February 6, 2007

Gallo

And the men behind the brand are...
Ernest and Julio Gallo

On a dusty day in Modesto, California in 1933 Joseph Gallo, Jr. became deranged and shot his wife. He turned and chased his sons through the fields of his small vineyard with a shotgun. The boys escaped and Joseph Gallo turned the gun on himself.

Ernest Gallo was 23 and Julio Gallo 22 at the time of the family tragedy. They decided to use their small inheritance of $6000 to produce their own bulk commercial wine. They faced enormous odds. The country was paralyzed by the Depression and 700 wineries were competing for the shrinking market.

And, they didn't know how to make wine.

Julio went to the Modesto Public Library and checked out several materials on winemaking. He would make the wine. Ernest would manage the business, sell the wine and keep the books. It was to be a dynamic pairing. Julio was an easygoing sort who loved good times and making wine. Ernest was a grim, tough businessman who would gain a reputation as the toughest client in advertising, at one point changing agencies 17 times in 30 years.

Making the wine themselves the Gallos were able to go to market at half the going rate of $1. Ernest travelled east signing up enough distributors to sell the entire first year's production. The Gallos pocketed $34,000 profit in their first year.

All the profits went back into the business as banks snubbed the brothers. Until 1938 the Gallos sold bulk wine to bottlers but that year they brought out their first wine under the Gallo label. This was far more profitable for Ernest and Julio.

Ernest Gallo was a pariah among Napa Valley vintners who carefully crafted high-quality, distinguished wines. Gallo considered them "wine snobs" and attacked the low end of the market with cheap sherries and muscatels. He built stainless steel vats which eliminated bacteria from the romantic old wooden vats and his winery took on the appearance of an oil factory.

In the 1950s Ernest noticed that ghetto blacks bought 40-proof port white wine and cut the sweet taste by mixing in lemon juice. He directed Julio to mix white port and citric acid to develop a wine he called "Thunderbird." Gallo directed a massive advertising campaign directly at ghetto blacks with a catchy jingle: "What's the word? Thunderbird. How's it sold? Good and cold. What's the jive? Bird's alive. What's the price? Thirty twice."

Thunderbird launched an entirely new wine business - mass marketing. Gallo sold 2.5 million cases in less than a year. But his success came at a price. Gallo was left with a tainted image as the paper-bag drink of choice for winos. He followed with "Ripple" and the Gallo image suffered more.

The Gallos continued to introduce new wines. They added carbonation to a sleepy old apple wine that barely registered on company books. Boone's Farm sales jumped from 30,000 cases a year to 720,000 cases a month. Gallo was soon controlling 88% of this new "pop wine" market. As competitors jumped in Gallo stopped all advertising at the height of the "pop wine craze." He made even more money on each case as the fad died away.

In the 1970s the Gallo brothers were selling one out of every three bottles of wine purchased in America. Ernest moved into premium wines for the first time. Experts praised the new wines but only heavy advertising could overcome the unsavory Gallo image. Case sales for premium wines tripled.

Ernest Gallo was totally unprepared for the explosion of wine coolers in the 1980s. This was his market - low-priced pop wines. But he missed it. The new California Coolers with wine and fruit juices tapped into many trendy markets: young, affluent, fitness and female. California Cooler had a five-year head start but really no chance against the Gallos.

Gallo introduced Americans to Frank Bartles and Ed Jaymes. In real life they were an Oregon farmer and a Santa Rosa building contractor. In commercials the actors pitching the wine coolers became so popular that when they "asked for your support" viewers sent donations to the company. In a year Gallo's Bartles & Jaymes were the market leaders.

Ernest and Julio Gallo guided America's most popular winery for nearly 60 years. The fortune that was built on family tragedy climbed over $700,000,000.

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