Gallo Wine Case Study
Other new lines rely on the Gallo name, though the labels vary from the traditional one, often displaying simply the signatures of the founders. These include the Single Vineyard varietals -- chardonnays, cabernets and the like with price tags of $14 to $18 -- and the top-of-the-line Sonoma Estate wines, including a chardonnay that retails for $30 and a cabernet sauvignon that goes for more than $40.
A $40 bottle of Gallo wine? Yes, and to the consternation of Gallo's competitors, some of the wines are winning raves among customers and critics. Chez Panisse, the Berkeley restaurant owned by Alice Waters that is in the vanguard of the best in California cuisine, recently bought its first cases of Gallo Sonoma wines.
''They said it couldn't be done,'' said Ed Everett, an importer and wine consultant based in San Francisco. ''Everyone in the industry said Gallo could never shake off its jug-wine image. Which is just the kind of challenge the Gallos love. And they've done it.''
There is a good reason, of course, why Gallo is so determined to remake its image. Consumption of the blended table wines on which Gallo feasted for years has stagnated while varietals, named for the predominant grape used to make them, have taken off. Last year, for example, the volume of varietals shipped by California wineries was up nearly 10 percent, to 76.7 million cases, according to Impact, an industry trade journal, while table wine was up only 1.7 percent, to 52.9 million cases. In 1985, generic table wine accounted for 81 percent of all California wine shipments; last year, it was down to about 40 percent.
Responding to this shift in taste, Gallo has moved production of its premium wines to Sonoma County, where it has been buying up land for years. And to give the Gallo designation more panache, the family began removing its name from some of the cheaper wines and shrinking it on others, selling them with alternative labels, including Sheffield and Livingston Cellars. They abandoned the three- and four-liter bottles for Hearty Burgundy, once the country's best-known jug wine, confining it to standard 750-millimeter and 1.5-liter bottles with corks, low-key labels and a price of $4 for the smaller bottles.
''It's not inconceivable that one day the Gallo name will be associated only with top-of-the-line varietals,'' said Mr. Everett, the wine consultant.
But that day is a long way off. To capture more consumers with highbrow tastes, the Gallos swallowed their pride and excised the Gallo name from most of the new Sonoma brands, as well as from the two big Modesto sellers, Turning Leaf, begun in 1995 with a price of about $7, and Gossamer Bay, introduced last year for around $8.
Marking many of its labels ''Made in Healdsburg'' is worth ''many millions of dollars to the Gallos,'' according to the wine consultant Jon Fredriksen, because it avoids the Modesto identification that is a Gallo give-away. In fact, a recently introduced Turning Leaf Reserve line is made at Sonoma instead of Modesto, benefiting from the cachet of the Healdsburg address.
Gallo had little choice. It had largely missed out on the seismic shift of America's wine drinkers from jug wines to varietals.
Gallo, slow to tap into the varietal boom, had come out with some uninspiring brands in the 1980's. It let other big names grab a big slice of that market -- particularly the Benziger family with its Glen Ellen line, which it sold to Grand Metropolitan P.L.C.'s Heublein unit in 1993.
But now Gallo is in a hurry to make up for lost time. To help meet demand for its new brands, the recently completed winery in Sonoma just west of Healdsburg is operating 24 hours a day, producing an estimated two million bottles a month. Gallo expects to increase its capacity by 30 percent within the next couple of years in addition to opening three more wineries on the California coast.
The Sonoma winery property, known as the Frei Ranch, is unmarked and surrounded by high fences and guarded gates, as are the immense Gallo wineries in the Central Valley. No tours or tastings, those staples of the California wine business, are offered. The scene is bucolic but a turn in the road reveals a multimillion-dollar plant, probably the most technically advanced in the world, that presses and processes the grapes from Gallo land in Sonoma.
At Frei Ranch, the company has embraced an ancient tool of the trade that it shunned at Modesto -- great wooden barrels for aging the wines -- building an underground cellar the size of a football field with room for 60,000 of the casks, A second cellar of the same size is on the drawing board. Gallo buys about 20,000 of the barrels a year for Sonoma, importing most of them from master builders in France at a cost of around $600 each.
''We buy two-dozen barrels from a cooper and test them before we buy in quantity,'' said a senior wine maker, Marcello Monticelli. At any time, he said, hundreds of tests involving different wine and barrel combinations are under way.
At least one competitor believes Gallo stepped over the ethical line in pursuit of its marketing ambitions. Last year, Kendall-Jackson Winery Ltd. sued the company for trademark infringement, contending that Gallo's new Turning Leaf label replicated the autumn-leaf logo on its huge-selling Vintner's Reserve line. A jury decided against Kendall Jackson in March, but the winery is appealing the decision.
In its marketing effort, the company has deployed a small army of third-generation Gallos -- 15 in all, out of 20 grandchildren of the founders. Gina, 30, started out in sales, studied wine making at the University of California at Davis and now oversees all wine production at Sonoma. Her brother Matt, 34, is operations manager at the Sonoma properties, and their cousin, Caroline Coleman Bailey, handles marketing. Both Gina and Matt play dual roles. They have become the attractive and highly visible new faces of a company long known for its secretiveness and suspicion of the outside world. Both spend time on the road meeting with sales representatives, wine writers and customers.
Meanwhile, the center of power has shifted to the second generation, who were long overshadowed by Ernest and Julio. Julio was killed in a car accident four years ago at the age of 83, and Ernest, still stricken by the loss, has removed himself from daily operations. He continues to deal with long-range planning, though, and remains an intimidating presence. ''He's into every aspect of the business,'' a Gallo manager said, ''and God help you if you can't answer one of his questions.''
Now running the show are three second-generation co-presidents: Julio's son Robert, in charge of viniculture and wine making; his son-in-law James Coleman, in charge of production, and Ernest's son Joseph, in charge of sales. A fourth co-president, Ernest's older son, David, died in March of a heart attack at the age of 57.
There was a time when wine makers in Sonoma County and over the mountain in the Napa Valley shrugged off the threat from the Gallos. Now it gives them sleepless nights.
''The Gallos are laying down a challenge with these wines and anyone around who's not up to that challenge would be wise to consider another line of work,'' said Rodney Strong, the founder of Rodney Strong Vineyards in the Sonoma County town of Windsor, who sold out and retired two years ago.
Gallo has moved into the premium segment while maintaining its dominant position in the twist-off-cap category. The Sonoma winery's annual output of 26.5 million bottles a year is dwarfed by the 388 million bottles of its bread-and-butter Carlo Rossi, Livingston Cellars and the Wine Cellars of Ernest & Julio Gallo labels.
Still, it is the lure of luxury that pumps up the family these days. And they are jumping in in typical Gallo fashion -- all out.
Gallo's buying spree in Sonoma has given it eight different properties covering 6,000 acres in one of the most fertile wine growing regions of the country. Among others, it has acquired the old Italian Swiss Colony Asti vineyards for $11 million and a 1,700-acre cattle ranch once owned by the late actor Fred MacMurray for $7 million. There, it plans to cultivate about 500 acres of once hilly terrain that it has reshaped to wine-making specifications with immense land-moving machines previously used to build the Alaska pipeline.
''Gallo was slow to get into premium wines, but that's their style,'' said Mr. Fredriksen of Gomberg Fredriksen, the wine consulting firm in San Francisco. ''They watch, they wait, then they jump in and take over. They have no stockholders and they put everything back in the business. They take advantage of their massive economies of scale, and they are very, very aggressive.''Continue reading the main story
August 9, 2016 | Written by: Nick Dokoozlian
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At E. & J. Gallo Winery, we have long been committed to water efficiency through conservation, development and implementation of new technologies, and updating practices to maximize water use. With regard to new technologies, we are not only enhancing our wine production with innovative irrigation, we also envision this technology extending to other areas of agriculture.
Our company is the world’s largest family-owned winery and the producer of award-winning wines and spirits featured in more than 90 countries. A pioneer in the industry, Gallo crafts and imports wines and spirits to suit diverse tastes and occasions, from everyday offerings to boutique, luxury bottlings. Our company owns 15 wineries and more than 20,000 acres of vineyards. In addition, Gallo maintains contracts with growers around the state that assist with yearly supply. We operate on a large scale and so have great opportunity for innovation.
Our journey: Four steps to enhanced water efficiency and better growing conditions
1. Gathering the data
Gallo has a lot of metrics and data in place, but our current water efficiency project began with a NASA satellite image. From the satellite image we could see extreme variability in grape vine water use. So, we began to explore if we could optimize the amount of water applied to each vine based on its true water need. We set out to discover if we could make a smarter irrigation system, based on satellite data, into a reality.
2. Assembling a cross-functional team
Innovation requires cross-functional collaboration. I know a lot about grape vines, but I really didn’t know anything about irrigation system design or infrastructure. Thankfully, IBM caught onto the vision of this project. With IBM, our team had a system infrastructure expert, engineer and theoretical physicist working together to do what I was envisioning. The team has since grown to also include electrical engineers, Gallo irrigation operators and some of our irrigation providers.
3. Building the solution
With all our different disciplines, we had to learn how to talk to one another in a way that helped move us forward. Once we overcame that challenge, we gathered everyone’s perspectives. We ideated and learned together to get to the right solution. We ultimately created a cognitive irrigation system to improve water efficiency in our vineyards.
What our solution looks like is that we can now deliver water to a specific section of the vineyard. This is done independently of all the other vineyard sections. Since the NASA satellite looks at the Earth’s surface in 30 by 30 meter pixels, we began looking at our vineyards in these same 30 by 30 meter areas. That basically means five or six vine rows wide, by about 20 to 25 vines long. Each water line is wrapped with sensors that wirelessly and continuously communicate environmental conditions and vine stress to a central computer. This hyper-localized information, and real-time unstructured data, like the satellite imagery and weather forecasts, is automatically processed. Then, the system provides recommended watering instructions.
4. Testing results
Due to our size, Gallo can pilot projects at a larger scale than most vineyards. We started this project with 10 acres. After about six weeks of running the system, satellite imagery showed us that everything within the test grid was uniform. What previously looked like a checkerboard showing vines of all different stages of growth and water stress, now looks optimally healthy. Plus, after a single growing season, we found that water use in the test vineyard was reduced by 16 percent while crop yield increased by 30 percent. Also important, the quality of our grapes improved, making our wine even better.
Growth beyond grapes
We at Gallo are challenged to not just maintain this kind of technology within our company, but to also extend it to our external grower community. We can also see this cognitive irrigation platform being applied to other areas of agriculture to save water. The technology may be especially useful in California, which is in its fifth year of severe drought.
Our vision of sustainability and water efficiency definitely extends beyond our vineyards.
Learn more by listening to the E. & J. Gallo Wild Ducks podcast below or by reading the case study.
E. & J. Gallo Winery Vice President, Viticulture, Chemistry and Enology