CASE STUDY

Case Study: E. & J. Gallo Winery



Case Study: E. & J. Gallo Winery

1. Historical Perspective

The dessert wine industry makes up 2.6% of the $19 billion in sales for all wines within the United States (US). It is usually the low cost segment of winemaking, yet makes up 80% wine sales from food stores. Of special consideration is the 10% profit margin being realized by the dessert wine producers. In 2001, the dessert wine industry was a 32-million-gallon, $500 million industry. The part of this industry that is creating such a controversy is the group of "cheap, low-grade" fortified wines that contain high alcohol content to increase their potency and additional sugar or sweetener to enhance their taste. (Kotler 2006)

Historically, the fortified wines were made by adding brandy to raise alcohol content to prevent spoilage during shipping and to extend the shelf light. Port and sherry wines were examples of high-quality fortified wines. The low-grade fortified wines were made with cheaper grain alcohol to increase the alcohol content 14-20 percent.

2. Current Situation

E. & J. Gallo's strategy is to "shed the winery's image as a maker of low-end wines sold in screw-top bottles and jugs". Gallo wants to position itself as maker of better-quality, moderately priced table wines and then later as a maker of truly fine wines. Gallo not only wants to be the best quality winemaker but also the largest producer of wines. This goal, although not impossible, may contradict itself. In most industries the largest producer does not hold the highest quality in the industry. A little specificity in a vision statement would clear up this confusion. It appears that right now the low quality, high production section of the market is where most US winemakers realize their largest profit. (Thompson 2006)

In 1998, the Wine Spectator rated one of Gallo's chardonnays very high. In 1998 and 2001, Gallo was internationally recognized for its quality winemaking. There are numerous other examples of recognition and awards that prove the success of the marketing campaign and image overhaul of the Gallo wineries. It appears that the strategic objectives are being achieved.

The financial objectives are a little more difficult to discern. Gallo is a private company and is very tight-lipped about its financial standings. However, industry analysts did estimate that Gallo's sales revenue in 2000 at $1.35 billion. This places them as second in sales revenue behind the Canandaigua winery. It is important to note here that Gallo produces almost twice as much wine in volume compared to Canandaigua and does so with seventy percent fewer winemaking facilities. A question that remains unanswered is the profit margin from the sales revenue.

3. Central Issue(s)

The key success factor in the wine industry is the ability to be the low cost producer in order to gain market share. A well-known and respected image that produces higher quality wines will allow the business to gain recognition. The low cost provider is able to remain in the market when profit margins are squeezed ...