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Answers and Questions to Case Discussion E.J. Gallo Winery

1.) Why did Gallo company start with selling fortified wines, jug wines?

- accommodation to American market

- strong wines were substitute products for liquor, they were affordable for everyone

- no wine tradition in the U.S. as in Western Europe (France, Italy)

2.) What do you think about the integration level of Gallo?

- full vertical integration made it possible to create really "own" brands

- own R&D  testing of more than 400 varieties of grapes to find the best tasting ones

- later (from 1967) long-term contracts with suppliers (wine growers) who met fully GalloÒ's quality standards (guaranteed quality)

- own marketing activities helped to recognise the customer needs better than the competitors  crucial factor for the success of GalloÒ's brands

- usual distribution was to sell the wine to a wholesaler; Gallo distributed it directly to the liquor stores or groceries -> higher margins

3.) What are the key success factors for the performance until the 1980Ò's?

- mass production  low costs  cheap prices

- market share was won by price investments  Gallo could offer its products under profit to push out competitors out of the market

- good marketing activities which fitted to the customers  famous jingle in radio

- centering on few strong brands

4.) What has changed since the 1980Ò's and how did Gallo come along with the change?

- wine became more popular on the U.S market

- customers paid more attention to quality and taste

- the market flavour changed to upscaled, high quality wines which a bigger part of the society could afford now (higher living standards, higher income)

- Gallo focused on producing high quality wines and pushed this campaign with millions of US-$ in advertising

- Lobbying politicians to suppress growing competition from abroad (Chile)

- Creating 75 different brands to become more diversified

5.) How is the company positioned today?

- it presents itself only with the premium brands and the "new" portfolio; old brands like "Thunderbird" or "Night-Train" are still existing and perform well but Gallo does not mention them because of their poor image

6.) How important is the dessert wine industry for E&J Gallo?

- still an important factor ( about 5-10% of total net sales )

- high profit margins ( up to 10 % higher than margins of high quality wines )

- clients are loyal to the brands ( addicted, cannot afford other brands, drinks )

7.) What are the key success factors in the cheap wine industry?

- low price that means big amount of alcohol for little money

- economies of scale

- minimum of quality that is still higher than low quality product of competitors

- loyal customers, constant customer needs

8.) Is there a strategic fit between GalloÒ's fortified and "new generation wines"?

- in both cases Gallo followed the same strategy  satisfying the largest group of wine consumers

- Before 1980Ò's most Americans drank strong wines as a substitute for liquor

- Now the flavour changed and Gallo was successful to meet the customer needs