Gallo's Fresh Image Still All in the Family

By BARRY STAVRO

June 22, 1999 12 AM PT

TIMES STAFF WRITER

E.&J.; Gallo Winery’s pitchwoman is a 32-year-old blond who wears boots and blue jeans, works in the family’s vineyards, knows the difference between a Petite Sirah and a Pinot Noir and has the letter G in her last name.

Gina Gallo, a winemaker at the family’s sprawling Sonoma County operation, is the star in Gallo’s TV and print ads for the national roll-out this year of its Gallo of Sonoma brand. It’s a $10-a-bottle line of Cabernet Sauvignons, Chardonnays, Merlots and Zinfandels that’s critical to the family’s drive to become a key player in the fast-growing premium-wine business.

Using a family member as the main marketing tool is a big U-turn at Gallo, which has been a family-owned and tight-lipped company since 1933, when Ernest Gallo, now 90, and his late brother Julio started it. Ernest and Julio didn’t even put up signs on their vineyards around Modesto or offer public tours or wine tastings.

But Gina’s great-uncle Ernest Gallo helped pick her for the advertising spots by Foote, Cone & Belding in San Francisco, which push the idea that a new generation of Gallos is making better and more expensive varieties than the vintner’s mainstay jug wines.

The campaign, launched in the West two years ago, seems to be working. Gallo is competing on supermarket shelves against established upscale wineries such as Robert Mondavi, Beringer, Kendall-Jackson and Fetzer. But last year it sold about 225,000 cases of various Gallo-branded Sonoma County wines, and competitors expect the number to double this year. “It’s probably pretty realistic,” Gina Gallo said.

A rival wine-marketing executive said the Gallo of Sonoma brand “is doing surprisingly better than people thought. But it shouldn’t be a surprise. Gallo has a great packaged-goods mentality. They blitz the market and demand performance from their distributors and help create demand.”

Since the company introduced its Gallo of Sonoma brand in 1997, Gina and her brother Matt, 36, head of the Sonoma wine-growing operation, have hit the road to promote their wines with retailers. Both siblings have appeared in ads, and their signatures are on the wine labels. “We know that changing [an] image is a challenge, but we’re in it for the long term,” Matt said.

Gina, as the winemaker, has emerged as the lead spokesperson. Consumers seem to like to “see who’s in closest contact with the bottle,” she said.

The Gallo grandchildren--12 work at the company--can be sensitive about the family’s negative image for its old line of cheap wines, such as Gallo Hearty Burgundy and Carlo Rossi, and its skid-row wine, Thunderbird. But Gina was excited about the new Sonoma County wines: “We knew what was inside our bottle, and we knew what was inside our competitors’.”

And using the Gallo name on this brand didn’t worry her. “It could have been my naivete, but it is my name and it stands for a lot of history.”

“Gallo was looking at a matter of survival,” said Tad Sanders, director of operations at Matanzas Creek Winery in Sonoma County, a small, prestigious vintner. “It has to be moving its product quality upscale to survive [long-term].”

Indeed, this is a key transition for Gallo, because the company made its wealth by selling jug and screw-top wines but is seeing the demand for generic wines shrinking rapidly industrywide. The growth is in varietals, wines made chiefly from one grape, such as a merlot or chardonnay. Varietal wines account for two-thirds of the industry’s shipments, and demand for those wines, priced at $8 and up, is spurting 15% a year.

Gallo remains the planet’s biggest winemaker. It sold about 50 million cases of wine last year, or about one-quarter of the U.S. market. But its average price per bottle of wine in 1997 was a paltry $3, compared with the $5.30 industry average, according to Impact Databank. Jug wines and other generic wines still account for about 55% of Gallo’s shipments.

Now with its new wines, Gallo’s average bottle price “is going up. They’re trading off generics for varietals,” said Frank Walters, research director at Impact Databank.

And higher-priced wines should mean higher profit margins. Consider that Gallo did $1.3 billion in sales with net income of $65 million last year, according to a Forbes magazine estimate, or a 5% profit margin. By contrast, Robert Mondavi Corp. and Beringer Wine Estates Holdings Inc., which sell more expensive wines, each enjoyed a 9% profit margin.

Gallo made its first big push into varietal wines in 1995 when it introduced Turning Leaf. Turning Leaf, which sells for $7 to $8, is now one of the dominant wine brands in the country; Gallo sold 3.1 million cases of it last year, according to Impact Databank.

Gallo spent heavily to market Turning Leaf, but notably there is no mention of the Gallo name on the bottle, only that it is bottled in Modesto. Some rivals thought this was Gallo’s strategy to overcome its poor image among wine snobs by camouflaging who made it.

Kendall-Jackson, a thriving Sonoma County maker of premium wines, sued Gallo for trademark infringement, alleging that Gallo copied Kendall-Jackson’s colored-leaf design on the Turning Leaf label. But Gallo won the case.

Now Gallo is pushing hard into the next price level, and rival wineries are giving it some grudging respect.

“They jumped over a whole generation and went right from Ernest to the grandchildren. I assume they wanted a new face at Gallo,” said attorney Frederick Furth, who owns Chalk Hill, an esteemed Sonoma County winery, and was on the losing side when he represented Kendall-Jackson in the trademark case. “They have an awesome amount of power and advertising to put into these things.”

In the early ‘90s, Gallo began selling small amounts of expensive Sonoma wines, with the Ernest & Julio Gallo name on them, and later added various Gallo Sonoma bottlings, plus other premium wine brands that are bottled in Sonoma, such as Rancho Zabaco, Anapamu, Marcelina and Indigo Hills. And its line of premium wines has racked up strong reviews by wine critics. The Wine Spectator magazine has given 20 of the top-tier Ernest & Julio Gallo Sonoma wines--priced from $12 to $60--a 90 or better on a 100-point scale. And the family’s $10 Sonoma wines are also racking up solid 80s in tasting scores.

Even with Gallo’s advertising campaign targeting more expensive wines, smaller competitors are hoping it will eventually draw in new customers for the industry.

David Stare, owner of Dry Creek Vineyard in Sonoma County, concedes, “With Gallo there is a love-hate relationship. Gallo is one of the few wineries that has the funds to do extraordinary marketing and advertising. But probably overall for the industry, it’s good and extends the market. If you try a Gallo chardonnay, eventually you’ll try other wines that are better and more expensive.”

All told, Gallo bottled 1.1 million cases of various premium wines in Sonoma. But the company’s Sonoma complex has the capacity to produce 2.5 million cases of premium wines yearly. “We have some growth [ahead],” Matt Gallo said. “And we’ll have a fair share of that fine-wine business.”

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Turning Over a New Leaf

E.& J. Gallo became the world’s biggest winemaker by selling budget-priced, blended jug wines. Its newer, more expensive varietal labels, including Turning Leaf and Gallo of Sonoma, are growing rapidly but account for a small portion of California’s premium wine sales, which totaled 89 million cases in 1998.

Gallo’s Premium Wine Sales

In millions of cases sold

1995

Turning Leaf: 0.8

Gallo of /Sonoma: 0.11

1996

Turning Leaf: 1.8

Gallo of /Sonoma: 0.12

1997

Turning Leaf: 2.6

Gallo of /Sonoma: 0.18

1998