Sunday, March 11, 2007

Capitalist of the week: Ernest Gallo

"I simply judge a wine by pouring a glass and drinking it. If I feel like another glass and have a desire for it, to me it's a good wine.
Ernest Gallo, who founded the Gallo wine empire with his brother Julio, died Tuesday at the age of 97. Julio died in an auto accident in 1993.

Ernest Gallo was born on March 18, 1909, to Giuseppe Gallo, known as Joseph, and Assunta Bianco Gallo, who was called Susie, in Jackson, California. In the 1920s the couple bought a farm near Modesto and began to grow grapes. But with Prohibition and then the Great Depression the couple became saddled with an unproductive farm and heavy debt. On the morning of June 21, 1933, in the kitchen of the farmhouse, Joseph Gallo shot and killed his wife and then himself, leaving three sons, Ernest, Julio, and their younger brother, Joseph, then 12.

With a little money left by their dead parents and a loan from Ernest's mother-in-law they rented a shed in Modesto. They knew nothing about making wine and, as legend tells it, had nothing more than a pamphlet from the Modesto Public Library to explain the trade. The Gallo Winery began with just $5,900 in capital.

Business was good for the brothers but it really took off in 1957 with the introduction of Thunderbird. Gallo has been criticized for exploiting the ethnic "misery market" with this citrus-flavored, fortified wine but it's reported that the brothers sold 32 million gallons of Thunderbird in it's first year.

The Gallos, realizing they could not sustain their winery on cheap products, moved up-market and began to produce better wines. Business flourished.

From the New York Times:

And the company, entirely family controlled, was indeed large. Industry analysts estimate that Gallo produces some 80 million cases of wine a year, which is about 220,000 cases or 2.64 million bottles every day. The company reportedly owns 10,000 acres of vineyards in California and buys grapes from hundreds of independent growers.

According to Forbes magazine, Gallo had sales of about $980 million in 2005 with a net profit of $44 million. In 2006, according to Forbes, Ernest Gallo was No. 283 on its list of the 400 richest Americans, with an estimated net worth of $1.2 billion.

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