Gallo Buys Louis M. Martini Winery

Long known for its inexpensive jug wines, E&J; Gallo Winery has acquired Louis M. Martini Winery, one of California’s oldest vintners.

The acquisition of Martini gives Gallo 680 plantable acres of prime vineyards in Napa and Sonoma counties and a label popular for its middle-market varietals.

The purchase, announced Monday, is part of a continuing consolidation in the state’s wine industry caused by over-planting and sluggish sales, analysts said.

Gallo, which has a fine-wine division, was especially interested in adding Martini’s prime Napa acreage to its holdings, said Caroline Coleman Bailey, spokeswoman for the company and a granddaughter of Julio Gallo.

Martini, based in St. Helena, and Modesto-based Gallo are private family-owned companies and did not announce terms of the sale.

Martini is a mid-size winery, producing 130,000 to 150,000 cases annually, but it is tiny compared with Gallo, which makes 60 million cases a year and is the world’s largest wine company.

Carolyn Martini, granddaughter of company founder Louis M. Martini, said her family’s business was under pressure from a series of developments that has created fierce competition within the wine industry.

Imports from fast-growing wine regions in South America and Australia are flooding the market with inexpensive quality wine. California growers have vastly over-planted and produce 52% more grapes than seven years ago. Getting shelf space at supermarkets and at other merchants has become difficult.

“You have to look at how hard it is for small companies like ours to compete with the product coming in from all over the world and to get distribution,” Martini said. “We knew we had to do something.”

Martini said the five family shareholders agreed on the deal and were comfortable with the Gallos, who have known the Martinis for several generations.

Gallo plans to run the winery as an autonomous unit, she said. Martini will remain chief executive. Her brother, Michael Martini, a graduate of UC Davis’ enology program, will stay on as winemaker.

The Martini family is keeping 50 acres of vineyards, which it might use to make a new brand.

Bud Leedom, an analyst with Wells Fargo Securities in San Diego, expects to see more consolidation in California’s depressed wine industry.

“This is just the tip of the iceberg,” Leedom said.

There are about eight large wine concerns besides Gallo that are on the hunt for California properties, he said.

They include British beverage giant Allied Domecq, which owns the Clos du Bois, Buena Vista, Callaway and Mumm Cuvee Napa brands.

Beringer Blass Wine Estates, a unit of beverage giant Foster’s Group Ltd. of Australia, also is on the prowl, Leedom said. Last week it announced the purchase of the Carmenet brand from Napa-based Chalone Wine Group Ltd.

California produces wine with a retail value of about $13.4 billion annually, according to the Wine Institute in San Francisco. It is the world’s fourth-largest wine producing region, trailing France, Italy and Spain, the institute said.

Martini was founded in 1933 by Louis M. Martini, an Italian immigrant and former fish seller who wanted to learn winemaking.

He purchased two vineyards--Monte Rosso in the mountains above Sonoma Valley and La Loma in the well-regarded Carneros district south of Napa--and started making varietal wines such as cabernet sauvignon, pinot noir and barbera.

The first vintages from those grapes were aged and then released in 1940.