Gallo continues to plough its own furrow
E&J Gallo has resolutely remained independent in the face of industry globalisation, a strategy that has set it apart from its nearest rivals. Chris Brook-Carter talks to vice president international marketing Adam Burck about the most famous name in wine and its singular approach to the business.
Gallo holds an odd position in the industry, seemingly a company of contradictions in the modern world of winemaking. A giant in comparison with most of its rivals, it also holds the unique position among its nearest competitors of being a private, family-run business, with no public shareholders or public finance for expansion.
It is revered by some as a driving force behind the modernisation of the industry, but also mistrusted, in equal measure, by others for its influence over retailers and what critics see as the sterilisation of the industry by mass-produced, uniform brands.
Most interestingly, while Gallo is the closest thing the industry has to a global wine business, it has never bought a vineyard outside of California let alone the US. And, in spite of the continued globalisation of the wine industry, and the rumours that drinks conglomerates such as Diageo and Allied Domecq may once again be eyeing this sector, Gallo remains convinced that it is walking the right path.
Certainly its independent status, away from the pressures of the stock market, allows it to be pragmatic in the short term while generally taking a long-term view, a luxury some publicly listed rivals like Southcorp must envy.
This appears to have afforded the company a certain robustness during the last 12 months, one of the most challenging periods the wine industry has faced in recent times. "In 2002 the economy has hiccupped especially in parts of Europe and Japan, but our business doesn't seem to have been impacted too much by the economic weakness," says Adam Burck, vice president international marketing at Gallo. "And I think our customers see it as an opportunity to work with their stronger partners and really find ways of adding value."
The dual problems of soft market conditions and an over-supply of grapes represents double jeopardy for the wine industry. Gallo's scale and financial independence clearly puts it in a position to withstand the worst effects but the company is mindful of the damaging impact of discounting. However, given that its own insularity has earned the company few genuine allies in the wine business, Burck's calls for responsible restraint from competitors - however well advised they may be - is likely to cut little ice.
"There has been a surplus of grapes in the wine industry chronically for years, and the EU has been struggling to deal with that," says Burck. "
"These cyclical supplies and shortages of grapes are something that really can be anticipated"
"The one risk of the softer economy and potential surplus is over promotion in the form of price cutting and every company and retailer has to make their own decisions. I couldn't presume to give them advice but it is clear to everyone that chronic and significant price promotion can only hurt the industry and create consumer cynicism. In Europe and the UK there are companies that must be desperate to keep their volumes up based on the kinds of price promotions we can see them doing, I can't think of any other explanation for it," he concludes.
While competitors large and small are wary of Gallo's size and muscle, there has at least never been a need to worry about this giant buying up its rivals. Gallo is not an acquisitive company; its predatory instincts are focused on the marketplace. However, some observers are beginning to question whether Gallo can maintain its leadership without changing its rather insular outlook to global expansion.
Burck states with some pride that the company has never bought a vineyard or winery outside California, let alone the US. He attributes this partly to the high quality on offer in California but Gallo also believes in focus and is wary of geographical expansion. "It really can spread your attention too far. It's much more important to focus on doing even better what you are already good at."
However, the wine sector is consolidating and with rivals merging and acquiring each other, Gallo's pre-eminent position is under far greater threat than 10 years ago. Burke responds with typical Gallo self-assurance. "You do see some of the larger players linking up with each other and I think that it is a reflection of their need to put together a total package of skills and capabilities that increasing globalisation of the market requires."
However, Burck believes that Gallo's expertise, its strong product portfolio and its relationships with companies around the world mean there is simply no need to follow the same course. "
"Our growth has been consistently above the market growth in all our key markets so our momentum has been very healthy"
If his answer smacks of complacency or perhaps at worst arrogance, it is important to point out that it is not the whole picture. Gallo has been expanding its portfolio; it just hasn't been buying.
Most recently it has begun a partnership, with the McWilliams family, which runs the largest family winery in Australia, and the two families have agreed to co-operate around the world in developing the McWilliams' range of wines. "I was very happy to be in Australia working with the McWilliams family on the development of the McWilliam's Hanwood Estate range which we have just launched in the UK and will be launching in the US next month," says Burck.
While not ruling out similar ventures, Burck said that the development of the Gallo brand remained key. In particular, Gallo has just launched the E&J Coastal Vineyards range, which presents consumers with an option at the £10 mark. "It is perhaps a bridge to our luxury wines that are available," says Burck.
Burck counters the criticism that big brand companies like Gallo have made wine-buying bland experience by stressing that Gallo has brought a diversity of its own to the wine shelves. "It used to be very difficult for a consumer to go back to a retailer and find the same wine that they had enjoyed the previous week. That's one of the wonderful things that strong brands have brought to the market, given the consumer confidence to go back and buy a wine regularly that they enjoy."
He also rightly points out that in spite of recent consolidation, the wine market remains very fragmented. "
"The wine market is so fragmented that any one company even the leaders in the market really have a very small share on a percentage basis"
Burck's defence of the little guys cannot fail to have a slightly hollow ring to it. As it has grown into the giant company we see today, Gallo has constantly gained shelf space at the expense of others, some of which will inevitably have been "interesting" wines with less marketing clout. But surely criticising the company for this is futile; this is simply the way business works. It's just that Gallo has been much more successful in applying this to the wine business than anyone else. But Gallo's success and unique position in the industry has set it up for much criticism which seems only to have hardened the company's determination to follow resolutely its own agenda. Whatever the future holds you can be sure Gallo will continue to plough its own - albeit extremely large - furrow.
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