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By: Stenly • Essay • 830 Words • February 18, 2010 • 1,270 Views
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Answers and Questions to Case Discussion E.J. Gallo Winery
1.) Why did Gallo company start with selling fortified wines, jug wines?
- accommodation to American market
- strong wines were substitute products for liquor, they were affordable for everyone
- no wine tradition in the U.S. as in Western Europe (France, Italy)
2.) What do you think about the integration level of Gallo?
- full vertical integration made it possible to create really “own” brands
- own R&D  testing of more than 400 varieties of grapes to find the best tasting ones
- later (from 1967) long-term contracts with suppliers (wine growers) who met fully Galloґs quality standards (guaranteed quality)
- own marketing activities helped to recognise the customer needs better than the competitors  crucial factor for the success of Galloґs brands
- usual distribution was to sell the wine to a wholesaler; Gallo distributed it directly to the liquor stores or groceries -> higher margins
3.) What are the key success factors for the performance until the 1980ґs?
- mass production  low costs  cheap prices
- market share was won by price investments  Gallo could offer its products under profit to push out competitors out of the market
- good marketing activities which fitted to the customers  famous jingle in radio
- centering on few strong brands
4.) What has changed since the 1980ґs and how did Gallo come along with the change?
- wine became more popular on the U.S market
- customers paid more attention to quality and taste
- the market flavour changed to upscaled, high quality wines which a bigger part of the society could afford now (higher living standards, higher income)
- Gallo focused on producing high quality wines and pushed this campaign with millions of US-$ in advertising
- Lobbying politicians to suppress growing competition from abroad (Chile)
- Creating 75 different brands to become more diversified
5.) How is the company positioned today?
- it presents itself only with the premium brands and the “new” portfolio; old brands like “Thunderbird” or “Night-Train” are still existing and perform well but Gallo does not mention them because of their poor image
6.) How important is the dessert wine industry for E&J Gallo?
- still an important factor ( about 5-10% of total net sales )
- high profit margins ( up to 10 % higher than margins of high quality wines )
- clients are loyal to the brands ( addicted, cannot afford other brands, drinks )
7.) What are the key success factors in the cheap wine industry?
- low price that means big amount of alcohol for little money
- economies of scale
- minimum of quality that is still higher than low quality product of competitors
- loyal customers, constant customer needs
8.) Is there a strategic fit between Galloґs fortified and “new generation wines”?
- in both cases Gallo followed the same strategy  satisfying the largest group of wine consumers
- Before 1980ґs most Americans drank strong wines as a substitute for liquor
- Now the flavour changed and Gallo was successful to meet the customer needs again
- When