,000 seasonal workers began converging on Beaujolais in early September for the annual two-week harvest, the vintners' unease hit the boiling point. France's wine authorities declared this summer that French wine output should be cut in order to raise market prices. De Longevialle, as president of the Beaujolais Union of Winegrowers, told members they needed to trim about 3,000 hectares, or 7,400 acres, about 15% of the region's growth.

The response was explosive. In a scene that would have done the Jacobins proud, nearly 1,000 growers stormed the union's offices in late August and forced de Longevialle to resign. "There is panic in the marketplace," says grower Daniel Bulliat, 48, who founded the protest movement. "Cutting production isn't the answer. Every time we lower production, we never get it back." Bulliat, whose 12 hectares, or 30 acres, of vines sit midway between Duboeuf and de Longevialle, believes Beaujolais nouveau's mammoth popularity is partly to blame for the current difficulties. "We made so much money for 25 years that we went to sleep," he says. "We should spend less time playing boules and eating lunch, and more time selling our wines. The problem is, the little traders are disappearing, and we need ten Duboeufs."

Yet some believe that Duboeuf's supersized operation, which purchases the entire crop from many small growers, may have left him especially vulnerable to the production error last January. "He might have difficulty delegating responsibility," says Bill Deutsch, chairman and CEO of W.J. Deutsch & Sons Ltd. in White Plains, N.Y., Duboeuf's exclusive U.S. importer, who has known him for nearly three decades. "He is a very loyal person and very slow to change people," he says. "That is one of his problems."

With the grapes now harvested and the vines bare, Duboeuf has other problems on his mind. First: to try to clear his name before late November, when wine drinkers will get a first taste of what could be the best Beaujolais in years.