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Gallo meininger2009[1]


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Gallo meininger2009[1]

  1. 1. C O M PA N Y P R O F I L E The second and third generations of the Gallo family. GALLO: THE CAMPBELL’S SOUP OF WINE? If Mondavi democratised wine production, Gallo democratised wine consumption, famously declaring it wanted to be the Campbell’s Soup of wine, giving consumers what they liked to drink at a price they were willing to pay. The company has come a long way since then, observes Kevin McCallum. o understand why E&J Gallo is such surrounded it, all just steps from the Brands’ California brands, Estancia. All T a powerful force in the US wine market, one needs look no further than the Publix supermarket in market’s entrance. Beside the Frei Brothers display sat bottles of Rancho Zabaco, a popular Sonoma County formidable rivals to be sure, especially Constellation, which surpassed Gallo several years ago as the largest producer Sarasota, Florida. Upon entering the Zinfandel brand made at Gallo’s of wine in the world following its grocery, one of 928 locations in the Healdsburg winery. Another barrel purchase of BRL Hardy in 2003 and the American southeast, the first item a showed off the wines of Louis M. Robert Mondavi Corp. in 2004. shopper visiting in early March would Martini, the Napa winery purchased in But none possess anything approach- have seen was a bottle of Frei Brothers 2002. Next to that sat an arrangement of ing the grip Gallo maintains on the prime Cabernet Sauvignon. Framed by colorful Barefoot Cellars, an inexpensive line of real estate inside US supermarkets, flowers and fresh strawberries, several California wines Gallo bought in 2005. where the majority of the $30b in US varieties of Gallo’s fastest growing Finally, under a sign that read ‘Wine wine sales last year occurred. Sonoma County wine took center stage Simplified’, shoppers found something This unparalleled access to US on a wine barrel, all discounted by $3 called Polka Dot, a German Riesling in consumers has helped the company down to $16.99 per bottle. an aqua-blue bottle, one of many new transform itself in less than 20 years It should surprise no one that one offerings from Gallo’s fast growing sta- from a generic jug wine producer into a of the hottest brands of the largest US ble of imported brands. diversified and global wine empire. winery would occupy such fertile retail In all, five out of the eight wines on Strength through diversity ground, where impulse buys boost sales display in Publix’s entrance were Gallo well beyond the rates possible on the brands, though you’d never know it “No other company is participating so crowded wine aisle. But the real secret from looking at the labels. The other broadly in this huge, burgeoning global behind Gallo’s profound influence in the three brands belonged to fast-growing wine market,’ said Jon Fredrikson, a US wine market lies not in that key first Chateau St. Michelle Wine Estates in prominent US wine industry analyst and display, but in the second, third, fourth Washington State, sparkling wine head of Gomberg, Fredrikson & and fifth similar displays that producer Korbel, and one of Constellation Associates. “There is nobody that is so 58
  2. 2. 2/08 MEININGER’S WBI R G A L LI O UBR K diversified anywhere in the business.” tragedy into opportunity. After their “If your goal is art, Gallo is Whether it’s jug wine, fortified wines, father Joe Sr., an Italian immigrant entry level varietals, mid- to high-end saloonkeeper turned grape-grower, not art. This is commerce.” Sonoma and Napa Valley wines, or its killed their mother and turned the gun port and brandy business, the modern on himself, the brothers took over the Vic Motto E&J Gallo has long seen the value in a family business. Instead of sending diversified product line, leveraging its grapes east for home winemakers, they Vic Motto is strength in one wine category to give its took $6,000 and a few winemaking pam- the chief executive new brands a boost. Increasingly, that phlets from the local library and founded officer of Global diversity is taking on a decidedly a winery in a rented warehouse in Wine Partners, international flavor. Gallo has ramped up Modesto, in California’s dusty Central an investment its import business in recent years, forg- Valley. They worked tirelessly to build bank based in the ing partnerships with 14 foreign winer- their new winery against larger rivals Napa Valley. ies in eight nations to produce an and longer odds. The way Ernest told it, estimated 6.2m cases of wine destined since all they could afford was one for the US in 2006. tractor, he would drive it for 12 hours brands respectively, are also regularly Perhaps in recognition that it got and then Julio would drive it for 12 more. listed as some of the top selling brands caught flatfooted in that last big shift Coming of age as they did in the by volume. So while the company has in the US wine business – from generic Depression, the Gallo brothers showed made decisive moves away from its jug jug wines to varietal wines in the 1980s a fierce determination to succeed and and fortified brands, they continue to – Gallo has embraced globalization and no patience for wine snobbery. People form the winery’s foundation, giving it is now bringing wine into the US from wanted basic wine at affordable prices, steady revenue, economies of scale, and every major growing region of the world. and that’s what they unapologetically clout with distributors. Those strengths “We want to offer a portfolio of gave them. With Julio focused on have given Gallo market advantages as it products to the US that allows us to com- modern, cost-effective ways to make the has reinvented itself, not once but twice. pete in all segments of the wine busi- wine, and Ernest using aggressive and The first time was when US wine ness,” says Roger Nabedian, general man- at times Machiavellian means to sell it, drinkers during the 1980s turned away ager of Gallo's premium wine division. the brothers made a dynamic team. from the generic, non-vintage jug wines New brand development continues to Along the way, they reinvested not in favor of varietal wines. Competitors play a key role in creating that diversity. only in the winery, but in other assets were flooding the market with inexpen- The company makes or markets over 60 that helped them control costs, such as sive ‘fighting varietals’ that offered a set different wine brands. But increasingly, owning their own glass factories, label of seemingly more sophisticated wines Gallo is achieving the portfolio diversity printers, and even distribution companies. for reasonable prices, and Gallo was is seeks through joint ventures with Such vertical integration served the com- forced to follow suit. “People wanted foreign wine producers. Some distrust pany well. Soon E&J Gallo had become the varietal wines, and (Gallo) had to come Gallo’s aggressive new import strategy, largest winery in the nation, propelled by out with new brands to go with the concerned it will limit consumer choice the success of non-vintage jug wines like market or they were going to have tough and hasten the homogenization of wine. Hearty Burgundy and Carlo Rossi and times,” says Frank Walters, research After all, this is the company whose potent fortified wines like Thunderbird. director for Impact DataBank, an industry co-founder famously aspired to be the Though the market has since shifted data analysis firm. Campbell’s soup of wine. to varietal wines, the success of Gallo’s Some have suggested that Gallo was But to many in the US wine industry, jug wine business in the 1960s and slow to either recognize or capitalize the way Gallo has partnered with foreign 1970s is widely credited with introduc- on the shift. Ernest Gallo’s feeling that producers and helped them craft wines ing millions of Americans to wine and varietal wines were elitist and Julio’s that appeal to American consumers is setting the stage for the nation’s eventual belief that non-vintage wines were more nothing short of “brilliant,” says Vic shift to become the world’s most lucrative consistent are often cited as reasons Motto, chief executive officer of Global wine market. Gallo’s jug brands remain for the company’s slow response. The Wine Partners. “If your goal is art, this is formidable products and revenue gener- company may also have been distracted. not art,” he says. “This is commerce.” ators to this day. The Carlo Rossi brand While rivals were racing to launch alone remains the company's top selling varietal wines, Gallo was riding the wine In the beginning wine by volume, selling more than cooler wave. Launched in 1984, Bartles & Nearly 75 years ago, two months after 12.7m cases in 2006, according to the Jaymes wine coolers became a major the repeal of Prohibition made it once 2007 edition of the Adams Beverage success for the company, hitting a peak again legal to sell alcohol in the US, Handbook. Its Livingston Cellars and of 18.4m (2.25 gallon) cases in 1990, brothers Ernest and Julio Gallo turned Peter Vella brands, jug and box wine with 49% of the market, according to 59
  3. 3. 2/08 MEININGER’S WBI COMP K R U B R IA N Y P R O F I L E Fredrikson. Whatever the challenges COMMENT FROM BRIAN CARLISLE Gallo faced in making the transition to varietal wines, by the early 1990s, it had Internationally, we focus only on Gallo Family Vineyards’ made remarkable progress. By 1991 it California brand, in 90 countries. In Eastern Europe, and in had become the largest seller of varietal particular in Poland, it is still Carlo Rossi that drives sales; in wine in the US, according to a report more mature markets, we are able to capitalize on consumers from San Francisco investment bank trading up to our more premium products, even the higher Hambrecht & Quist. priced offerings from Sonoma. Although America is still our core market, we have enjoyed enormous success in the United The family connection Kingdom, are well established in Germany and are either the The 1990s were also a period of number one or two imported brand in all Asian markets. dramatic transition within the family Brian Carlisle, is Gallo’s owned company, as the second and third general manager for international sales. generations of Gallos assumed greater responsibilities and leadership roles. Sonoma County begin to pay dividends. Some of those fears may have been Ernest’s son Joe opened the company’s The company purchased the sprawling misplaced, stoked by images of Gallo’s first overseas sales office in the UK in Frei Ranch near Healdsburg in 1978, and monstrous Modesto facility, which takes 1985, and took on a greater leadership built a two million case winery there. In up several city blocks and looks more role as the founders aged. 2005 it won approval to more than like an oil refinery than what regular Joe Gallo became CEO in 2001 and by double the capacity, to 4.9m cases. Its folks think of as a winery. While the all accounts is the undisputed head of Sonoma County holdings have been key company doesn’t release production the multi-billion dollar family business, to its move up market. The cooler, coastal figures, industry estimates are that its though he shares the presidency with county is widely considered to be far total US wine business – including his cousin Bob, Julio’s son. The third superior for grape growing than the imports -- is approaching 80m cases, generation is coming up strong, as well. scorching Central Valley. All told, the worth about $4b, annually. Gallo defends Bob’s children Matt and Gina Gallo head company owns over 3,000 acres of vine- its environmental record, pointing out the fine wine operation based in Sonoma yards in Sonoma County, and more than that it has set aside half of its 6,000 County: Matt is the vice-president of 10,000 in California, according to industry acres in the county for wildlife habitat, operations, while Gina is winemaker. estimates. Though a fraction of Gallo’s and has gone to great lengths to make its Joe’s daughter Stephanie is head of mar- overall production, Sonoma County is Sonoma County vineyard and winery keting, while son Ernest J., is director of home to some of company’s most presti- practices some of the most environmen- innovation. They are just a few of the 15 gious brands, including its Gallo Family tally friendly in the industry. family members leading the winery into Vineyards Sonoma Reserve wines, and Despite these efforts, the company the future, a testament to the work ethic other fast growing and profitable brands has had to swim upstream against con- passed down from the company’s like Frei Brothers and Rancho Zabaco. sumer perceptions linking the Gallo founders. “You didn’t grow up Gallo and Many in the industry welcomed Gallo name to jug wine and big business. not work,” Gina Gallo has said. with open arms for the marketing boost Despite a recent rebranding that was Family ownership has given Gallo its programs brought to the profile supposed to highlight the company’s a significant advantage over some of Sonoma County wines. The company family ownership, the reality is the of its corporate rivals. While it is a also took flak from some quarters, par- Gallos don’t put the Gallo name on the massive company with nearly 5,000 ticularly the rural county’s vocal envi- vast majority of their wines. employees, its leadership is clear and ronmental community. Critics assailed “It’s not like they’re trying to hide it,” centralized. “Everything is right there the size of the winery, the county’s says John Hinman, a veteran San in one building in Modesto, where largest, and the scale and methods it Francisco beverage attorney. “It’s just, decisions are made and made quickly,” used to develop its vineyards. The why advertise it if it doesn’t help?” says Fredrikson. company’s so-called ‘industrial farming’ Just four of the company’s more than As Joe Gallo explained in a rare approach often involved using heavy 60 brands use the Gallo name, under interview with Harpers in 2006: equipment to move tons of earth to the Gallo Family Vineyards moniker. “Basically, we are uniquely suited to the sculpt the natural oak-studded hillsides The name is a rebranding of the Gallo wine industry where you have to think into manicured, and therefore easier and of Sonoma label, into which the long term,” Joe Gallo said. “The cheaper to farm, vineyard rows. company has poured tens of millions advantage of a family business is we can “It looked like they were building a of dollars in advertising since launching think eight or 10 years (ahead) and we city out there,” said one industry insider it in 1994, with limited (by Gallo will get a return on our investment.” who recalled the uproar. “It frightened standards) results. All told, about Gallo has seen its early investments in the bejesus out of people.” 600,000 cases of Gallo Family Vineyards 60
  4. 4. 2/08 MEININGER’S WBI GALLO Sonoma Reserve, Estate and Single wines or stand by and watch competitors “Barefoot basically took Vineyard are made in Sonoma County, a capitalize on the opportunity. And so its number industry watchers say has been joint ventures have proliferated. the wind out of the sails a disappointment. Following on the success of Ecco of Yellowtail.” Domani, Gallo has launched three other Growth through acquisition Italian brands -- Bella Sera, Maso Canali, Jon Fredrikson The company’s real growth in varietal and Da Vinci. Other offerings have wines has come through aggressive included Red Bicyclette and Pont Jon Fredrikson brand launches, regularly rolling out D’Avignon from France; Black Swan, is a prominent new, well researched brands that most from Australia; Polka Dot, a German US wine industry consumers would never suspect were Riesling; White Haven, a Sauvignon analyst and Gallo creations – Turning Leaf, Redwood Blanc from New Zealand; Don Miguel head of Gomberg, Creek, Rancho Zabaco, Dancing Bull, Gascon, a Malbec from Argentina; Fredrikson & Frei Brothers, and MacMurray Ranch, Sebeka from South Africa; and Martin Associates. just to name a few. Codax, from Spain. Acquisitions of new brands and In many cases, such as with Martin wineries have also played a key role. Codax, Gallo doesn’t tamper with the 4.7m cases. Certainly some of the credit Barefoot Cellars, the fast-growing wine one whit, Nabedian said. All that for those numbers must go to Gallo’s Sonoma County-based negociant was wine needed was to have its marketing insights into what drives the US con- selling about 500,000 cases in 2005 and packaging “retooled” for the US sumer. But that’s far from a complete when Gallo purchased it. In two years, market, he said. explanation. Plenty of foreign producers Gallo has boosted the brand’s production But other brands involve much more are, after all, perfectly capable of making eight-fold to nearly 4m cases, making it direct winemaking involvement by wines that appeal to the US palate. But the fastest growing wine in the nation, Gallo, such as Red Bicyclette, the line of selling them in large quantities in the according to Impact Databank. French wines from the Languedoc region complex, highly regulated and fractured “It’s just tearing up the market,” says launched in 2004. Gallo worked closely US retail wine market is another thing Fredrikson. “Barefoot basically took the with French winemakers to create a Vin entirely. That’s where Gallo’s expertise wind out of the sails of Yellowtail.” de Pays from France that US consumers lies, and that’s the real reason its import The success of Yellowtail confirmed – according to Gallo’s vast research - portfolio is booming. what Gallo already knew – American were more likely to enjoy. “We’re not try- “They are in touch with the market,” consumers liked US wines, but were ing to have the science dominate the art, says Motto. “They have their finger on increasingly drawn to the sense of or if you like the term, the ‘terroir,’” the pulse of the market – the consumers, adventure and value that imported Nabedian says. “But we are trying to the distributors and the retailers -- in a wines offered. Gallo proved that with provide them with some insight into way no foreign producer could ever hope its 1996 launch of Ecco Domani, a what the US consumer prefers and some to duplicate.” I Pinot Grigio from Italy. That brand was insight into what the US consumer developed because US grape growers prefers to avoid.” simply couldn’t meet growing demand While the original plan was for Gallo for the varietal, Nabedian says. to sell Red Bicyclette in France and the The motivation was similar for the UK, the brand, which was designed with company’s 2001 joint venture with the US consumer in mind, did not per- Australian producer McWilliam’s Wines form well in Europe. It has since been – US growers didn’t have enough Syrah, withdrawn and is now only being sold in and so the company reached out to the the US, Canada and Korea. “It wasn’t a respected Shiraz maker. Gallo huge failure, but it wasn’t by any meas- has since taken a 10% stake in the ure a success,” Nabedian says. SOURCE: IMPACT DATABANK, THE GLOBAL DRINKS MARKET, 2007 company. Since those two ventures, the Overall, however, Gallo’s import Gallo’s top US imports, 2006, in cases* company has broadened its thinking strategy is proving successful. The Bella Sera 2,200,000 somewhat on imports, viewing them not company has gone from no imports to Black Swan 1,700,000 just as alternative sources of hard-to-find millions of cases in a little over a decade. Ecco Domani 1,400,000 varietals, but as ends unto themselves, The exact number is hard to pin down. Red Bicyclette 300,000 Nabedian says. Impact Databank puts it around 6.2m for Da Vinci 200,000 As Americans’ interest in imports 2006, and Wine Enthusiast magazine, McWilliam’s Hanwood Estate 200,000 continued to increase, Gallo realized it which named the company importer of *All numbers approximate could either be the one offering those the year in 2007, figures it’s closer to 61