Gallo restructures after perfect storm

09 March, 2010

E&J Gallo, the second largest wine producer in the world, has restructured its Europe Middle East and Africa division, rationalising its product range to five core brands, following the economic crisis last year

George Marsden, Gallo’s outgoing vice president and general manager EMEA (Europe Middle East and Africa), told a briefing in London on March 9 that as a result of the global economic crisis, which he described as a “perfect storm” plus the UK government’s tax increases, they had been forced to restructure and simplify the business.

“This (the UK wine trade) is not a sustainable business. Suppliers, distributors and retailers are going out of business,” he said. “The UK tax increases are driving value out of the category. We cannot invest because it has all gone on duty,” said Marsden.

The amount the government takes from a nine-litre case of wine had gone from £16.02 in 2007 to £19.26 now and is due to rise to £20.72 this year.

“We have got to a tipping point,” said Marsden. “We have told the government that they can expect declining tax revenues (from the drinks industry) if it keeps increasing the duty.”

Marsden said the company had cut out ranges and tiers of ranges and is now focusing on five core brands – Gallo Family Vineyards, Turning Leaf, Barefoot, Redwood Creek and Carlo Rossi.

He said that while overall volumes had shrunk, sales of the core brands were rising.

Gallo’s key export markets are the UK, Germany, Poland where Carlo Rossi is the number one wine brand, Netherlands, Africa and the Middle East. Marsden described growth in Africa as “explosive” with Nigeria leading the way.

Marsden, who returns to the US next week, announced that Gallo was entering the South Africa market with Barefoot, Gallo Family Vineyards and E&J brandy. The first container has just gone out to the country. He said the election of Barack Obama as president has made South Africans very receptive to American products.

Marsden predicted that Barefoot, which is already the number one wine brand in the US, was being rolled out in Europe and would become a major wine brand. He coined 2010 as “the Year of the Foot”.

He also singled out the rosé category as crucial to continued growth of wine consumption. The sector has gone from 5% of the wine category to 13% (12 million cases). Gallo has two of the three leading rosé brands, its White Grenache and White Zinfandel.

A new idea being floated is a wine cocktail – Gallo Family Vineyards White Grenache with ginger ale.

Marsden concluded that the UK alcoholic drinks industry was facing a crisis due to the combination of duty increases and the strengthening anti-alcohol lobby. He said that as well as restructuring, streamlining and rationalizing its product offering, the company had raised prices with a view to make its brands more premium and moving them away from commodity discounting.

“We are going to keeping going for value – real value. With ‘3-for-£10’, we are hoping the consumer is going to say: ‘I can do better’ and aim for exceptional value at £4.50 to £6.50,” concluded Marsden.

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