A Case Guide to the Desert Wine Industry

1. How important is the dessert wine segment to the industry? to E. & J. Gallo Winery? How do these products fit with Gallo's stated position on the quality of its products? Do brands like Thunderbird and Night Train have any redeeming features as a product, even if they are in demand by a segment of the population?

Dessert wines are important because while they represent only a fraction of total wine sales they experience significantly higher profit margins. Desert wines represented 69 million of the 784 million gallons of Wine sold in the U.S. In 2010 (Hodgen, 2011). These higher profit margins result in higher profits for producers and helps many distributors offset fixed costs and ensure profitability. The wine industry has seen a downturn in recent years and the, “Silicon Valley Bank’s annual Wine Industry report for 2010-2011 reiterates the prior prediction that the wine market will be slow to fully recover (Western Farm Press, 2009 ).” This downturn in the industry has made high profit margin products like desert wines even more important to Gallo and the Wine Industry as a whole. However, while the wine industry may be seeing a downturn more U.S. Consumers are drinking wine than ever before (Vins De Provence, 2011) . With such conflicting reports high-profit margin desert wines bring stability to the industry and individual companies like Gallo.

Because Gallo is a private company current financial reports and company information are not easily available. Before Gallo re-branded themselves as makers of high quality wines their most prominent wines were low quality high alcohol content products like Thunderbird and Night Train wines. These products are extremely profitable for Gallo Winery and consumers remain very loyal to these brands. However, Gallo Company remains committed to only associating themselves with premium brands. Despite the success of the Thunderbird and Night Train brands Gallo does not mention them due to their poor image. Even though they have a poor image consumers enjoy such brands because they are cheap and possess a high alcohol content level.

If drunkenness is the desired result Thunderbird and Night Train are good products for low income customers. Outside of the speed and in-expense of intoxication these brands don't appear to have any redeeming qualities. They are, however, both extremely profitable products.

2. What are the key success factors in the dessert wine segment? Is there strategic fit between Gallo's fortified wines and its other wines?

The key success factors in the dessert wine segment are low pricing and minimum costs which allow for higher profit margins. Desert wines are cheap to produce and easily marketed to college students and low income neighborhoods. There also is very little or no advertising costs and wine producer Canadaigua, “estimated that profit margins in this