E.&J. Gallo Winery is the unrivaled giant among family-owned wineries worldwide. In every aspect of the business—sales, exports, vineyard acreage, research teams and financial resources—it dwarfs its nearest competitors. Yet the huge company, estimated to have revenues of $2.7 billion, has been remarkably nimble in anticipating and responding to shifting consumer tastes. Under the leadership of the second generation and with plenty of energy from the younger generations, the company has been reinvigorated. Once identified exclusively with low-end wines, Gallo is now a major competitor in the premium wine market. As it celebrates its 75th anniversary this year, Gallo is busy solidifying its reputation as a maker of fine wines while simultaneously expanding its portfolio of domestic and foreign brands.
Gallo’s main headquarters is its 325-acre campus in Modesto, the heart of California’s agricultural region, where Ernest and Julio Gallo started the business in 1933. Today it houses the company’s administrative offices, wine cellars, bottling plant and warehouse. The size and scale of the operations are staggering. Cellar masters ride around the cellar on small red bikes checking on the 624- to 4,000-gallon oak casks. And the even bigger glass bottling plant looks like a scene from Charlie Chaplin’s movie Modern Times. It produces 2.5 million bottles a day; after the fifth furnace is installed later this year, it will turn out 1 billion bottles annually. Surprising but charming counterpoints to the scale of these massive high-tech operations are the seven stately peacocks that promenade on the grassy mound near the administration building.
North of San Francisco is the company’s second major operation, Gallo Family Vineyards, formerly Gallo of Sonoma. It was renamed last year to reflect the contributions of all the family members working in the business. Gallo started buying prime land in Sonoma in the 1970s and now owns ten vineyards in the county. It didn’t stint on the facilities, either: The company invested $70 million in building the high-tech cellar that has a storage capacity of 50,000 barrels.
Joe Gallo, 65, the company’s president and CEO, is the son of Ernest, the fabled marketing wizard credited with creating the U.S. wine industry. Joe learned the business by tagging after his father almost as soon as he could walk. “I was his student,” he says. “I started going to the office with him when I was five, accompanied him on sales trips as I got older, and had the benefit of listening to him talk about business at home. He was a brilliant observer of human behavior.”
Joe learned from his father to seize opportunities. When he joined the company in 1965, Gallo was focused on the domestic market. It was Joe who, after working for the company in Europe, spotted openings in the import business. “To endure in business,” says Joe, “you have to reinvent yourself every ten years. Opportunities arise every day, but few people recognize them. It takes a certain mindset; my father had it, and I have it.”
Dennis Jaffe, a founding partner of Relative Solutions, a family business consulting firm with offices nationwide, agrees. “Gallo has a long history of brilliantly adapting itself to changing markets,” Jaffe says. “Few companies this size have been so successful in rebranding themselves. Not long ago consumers would have laughed at a Gallo premium wine; not any more.”
E.&J. Gallo began by selling table wine to bottlers, but by the early ’40s it was producing wine under its own label. Ernest and Julio’s complementary talents were a perfect match for the wine business. Julio, the farmer, grew the grapes and oversaw wine production. A pioneer in agricultural sustainability, he initiated Gallo’s “50/50 Give Back” plan in the 1930s; that is, leaving one acre of land in its natural state for every acre developed. Julio’s quest for new and better ways to grow grapes and make wine established Gallo early on as a leader in viticulture and enology research.
While Julio tended the vineyards, Ernest haunted liquor stores to observe consumers’ buying habits firsthand. He quickly recognized that distribution was the key to success and that the company needed a trained sales force. Ernest created a formal training program and personally recruited candidates from local colleges. “His sales program created our business culture,” says Joe, “and it’s still followed today.”
In the 1950s, when television was becoming popular home entertainment, Ernest jumped at the chance to advertise on the new medium. At the time, aperitif and dessert wines outsold table wines; Gallo’s commercials were aimed at reversing that trend. It built all of its ads around convivial domestic scenes of couples seated around the dinner table enjoying a glass of wine together. Ernest used to say that he wanted to make Gallo the Campbell Soup of the wine industry. He certainly succeeded in making it a household name.
A major turning point for the company, notes Joe, came with the construction of its own glass bottle plant in 1957. “It not only gave Julio control over the production of wine from start to finish,” Joe says, “it also kept the costs down.” By the 1960s, Gallo dominated the market with its inexpensive table and jug wines like Thunderbird. Anyone over 50 probably remembers Gallo’s infectious jingle, “What’s the word? Thunderbird. How’s it sold? Good and cold.” In the early ’70s, however, Americans began discovering better-quality wines. Recognizing that cheap wines could no longer sustain the business, the brothers began developing varietal wines under the Gallo label. And when the wine cooler craze began in the 1980s, Gallo conquered the market with its popular label Bartles & Jaymes.
For all its successes, Gallo has not been without its troubles. Its standoff with the United Farm Workers resulted in a protracted boycott against Gallo in the 1970s. The UFW targeted Gallo again in 2005 in a dispute over health benefits for the growing number of workers hired through farm labor contractors. Today Gallo claims to be the country’s largest unionized winery.
Ernest and Julio were known for extolling family bonds and preserving family privacy. Yet in 1986 they sued their younger brother Joseph. After working as a ranch manager in the family business for 20 years, Joseph started his own cheese business under the label Joseph Gallo. Ernest and Julio sued him for trademark infringement and won. Joseph renamed his cheese operation Joseph Farms, but then he countered with a suit arguing that his brothers owed him one-third interest in the winery. He lost again. Joseph remained estranged from his brothers until his death in 2007.
Strong-willed and physically hardy, Ernest and Julio were still running the company in their early eighties. With the death of Julio in a car accident in 1993 at age 83, day-to-day management of the company finally passed to the second generation: David, Ernest’s eldest son, headed domestic marketing and advertising; Joe, Ernest’s second son, ran domestic and international sales; Bob, Julio’s son, oversaw the vineyards and winemaking; and Julio’s son-in-law, Jim Coleman, was responsible for the warehouses and bottling plants. After David’s death in 1997 Joe took full charge of sales until 2000, when Ernest, then 90, passed the title of CEO to his son. Bob Gallo, 73, and Jim Coleman, 71, are cochairs of the board.
The second generation had been pushing for Gallo to enter the premium wine market, a direction enthusiastically supported by the third-generation members. “Listening to the family stories, we caught the bug early,” says Gina Gallo, 40, daughter of Bob Gallo and granddaughter of Julio. A tall woman and easy talker, Gina is seated in the Dry Creek General Store she owns in Healdsburg, the headquarters for Gallo Family Vineyards. Gina’s brother Matt is Gallo Family Vineyards’ winegrower; Gina is the family’s first woman winemaker. “As we got older,” she says, “we recognized that we were the beneficiaries of the older generations’ vision and hard work, and we wanted to do for the next generation what previous generations had done for us.”
Like their father, Bob, Gina and Matt developed their love of grape growing and winemaking from Julio. “We saw how he cared for his plants and enjoyed sharing the harvest with friends,” Gina says. “He used to say that the best way to see the quality of vineyards was to see the grower’s footprints in the soil.” It was Julio’s dream to make premium wine from grapes grown in Sonoma. Now his grandchildren are fulfilling his dream and winning national and international recognition for their portfolio of wines.
Today 15 Gallo family members work in the business: three from the second generation, ten from the third, and two from the fourth. Regardless of their talents and interests, all must go through the sales training program and all start off by working in sales. None of the Gallos has worked outside the family business. “Other family businesses farm out their kids for training,” says Joe, “but we prefer to train them ourselves.”
That position surprises consultant Dennis Jaffe. “Not to give the younger generation experience working outside the business is contrary to the standard advice of family business consultants,” Jaffe says. “It’s not only how the younger generation encounters new ideas, but also how they find out who they are—by working in a company where they’re not treated as special as offspring of the founders.”
Nonetheless, the Gallos’ approach appears to work for their family. Members of the third generation hold responsible positions in the company—running the bottle factory, designing labels and promoting grower relations. By all accounts, the third generation has inherited the family ethic of hard work and excellence.
Like the second generation, the third generation’s business education started at the dinner table. “My grandfather [Ernest] saw family dinners as opportunities for us to learn,” says Joe’s daughter Stephanie, 35, who is Gallo’s senior director of marketing. “Even when we were young he asked our opinions about everything from packaging to advertisements. We learned to listen to dinner conversations so that we could give informed answers to his questions. It was great training; he showed us that our opinions mattered.”
Joe’s three children and Bob’s eight children all grew up together in Modesto. “We had had the same philosophy and values ingrained in us,” says Gina, “and that gave us a great advantage in working together in the business.” The Gallos like to say that families are a perfect fit for the wine business because they are both built on trusting relationships, long-term commitments and a long-term perspective. “It takes 20 years to bring a high-end wine to market,” says Gina. “It can’t be rushed.”
The long-term perspective was critical also to Gallo’s decision to enlarge its global markets. Since the mid-’90s, it has been buying up prime California vineyards, adding domestic brands like Louis B. Martini and Mirrasou to its portfolio. It currently owns 27 vineyards in the state, a total of 15,000 acres. Gallo is the largest exporter of California wines, exporting to 92 countries.
The company also began forging partnerships to import international brands from other family-owned wineries in Europe. It started with Ecco Domani from Italy and Red Bicyclette from France and now has partnerships with wineries in nine countries. Industry analysts estimate that last year the company sold 75 million cases of wine and one in every four bottles of wine consumed in the U.S.
Last year Gallo announced a joint venture with Martha Stewart to produce and distribute a line of wines made from Sonoma grapes under the Martha Stewart Vintage label. The pairing was not accidental. Stewart is a long-time friend of Marie Gallo, Bob’s wife, and Gallo is a regular advertiser in Martha Stewart Living magazine. Not stopping with wines, Gallo recently entered the gin business, which opened doors to its selling other spirits—and so it goes.
Ernest and Julio’s wish was for Gallo to remain a family company; they believed that family ownership was the surest way for the winery to continue as a world leader. Ernest, who died last year at age 97, lived to see the fourth generation enter the business. If present performance is any measure, the current leadership will welcome their grandchildren and great-grandchildren into the business. As Ernest was fond of telling his grandchildren, “Be thankful you have such talented relatives.”
Deanne Stone is a business writer based in Berkeley, Calif.