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A New Vintage Gallo

Wine Is a Tough Business, and the World's Largest Winery Is Intent on Staying on Top. The Third Generation Is Playing a Big Part in the Plan -- After All, It's Their Future, Too.

March 02, 1997|BARRY STAVRO | Barry Stavro is a Times business writer

The countryside roads in Sonoma County are choked with directional markers, a dozen arrows or more set up per pole, that point the way to many of the 135 wineries in this Northern California community. Clos du Bois, Kendall-Jackson, Matanzas Creek, Ravenswood and other local wineries harvest from some of the most valuable cropland on the continent. In this premium end of the wine trade they are selling magic in a bottle, a mix of romance and mystery and their winemaker's handcrafted subjective artistry, all packed under a cork. It requires constant marketing to turn this into liquid gold, so most wineries want visitors to stop in, look around, taste their product, buy it and keep on buying it. * And then there is the family--one of the county's biggest landowners with 6,000 acres, about 2,500 of them covered with grape vines and more being planted--who don't lay out any welcome mats for the public. A driveway entrance to their vineyard in Healdsburg has a simple red and and white sign that reads: "Private Property No Trespassing Violators Will Be Prosecuted," the words in both English and Spanish. If anyone misses that message, 100 yards down the drive is another sign that warns: "Stop Private Property Check-In Prior To Entry." A security guard in the sentry shack has a small emblem on his sweater with the letters "E&J," the first clue that this is part of the vast family-owned empire that calls itself E&J Gallo Winery Inc.

Started in 1933 by Ernest and Julio Gallo, the brothers built their company into the biggest winery in the world, making a fortune by selling street wines such as Thunderbird and Night Train, screw-top jug wine hits like Carlo Rossi and Gallo Hearty Burgundy, plus E&J Brandy, fruit-flavored Boone's Farm and Ripple wines, coolers such as Bartles & Jaymes, Andre and Tott's champagne, and many other brands. Not long ago, though, Gallo had two big worries. There was a tectonic shift by consumers to more expensive wines, not a family hallmark. And there was the question of who would replace Ernest and Julio. Julio died in 1993 from a broken neck when he rolled a jeep on a family ranch, and Ernest Gallo is now 87 years old.

In a metamorphosis that has been as startling as it has been swift, Gallo has reinvented itself. Using its incredible financial resources, over the last two years it found a way to sell more expensive bottles of Chardonnay and Pinot Noir, overcoming customer resistance to its old low-cost image. Gallo's new Turning Leaf and Gossamer Bay varietal wine brands are big sellers in supermarkets, and one reason is because the Gallo name isn't anywhere on the label. Credit for cracking this market goes to Ernest and Julio's sons. Today, one out of every four bottles of wine sold in the United States still comes out of the E&J Gallo Winery. The company has 5,000 employees and sells about 65 million to 70 million cases of product a year, and last year its sales hit $980 million, with a net profit of $44 million, according to Forbes magazine. The family has also been pushing aggressively overseas, and Gallo is now the biggest American exporter of wines with sales to 85 countries.

Now another eager wave of family reinforcements is moving in from the third generation: 15 of Ernest and Julio's 20 grandchildren are scattered in jobs throughout the empire, including Gallo's big push into Sonoma County. Here the family is turning out premium wines to compete in the top echelon of the business, against Caymus, Beringer, Robert Mondavi, Dunn, Opus One and other fine-wine benchmarks. The grandchildren are working hard to win the one thing the Gallos still crave: the respect that goes to the true blue chips of the premium-wine business.

*

Ernest and Julio Gallo remained workaholics into their 80s, and very private. There are no Gallo signs on company vineyards because, as Ernest fondly told his grandchildren, "We know where all the buildings are." Each brother worked on a different floor of their Modesto headquarters. Julio controlled the winemaking, Ernest was in charge of sales. Julio tried to make more wine than Ernest could sell, Ernest tried to sell more wine than Julio could produce. Questions flew in the wine trade about what would happen when the two geniuses went to their graves, and the family infighting that might follow.

To remain dominant as the world's largest winery, Gallo also had to solve another problem. Per capita wine consumption in the U.S. has been falling, down about 25% in the past decade. The one growth spot is in varietal wines, those made chiefly from one grape variety such as Cabernet Sauvignon, Chardonnay or Merlot. Varietal wines now account for about 60% of all U.S. shipments. Gallo made its fortune selling cheap, blended wines like Hearty Burgundy, but could it sell more expensive, vintage-dated ones that you open with a corkscrew?

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