Ernest and Julio Gallo

Ernest and Julio Gallo winery, founded in 1933, has grown from an initial investment of $5,900 to one of the top 10 largest U.S. wineries in 2006 producing more than one-fifth of the total volume of wine in the United States. Along the way the Gallo brothers have expanded from their fathers initial grape growing business to a business model that is vertically integrated participating in every aspect from growing grapes to making wines to sales & marketing and owning / operating its wine distribution system. This system was unlike other California wine producers who mostly concentrated on production and sold their product through wholesale distributors. Gallo was also able to profit not only from their finished wines, but also from selling grapes to other wineries.

Know for its dessert (cheap, low grade, high proof) wines, E&J Gallo made a strategic decision in the late 1980's to increase advertisements and focus on their more upscale wines in order to increase their market share and attract a new type of clientele. This decision reflected market research of buyers behavior and preferences as the U.S. wine drinker became more sophisticated. By the late 90's and early 2000's E&J Gallo was winning wine-making awards for their new blends and needed to decide if once and for all they would discontinue production their Night Train and Thunderbird fortified wines. Although profitable, did they want to continue to associate themselves with such low quality products or should they continue to expand their higher end product line?