E. & J. GALLO WINERY - PowerPoint Presentation

E. & J. GALLO WINERY Team #3Patat AyuwathanaAngela FarmerChris FishbackMelinda Lobaugh

Background Started by 2 brothers, Ernest & Julio GalloModesto, CA Grew and sold grapes for years

PROHIBITION! 1920 - 1933

Background, cont’d.E&J Gallo Winery was founded 1933. Competition was pretty stiff.More than 800 companies in CA alone$6,000 startup capitalErnest borrowed it from his mother-in-law.

Background, cont’dBrothers learned the craft of commercial winemaking from pre-Prohibition pamphlets. Published by UCAL, retrieved from Modesto Public Library basement.E&J has grown into the largest family-owned winery in the world.Also, largest exported of CA wine.

Have YOU had E&J’s?

U.S. Market Overview

U.S. Wine MarketU.S. is: #1 market for wine sales (in dollars)#2 in volume of table wine consumed (not per capita basis)#4 producer of wine overall282 million cases sold in 2009 767 million gallons consumed in 2009

Wine MarketU.S. wine market growth due to: Increasing number of people in newer generationsIncreasing popularity of wines from Australia, New Zealand, Argentina, Chile, Portugal, and South AfricaIncreasing production of U.S. wineries

ProductionCalifornia Supplied 61% of all wine consumed in the U.S. 2009 (30% imported)2,972 wineries (6,705 total in U.S.)90% of all wine produced in the U.S. Texas #5 wine producer in U.S.170 wineries (5 in Lubbock) Llano Estacado Winery is 2nd largest

Favorite Wines in ProductionTop 5 varieties produced in California: ChardonnaryCabernet Sauvignon Zinfandel (white and red)French ColombardMerlot

U.S. Exports Top Five Countries to export: Canada (up 23%)United Kingdom (up 22%)Hong Kong (up 117%)Japan (up 2.6%)China (up 101%)E & J Gallo is the largest exporter of California wine

Chinese Market Overview

Chinese Wine Market (2010) China’s retail consumption in social consumer goods– $2.26 trillionRising demand for wine in China  8th largest wine market in the worldImport wine sales are growing at a faster annual rate than domestic brandsWine consumption is expected to increase 32 percent, up to 1.26 billion bottles – or 105 million 9L cases in the next few years

Retail Channel – Hypermarkets Walmart – U.S. Carrefour – FranceMetro – Germany New World Department Store – Hong Kong Auchan - France Tesco – Britain

Chinese retail CUSTOMERs

OverviewLiquor and beer’s popularity in 1990s Increase in wine consumption within the middle age group – presence of femalePolarized view on wine

Preferences & Purchasing HabitsPreference for domestic brands because: Cheap pricesPatriotic supportSatisfied sippers – do not know much about wine so they will usually purchase the same brandHeavy in-store price promotionInsufficient knowledge on imported brands

Preferences & Purchasing Habits(cont.) Preference for French imports because:symbol of status perceptionTaste preference (many prefer dry, red wine)Trust in their quality productsPreviously received as a gift from family or friends and enjoyed it

Other Preferences White wine sales during summer timeBeer consumption during the summerRed wine perceived as luxurious and are surprised or even confused to find some imports costing less than100 RMB (<$15)Perceived health benefits (beauty & skin care)

Other Preferences (cont.) RestaurantsUpscale restaurants do not always allow outside beverages50 – 100 RMB ($7 - $15) corkage feesCasual restaurants DO allow outside beveragesOnly bring liquor or beer, unless females are present Men at the table will pour wine for the women to drink, but will only drink liquor themselves

Other Preferences (cont.) Young population (Ages 20 – 25)Casual environment with friends – drink beerDrink at casual restaurants or at home because it is cheaperNo acquired taste for wine – mix soda and add ice cubes  wine coolerPrice and taste more important than brand recognitionTelevision ads & word-of-mouth

INDUSTRY ANALYSIS (China)

Competitive Rivalry Domestic wines Penfolds The Wine Group Constellation brands Buyer Bargaining Power Retailers Retail shoppers Supplier Bargaining Power Third party grape growers Glass & bottling Substitutes Beer Liquor Tea Threat of New Entrants Old World & New World Domestic companies Five-Forces Model

Threat of New Entrants Product inspection and certification, product labeling and packaging, product licensing, tariffs, import taxes, etc.Distribution – distributors are the “middleman” before an importer’s product reaches retailers and end usersHigh costs (retailer listing fees)

Intensity of Competition Total Global Exports (2009)EU – 36% Australia – 17% Chile – 15%South Africa – 10% U.S. – 9%Australia: Foster’s ( Penfolds & Wolf Blass) & Jacob’s Creek U.S.: The Wine Group & Constellation brands (Robert Mondavi ) Customer price sensitive & zero switching costs

Bargaining Power of Suppliers Gallo’s resources – strong R&DOwns many vineyards and employs its own growersLarge production scale & supplier contractsDrought season – Small wineries must increase prices of their wine due to the lack of sufficient grapes from suppliers.Gallo can absorb much overhead costs and does not need to increase pricesPrice consistency  better relationship with Chinese distributors & retailers

Bargaining Power of Buyers Retailers & retail shoppersRetailers have limited shelf space & competition from other suppliersRely on local distributors to negotiate contractsProvide own in-store promotersIf a product does not sell well, retailers can pull the product off its shelf

Bargaining Power of Buyers (cont.) Retail shoppers are price sensitive  domestic purchases“Enthusiast” drinkers have sufficient knowledge on wine: moderately-high bargaining leverage because of the sheer number of competitors in the marketZero switching cost – can pick & choose based on a very small price difference from competitors’ products

Threats of SubstitutesNo specific market segment that consumes wine on a daily basis Beer or liquor during social gatheringsNonalcoholic beverages: juice or tea

“When I read about the evil of drinking, I gave up reading…” -Anonymous