E. & J. GALLO WINERY
Team #3
Patat Ayuwathana
Angela Farmer
Chris Fishback
Melinda Lobaugh
Background

Started by 2 brothers, Ernest & Julio Gallo

Modesto, CA

Grew and sold grapes for years
PROHIBITION!
1920 - 1933
Background, cont’d.

E&J Gallo Winery was founded 1933.

Competition was pretty stiff.
 More than 800 companies in CA alone

$6,000 startup capital
 Ernest borrowed it from his mother-in-law.
Background, cont’d

Brothers learned the craft of commercial
winemaking from pre-Prohibition
pamphlets.
 Published by UCAL, retrieved from Modesto Public
Library basement.

E&J has grown into the largest familyowned winery in the world.
 Also, largest exported of CA wine.
Have YOU had E&J’s?
U.S. MARKET
OVERVIEW
U.S. Wine Market

U.S. is:
◦ #1 market for wine sales (in dollars)
◦ #2 in volume of table wine consumed (not
per capita basis)
◦ #4 producer of wine overall
282 million cases sold in 2009
 767 million gallons consumed in 2009

Wine Market

U.S. wine market growth due to:
◦ Increasing number of people in newer
generations
◦ Increasing popularity of wines from Australia,
New Zealand, Argentina, Chile, Portugal, and
South Africa
◦ Increasing production of U.S. wineries
Production

California
◦ Supplied 61% of all wine consumed in the U.S.
2009 (30% imported)
◦ 2,972 wineries (6,705 total in U.S.)
◦ 90% of all wine produced in the U.S.

Texas
◦ #5 wine producer in U.S.
◦ 170 wineries (5 in Lubbock)
 Llano Estacado Winery is 2nd largest
Favorite Wines in Production

Top 5 varieties produced in California:
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Chardonnary
Cabernet Sauvignon
Zinfandel (white and red)
French Colombard
Merlot
U.S. Exports

Top Five Countries to export:
◦
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
Canada (up 23%)
United Kingdom (up 22%)
Hong Kong (up 117%)
Japan (up 2.6%)
China (up 101%)
E & J Gallo is the largest exporter of
California wine
CHINESE MARKET
OVERVIEW
Chinese Wine Market
(2010) China’s retail consumption in
social consumer goods– $2.26 trillion
 Rising demand for wine in China  8th
largest wine market in the world
 Import wine sales are growing at a faster
annual rate than domestic brands
 Wine consumption is expected to
increase 32 percent, up to 1.26 billion
bottles – or 105 million 9L cases in the
next few years

Retail Channel – Hypermarkets

Walmart – U.S.

Carrefour – France

Metro – Germany

New World Department Store – Hong Kong

Auchan - France

Tesco – Britain
CHINESE RETAIL
CUSTOMERS
Overview
Liquor and beer’s popularity in 1990s
 Increase in wine consumption within the
middle age group – presence of female
 Polarized view on wine

Preferences & Purchasing Habits

Preference for domestic brands because:
◦ Cheap prices
◦ Patriotic support
◦ Satisfied sippers – do not know much about
wine so they will usually purchase the same
brand
◦ Heavy in-store price promotion
◦ Insufficient knowledge on imported brands
Preferences & Purchasing Habits
(cont.)

Preference for French imports because:
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symbol of status perception
Taste preference (many prefer dry, red wine)
Trust in their quality products
Previously received as a gift from family or
friends and enjoyed it
Other Preferences
White wine sales during summer time
 Beer consumption during the summer
 Red wine perceived as luxurious and are
surprised or even confused to find some
imports costing less than100 RMB (<$15)
 Perceived health benefits (beauty & skin
care)

Other Preferences (cont.)

Restaurants
Upscale restaurants do not always allow
outside beverages
50 – 100 RMB ($7 - $15) corkage fees
Casual restaurants DO allow outside
beverages
Only bring liquor or beer, unless females are
present
Men at the table will pour wine for the
women to drink, but will only drink liquor
themselves
Other Preferences (cont.)

Young population (Ages 20 – 25)
Casual environment with friends – drink beer
Drink at casual restaurants or at home
because it is cheaper
No acquired taste for wine – mix soda and
add ice cubes  wine cooler
Price and taste more important than
brand recognition
 Television ads & word-of-mouth

INDUSTRY ANALYSIS
(CHINA)
Five-Forces Model
Buyer Bargaining Power
Retailers
Retail shoppers
Threat of New Entrants
Old World & New World
Domestic companies
Competitive Rivalry
Domestic wines
Penfolds
The Wine Group
Constellation brands
Supplier Bargaining
Power
Third party grape growers
Glass & bottling
Substitutes
Beer
Liquor
Tea
Threat of New Entrants
Product inspection and certification,
product labeling and packaging, product
licensing, tariffs, import taxes, etc.
 Distribution – distributors are the
“middleman” before an importer’s
product reaches retailers and end users
 High costs (retailer listing fees)

Intensity of Competition

Total Global Exports (2009)
EU – 36%
 Australia – 17%
Chile – 15%
South Africa – 10%
U.S. – 9%
Australia: Foster’s (Penfolds & Wolf Blass) &
Jacob’s Creek
 U.S.: The Wine Group & Constellation brands
(Robert Mondavi)
 Customer price sensitive & zero switching costs

Bargaining Power of Suppliers



Gallo’s resources – strong R&D
Owns many vineyards and employs its own
growers
Large production scale & supplier contracts
Drought season – Small wineries must increase
prices of their wine due to the lack of sufficient
grapes from suppliers.
Gallo can absorb much overhead costs and does
not need to increase prices
Price consistency  better relationship with
Chinese distributors & retailers
Bargaining Power of Buyers
Retailers & retail shoppers
 Retailers have limited shelf space &
competition from other suppliers
 Rely on local distributors to negotiate
contracts
 Provide own in-store promoters
 If a product does not sell well, retailers
can pull the product off its shelf

Bargaining Power of Buyers (cont.)
Retail shoppers are price sensitive 
domestic purchases
 “Enthusiast” drinkers have sufficient
knowledge on wine: moderately-high
bargaining leverage because of the sheer
number of competitors in the market
 Zero switching cost – can pick & choose
based on a very small price difference
from competitors’ products

Threats of Substitutes
No specific market segment that
consumes wine on a daily basis
 Beer or liquor during social gatherings
 Nonalcoholic beverages: juice or tea

“When I read about the evil of
drinking, I gave up reading…”
-Anonymous