Gallo enters Napa Valley in major bid to upgrade its jug-wine reputation


E.&J.; Gallo Winery became the biggest name in California wine without paying much attention to Napa Valley.

But now the Modesto, Calif.-based wine giant has a big crush on the nation's most prestigious grape-growing region. As the 2003 grape harvest gets under way, Gallo is buying 4,000 tons of premier Napa-grown cabernet sauvignon grapes for as little as $1,500 a ton, or about 60 percent below the average price of similar grapes last year, according to industry sources.

With the fruit, the privately held company known for its "jug" wines and Sonoma County-grown vintages intends to increase production of cabernet under the Louis J. Martini brand, which it acquired last year, to make it the company's primary purveyor of premium cabernet sauvignon.

Starting later this month, Gallo will begin shipping 110,000 cases of earlier vintages of Martini wine at retail prices of $17 to $55 a bottle.

Yet that is just the beginning.

Early next year, Gallo is expected to launch a second Napa brand out of the Martini facility. Gallo's goal is to produce as many as 800,000 cases of Napa wine by 2007, according to people familiar with the company's plans.

That would give Gallo double the volume of each of the largest producers of Napa Valley wine: Beringer Blass Wine Estates, which sells Beringer and Stag's Leap wines, and Diageo Chateau and Estate Wines, the owner of the Beaulieu Vineyards and Sterling brands.

"Not everything has been finalized," said Jon Holman, a Gallo spokesman in Modesto. "We are still in the planning and research stages."

But people familiar with Gallo's plans said the company expected to begin bottling the second wine brand - the name of which hasn't been made public - later this year using bulk Napa wine that the company purchased over the past year for $10 to $10.50 a gallon. The new wine is expected to sell in the $10-$15 per bottle price range.

Neither the Martini brand wine nor the new brand will bear the Gallo logo.

Though it is the world's second-largest wine company and controls a third of the state's wine production, Gallo, with estimated annual sales of about $1.7 billion, has not had a major presence in Napa recently.

Gallo has "become the major buyer of 2001 and 2002 Napa bulk wine, primarily cabernet, merlot and chardonnay," said one industry source who has been watching Gallo's strategy unfold. Gallo also is in the market for Napa grapes to crush this year for the 2004 vintage, according to people who are familiar with the industry giant's move.

Mike Martini, whose family sold its 70-year-old winery to Gallo last year, confirmed that the company would begin to outline its plans for Martini wine at a meeting with its distributor in Los Angeles today.

The grapes purchased by Gallo so far this harvest are enough to make more than 250,000 cases, according to industry sources.

Martini said Gallo hopes to increase grape purchases to the point where it can produce more than 300,000 cases of Martini-brand cabernet annually by 2007. Gallo has invested about $1 million in new wine-making equipment and other winery improvements.

"This will be dependent on grape availability and how well it sells," said Martini, who remains with the company as the senior winemaker of his namesake label. "We are really going to look at excelling at cabernet because Gallo thinks that is the best way to rebuild the brand."

The Los Angeles Times is a Tribune Publishing newspaper.

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