A robust Gallo looks to grow even bigger

As the California company turns 75, it sees its future in premium wines

April 12, 2008|By Jerry Hirsch | Jerry Hirsch,Los Angeles Times

MODESTO, Calif. -- When Liu Lan entertains clients at her cosmetics shop in Shanghai, China, she pulls out a jug of Gallo's Carlo Rossi red wine.

"The taste is fresh and it's easy to get used to," said Liu, 32, who thinks the big bottle "looks special, different from other wines."

The shop in crowded Shanghai represents just how much has changed since Ernest and Julio Gallo founded E.& J. Gallo Winery in an industrial section of rural Modesto after Prohibition ended in 1933.

With annual sales of $3.5 billion - about 70 million cases of wine - Gallo is the nation's largest winemaker. One out of every five glasses of wine drunk in America is a Gallo wine.

Gallo brands are sold in 90 countries, including much of Europe, and the company brings foreign wine to the U.S.: Malbec from the mountains of Argentina, Chianti from Tuscany, Sauvignon Blanc from New Zealand, Shiraz from South Eastern Australia and Pinotage from Swartland, South Africa.

"We can compete very well with anywhere in the world," said Joseph Gallo in a rare interview. He is the current chief executive and son of Ernest.

And as successive generations of Gallos take over running the business - 15 family members work for the company - it's clear they plan to compete anywhere in the world.

As the company turns 75 this year amid public and private festivities, outsiders say that the Gallo family has gained a measure of peace after generations of family tensions and division.

As it grew, Gallo became almost as well known for labor disputes as it was for its wines.

"We have had a hot-and-cold relationship with Gallo going back to the 1960s," said Arturo Rodriguez, president of the United Farm Workers of America.

After decades of often-bitter battles, Gallo and the UFW are working together. That wasn't always the case. Their long-standing fight, which included a labor-led boycott of the company that ended in 1978, "caused Gallo problems that there still is a residue of today," said David Runsten, a Modesto native and executive director of the Community Alliance with Family Farmers in Davis.

Some consumers still avoid Gallo-labeled wines because of a lasting and vague sense that the company is anti-union. But, Runsten noted, some of those same people purchase Gallo wines not realizing that Red Bicyclette, MacMurray Ranch, Napa Valley Vineyards and Rancho Zabaco are all Gallo products.

For decades, the company reflected the personalities of Ernest and Julio - insular and conservative businessmen. Now the company is starting to open up.

The second generation of Gallos running the business has become particularly adept at spotting opportunities and taking advantage of them, said Jon Fredrikson, a Woodside, Calif., wine industry analyst.

Gallo grew up on selling inexpensive, often sweet and alcoholic wines such as Hearty Burgundy, Bartles & Jaymes, Ripple and Thunderbird. Today, its best seller is still Carlo Rossi, the red jug wine that Liu likes to drink in Shanghai.

Although Rossi remains a good business, it's not where Gallo is headed. The company is "putting enormous emphasis" on premium wines compared with the jug brands, said Joseph Gallo. "That is where the future is."

Gallo trolls for well-known wine brands, gobbles them up and makes them grow. Old-line names such as Mirassou, Louis M. Martini and Bridlewood Estate Winery are part of the 60 wine labels Gallo owns.

"They have really changed their stripes and become much more aggressive," said Frank Walters, an analyst at Impact, a beverage-industry trade journal.

So far the strategy has worked.

"Gallo is still the biggest wine company in the U.S. and by far the most profitable," Fredrikson said. "There is almost no waste in that company. They have a product for every grape."

The company is all about being big, efficient and maintaining a cost structure that can compete with winemakers anywhere in the world, Joseph Gallo said as he walked through the large glass plant on the company's 350-acre campus in this San Joaquin Valley farming and food processing town.

Gallo is planning an expansion of the facility - already the largest glass factory in the western United States - that will boost its capacity to 1 billion bottles a year. Gallo controls virtually the entire process from fermenting the grape juice to manufacturing the cork that closes the bottle.

Despite the family's checkered history, the current three generations of family members at the winery appear "to work together pretty well. There's not a feeling in the industry that there are problems," said Joseph Ciatti, a longtime California wine broker who heads Vintage Wine Trust, a real estate investment trust that focuses on wine properties.

Yet as with all large, family-owned businesses, the Gallos risk that members of a younger generation might push for a sale of financial restructuring so that they can cash out. There are 20 cousins in the third generation, and only nine work for the company.

"We need to keep the family involved and connected to the business as we get generations away from the founders," said Chris Gallo, a grandson of Ernest and a manager in the winery's import business. "We need to be able to pass down to future generations that this is our land and this is how we make wine."

Jerry Hirsch writes for the Los Angeles Times. Times reporter Don Lee in Shanghai contributed to this article.

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