In December last year the Federal Trade Commission finally approved the acquisition by E. & J. Gallo Winery (Gallo) of more than 30 wine brands from Constellation Brands, Inc., which was first announced in April 2019.
The acquisition included entry-level brands such as Arbor Mist, Black Box, Clos du Bois, Estancia, Franciscan, Hogue, Manischewitz, Mark West, Ravenswood, Taylor, Vendange, and Wild Horse as wells as five wineries located in California, Washington, and New York.
The transaction highlights the difference between the two beverage alcohol giants with Constellation focusing on the profitable premium wine and spirits segment where most of the growth has been happening, while Gallo is focused and committed to the long-term success of wine across price tiers.
Gallo is a multigenerational family-owned wine business and deeply invested in the wine industry, with the company’s identity and history bound up in wine as well. As a family business, they can and must take a longer, generational outlook focused on creating a flourishing business to future generations.
The challenge for Gallo and the wine industry is attracting new consumers, Millennials and Gen Z in particular, to the wine category and replenish the consumer base as Boomers decrease their consumption. While the premium segment appears to be the most profitable today, new consumers usually don’t start out buying $20 bottles of wine, and an attractive entry-level selection will be necessary to attract new consumers to the wine category.
Stephanie Gallo, Chief Marketing Officer, E. & J. Gallo Winery, and grandchild of Ernest Gallo explains how the brands acquired from Constellation Brands fit into Gallo’s long-term strategy.
When the acquisition of the Constellation wine brands was announced, Gallo expressed a focus on growing the wine industry. What role will the newly acquired brands play toward that goal?
Our purpose is to serve enjoyment in the moments that matter, and in order to do that we must have products that meet all consumers’ needs. We believe in providing our consumers and customers with quality products at every price point. Wine consumers buy across all price tiers based upon the occasion. Research shows that most consumers enter the wine category through the under $11 category. Consumers that enter the category through under $11 wines are 2x more likely to repeat purchase within the under $11 category.*
In addition to bringing new consumers into the category, the under $11 category provides the greatest amount of format innovation and wine style innovation, giving consumers a variety of offerings to choose from for various occasions. The acquisition provided an opportunity to expand our portfolio of under $11 offerings and meet a variety of needs for our consumers and customers.
*© IRI National Consumer Panel. Total All US Outlets. Latest 52 Weeks Ending 12.29.2019. Buyers filtered by New to Wine Target Group 3. % of Buyers who Repeat
Most of the brands acquired fall into price segments that pre-Covid saw declining market shares as premiumization trended. Do you think this is a trend that can be reversed by bringing new consumers to the wine category?
In times of uncertainty, people turn to brands they know and trust. During 2020, consumer behaviors certainly shifted. Through numerous data sources, we saw an increase in both retail sales and the number of retail buyers. We understand not only the critical importance of continuing to attract these new consumers, but also to hold their interest once they are in the category.
This means we have to innovate and ensure that we are meeting their unique needs. While we continue to invest in our premium and luxury wine businesses, we see a tremendous opportunity with this acquisition to win new friends for wine. Having a diverse portfolio allows us to continue providing our customers and consumers with quality products at every price point.
What do you see as the biggest obstacles and opportunities for bringing new consumers into the wine category?
Our focus is around making wine accessible to all. Within our company and our outreach, we must be reflective of what’s going on in society today, including what the American consumer looks like. In America today, “everyone” includes a richer and more diverse landscape than ever before. Everyone needs to feel welcome, feel a place of belonging and have access to products that understand them and meet their unique needs.
America’s future is multicultural and inclusive. One of the most important things we can do at Gallo is to embody and reflect the diverse world that we live in, allowing us to be more prepared to meet and respond to new challenges that arise in the future.
Does Gallo have a plan to reposition some of these brands specifically to reach new consumers?
These are iconic brands within their categories that resonate with consumers. We are excited about the strong presence these brands have throughout the U.S. and around the world. We plan to respect the legacy of these brands while continuing to make the highest quality wines.
How do these newly acquired brands fit with Gallo’s existing wine portfolio?
Gallo is committed to remaining a family-owned company focused on the wine and spirits industry. We believe the brands added through this acquisition build upon and complement our diverse portfolio. We are identifying ways our portfolio of brands can continue to engage and support our consumers and communities now and into the future.
By Kim Badenfort