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11.29.2011  
 

Gallo Speaks: Rare Address by Winery CEO

San Joaquin Winegrowers hear from normally reclusive Joseph Gallo

 
by Paul Franson
 
 
Joseph E. Gallo
 
Joseph E. Gallo spoke at the San Joaquin Valley Winegrowers Association meeting earlier this month.
Fresno, Calif.—The long-sealed lips of the Gallo family have certainly loosened compared to the days of the winery’s late co-founder Ernest Gallo, but it’s still a rare experience to see a member of the ruling family of E. & J. Gallo Winery speak publicly about business.

Hearing president and CEO Joseph E. Gallo would alone have justified attendance at the annual meeting of the San Joaquin Valley Winegrowers Association on Nov. 17 and 18.

In his keynote speech, Joe Gallo talked about his company and its history. It owns eight wineries, has 60 brands and is the largest exporter of California wine.

Gallo, son of legendary marketer Ernest Gallo, noted that his grandfather on his mother’s side was a Franzia who invested in land, while his Gallo grandfather lost his money in the Depression. Not surprisingly, the younger Gallos paid heed. They’ve acquired a lot of property.

Founding brothers Ernest and Julio started in business by selling grapes to home winemakers in Chicago during Prohibition, which was legal. After Prohibition, it was logical to start making wine, which they did with $4,000 and a four-page pamphlet from the University of California about how to make wine.

Their goal was to change a beer- and spirit-drinking country into a nation of wine-drinkers. Gallo said his father believed that the only way to grow the wine business was to make better wine. He listed the varieties that helped people learn to like wines, including white Zinfandel and today’s newly popular Moscatos and red blends. “Once people start drinking wine, most continue,” he said.

Dreams fulfilled
Gallo enumerated how Ernest’s hopes had been fulfilled as wine became more universal:

• Today’s youths grow up in wine-drinking families.
• Their lifestyle media celebrates wine.
• Wine is widely available in restaurants.
• Growers are growing better grapes, and wineries are making better wine.

He also suggested, inspired by Argentina’s success, that Malbec could be the next big thing in wine.

Gallo then described his company’s facilities in the San Joaquin Valley:

• Modesto for bottling and shipping only, with 90 million gallons storage
• Livingston for production, with 160 million gallons storage
• Fresno for production, with 110 million gallons storage.

He said that Livingston will have crushed 460,000 tons of grapes this year and Fresno 535,000 tons. He added that 300,000 tons of bulk wine was imported into the U.S. last year. Gallo said, "Those tons should be grown in California” and went on to detail his plans for avoiding importing bulk wine in the future.

Gallo admonished the growers that they need to get higher yields with better quality. He compared grapes to nuts: Almonds grew from 900 million pounds in 2005 to 1.5 billion pounds last year, with 70% exported; walnuts—also 70% exported—grew from 350 million pounds to 580 million pounds, while pistachios grew from 170 million pounds to 310 million pounds with 63% exported. “By contrast, only 16% of wine is exported,” he said.

Finally, he said that Gallo has 90,000 acres under long-term contracts. And he made the assembled growers very happy by announcing that he’s looking for 10,000 more acres for long-term contracts.

Land, legislation and shared burdens
Gallo’s keynote followed discussions of land prices and trends by appraiser Tony Correia of Correia-Xavier; a review of legislation that could affect growers by John Aguirre, the president of the California Association of Winegrape Growers (CAWG); a harvest review by Nat DiBuduo of the marketing co-op Allied Grape Growers; and a discussion of how things look from a banker’s perspective from Rob McMillan of Silicon Valley Bank.

A common theme among almost all speakers was a shift from promoting “San Joaquin Valley” as a source to promoting “California wine.” The area (including Lodi, which brands and markets itself independently from the San Joaquin Valley) produces two-thirds of the state’s wine. As DiBuduo put it: “We are California wine.”

DiBuduo, in fact, was bullish this year due to light crops and firming prices after a string of past years’ frustrations with low prices and oversupply. “I feel loved,” he joked.

In his talk, Correia noted that San Joaquin Valley growers have been switching to premium varieties at the expense of generic grapes like Rubired and French Colombard, and they’ve also replaced grapevines with more profitable nut orchards—notably almonds, walnuts and pistachios. “(Grape) acreage has declined since 2001.”

Correia added that land prices have remained fairly strong even though residential values have plummeted. He said the price for land around Fresno has increased in recent years to about $10, 000 per acre.

CAWG’s Aguirre noted that the biggest issue confronting growers is the same one facing everyone—budget deficits. Water and labor problems also confound grapegrowers. In addition, CAWG is trying to get the TTB to outlaw imported grapes from wines labeled “American.”

Along with many other comments and observations, banker McMillan observed that in spite of all the talk about Millennials and their love of wine, it’s older folks who are buying wine. “The young people don’t have jobs,” he noted.

The association also honored members Paul Dismukes and Luther Khachigian with lifetime achievement awards.

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