E. & J. Gallo Winery Case Study
Case 25: E. & J. Gallo Winery
Introduction The dessert wine industry realized huge success during the great depression years when buying regular wine was a luxury that few could afford. Characterized by its sweet taste, high alcohol content, and cheap price it was until the 80’s an easy to buy alcoholic beverage that gave people with lower income the opportunity to have wine on their table. The 1980’s was a decade of change in people’s lifestyle with an emphasis on healthier habits and thus, consuming healthier products. This change, combined with an increased consciousness about society’s moral obligations had a negative impact on dessert wine, since it was viewed as a cheap wine with higher alcohol content than regular wine that was marketed to alcoholics. Thus, the industry experienced a decrease in sales mainly because of consumers but also because of the product being perceived as ethically wrong.
The main industry players in the dessert wine industry were Canandaigua and E. & J. Gallo. The latter started in 1933 and became the largest wine producer in the world, first producing cheap dessert wine, and later moving to upscale type wines that allowed the company to enjoy many world renowned awards. Gallo’s business plan proved successful in the early days of the company as its product offering was focused on the cheaper fortified wines that appealed to the lower end consumer market. The company cemented its future profitability by solid vertical integration; purchasing its raw materials (grapes) from local growers by forming a long-term strategic alliance and controlling the transport of the finished product by its company owed transport. Essentially, the company had integrated all distribution of its product from transport distillation and final transport to retail distributors. As the market shifted in the 1980’s, Gallo made the strategic move to more upscale products using higher quality varietal grapes with the intent to capture
Introduction The dessert wine industry realized huge success during the great depression years when buying regular wine was a luxury that few could afford. Characterized by its sweet taste, high alcohol content, and cheap price it was until the 80’s an easy to buy alcoholic beverage that gave people with lower income the opportunity to have wine on their table. The 1980’s was a decade of change in people’s lifestyle with an emphasis on healthier habits and thus, consuming healthier products. This change, combined with an increased consciousness about society’s moral obligations had a negative impact on dessert wine, since it was viewed as a cheap wine with higher alcohol content than regular wine that was marketed to alcoholics. Thus, the industry experienced a decrease in sales mainly because of consumers but also because of the product being perceived as ethically wrong.
The main industry players in the dessert wine industry were Canandaigua and E. & J. Gallo. The latter started in 1933 and became the largest wine producer in the world, first producing cheap dessert wine, and later moving to upscale type wines that allowed the company to enjoy many world renowned awards. Gallo’s business plan proved successful in the early days of the company as its product offering was focused on the cheaper fortified wines that appealed to the lower end consumer market. The company cemented its future profitability by solid vertical integration; purchasing its raw materials (grapes) from local growers by forming a long-term strategic alliance and controlling the transport of the finished product by its company owed transport. Essentially, the company had integrated all distribution of its product from transport distillation and final transport to retail distributors. As the market shifted in the 1980’s, Gallo made the strategic move to more upscale products using higher quality varietal grapes with the intent to capture
References: Thompson Jr., Arthur, A., Strickland III, A.J., Gamble, John, Crafting and Executing Strategy, 17th edition, Boston, McGraw-Hill Irwin, 2010, print. Times Magazine. http://www.time.com/time/magazine/article/0,9171,958664,00.html Wine Institute. http://www.wineinstitute.org/resources/statistics/article122)