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Gallo and Constellation Rewarded For Strong Marketing

Jon Fredrikson (right), with fellow wine-industry analyst Charles Gill (center), and wine economist Mike Veseth (left)
© W. Blake Gray | Jon Fredrikson (right), with fellow wine-industry analyst Charles Gill (center), and wine economist Mike Veseth (left)
Wine now international commodity, conference told.

Reflecting an environment where Americans choose brands over appellations, E. & J. Gallo Winery and Constellation Brands have been named Wineries of the Year for 2012.

The award was announced Wednesday by industry analyst Jon Fredrikson during his keynote state of the industry speech at the Unified Wine & Grape Symposium in Sacramento, CA – the largest wine trade show in the U.S.

Fredrikson chose Gallo and Constellation because of their strong marketing, most of it relating to wine brands that are no longer attached to specific wine regions. Of the 25 wine brands that grew the most in U.S. revenue in 2012, Gallo produces eight and Constellation makes six.

"The smaller guys don't want to hear this, but Gallo is the hero over the years," Fredrikson said. "Gallo has pioneered most markets. It has quietly broken down countless trade barriers. And Gallo still makes a lot of wines that sell for under the equivalent of $3. The wine market is a pyramid, and they serve a market that is the base of the pyramid. Smaller wineries don't want to do that."

An ongoing theme at the trade show is that, like apple concentrate, wine is now an international commodity that can come from anywhere. Wine exports from the New World are now 45 percent bulk wines, more than double the total of 10 years ago. Instead of being bottled in the country where they're made, they are shipped in giant tankers to appear in brands that may have used grapes from a different country the previous year.

And these brands are powerful in the U.S. market. For all the variety of pinot noir available, just five brands of pinot controlled 48 percent of by-the-glass orders in American chain restaurants, according to Winemetrics. For riesling, the top five brands controlled 82 percent of by-the-glass sales.

Most of Europe is tearing out vines, and Australia removed 18 percent of its wine acreage between 2007 and 2010. But the bulk market can count on more grapes from increased plantings in Chile and Argentina.

Argentina's rapid growth in the U.S. market has come at some cost: while sales in chain restaurants doubled in three years, the average bottle price dropped by 17 percent. Americans now pay just $40.67 on average for a bottle of Argentine wine in a chain restaurant, the second-lowest of any country except Germany ($38.49), and far behind France (an amazing $145.23).

It's no wonder that Argentine bulk wine exports are skyrocketing; the difference in wholesale price between bulk and bottled is less than in most countries. U.S. wines sell for an average of $56.19 per bottle in restaurants, according to Winemetrics.

L-R: Gallo's "Signature Series" Californian wines; Robert Mondavi is part of Constellation
© Gallo/Robert Mondavi Winery | L-R: Gallo's "Signature Series" Californian wines; Robert Mondavi is part of Constellation

Of course, not everything that looks like a U.S. wine actually is.

Nat DiBuduo, president of Allied Grape Growers in California, told of an incident last year when Joe Gallo went to a meeting of growers in the San Joaquin Valley, source of 85 percent of California's grapes. Gallo said he needed 10,000 more acres to be planted because being a California company was important to the firm.

"He provided the wines for the lunch," DiBuduo said. "The Barefoot Moscato on the table was a product of Australia."

In 2012, California growers made the largest single-year planting of new vines in decades, according to DiBuduo. He said Gallo and Constellation were responsible for much of that, because farmers have been unwilling since the economic crisis to plant without a contract for the grapes. Since then, bulk wines from Argentina, Chile, Australia and Spain have ended up in brands from California. By law the country of origin must appear on the bottle, but most consumers don't pay attention.

"I'd rather see California grapes in them," DiBuduo said. "But the consumer wants the brand."

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  • Comments

    WINEreproach wrote:
    26-Feb-2013 at 07:08:23 (GMT)

    Also, I think it should be pointed out that the word "brand" was, perhaps, over used in this article. In particular when discussing the recognition of the Gallo brand. (from last sentence in article) "I'd rather see California grapes in them," DiBuduo said. "But the consumer wants the brand." I would heavily argue that it isn't the brand that consumers of Gallo & Constellation want, but the price. An act that reflects their search for a cheap alcoholic beverage, and not craft, educational, traditional, or meaningful wine. There's a big, BIG difference there.

  • noblewines wrote:
    01-Feb-2013 at 15:21:59 (GMT)

    I guess we should stop worrying about the appellations whose names have been and continue to be abused because where a wine comes from just doesn't matter any more! The uproar over Korbel calling their California Sparkling Wine Champagne at the Inauguration, Chablis getting abused for more than a century and all the stuff with Bronco and Napa Ridge et al. Just doesn't matter anymore!

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