Ernest Gallo, behavioral economist

Just rediscovered this oldie but goodie in a decade-old article from The Economist:

ERNEST GALLO, the 91-year-old patriarch of the eponymous American wine company, tells a story about his early days of selling wine, just after Prohibition had been lifted. On visiting a buyer in New York, he offered him two samples of the same red wine. The man tasted the first glass, asked its price, and was told it was five cents a bottle. He tried the second sample, asked the price, and was told it was ten cents a bottle. “I’ll take the ten-cent one,” said the buyer.

Related: “Why so few tasty American wines under $12? Wine importer Bobby Kacher

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19 Responses to “Ernest Gallo, behavioral economist”

  1. Ernest J. Gallo – Ripping his customers off since 1933.

  2. Tyler–

    Does this bring us back to the reasons for blind tasting? Let the wine speak. Not the label. To me, it is as simple as that.


  3. Gallo is about value wine. Yet, a bottle of their “Hearty Burgundy” can be surprisingly enjoyable. Dollar for dollar, their wines beat Fred Franzia’s.
    Still, for a company that invests so much into V&E research (which shows in their wines) they have let marketing and PR slide.

  4. Agree about “Hearty Burgundy” and think that it is the $5 wine in the example above. Find a spiffy label and call it a “field blend” of old vines and you have the $10 bottle of wine in the example above. In my book, the Gallo’s were geniuses, and were among the first to put decent, reasonably-priced wine on the American table.

  5. For those of you that think Gallo has let PR slide and is an above the table company, you’ve missed who owns and makes Rancho Zabaco, Barefoot, Anapamu, Ecco Domani, Dancing Bull, McWilliams, Red Bicyclette, Turning Leaf and dozens of other hugely successful labels (re: fake wineries) after their research a decade ago showed that many consumers would not buy wine labelled as Gallo. Their solution and that of Bronco, Wine Group, and the other mega-wineries is to flood the shelves with hundreds of labels with no mention of the true winery that makes them. That and voracious sales teams that keeps them on nearly every grocery shelf in the country accounts for the big eight selling most of the wine in this country.

  6. Craig,

    I think most people here know that these are Gallo brands. Many consumers may not, but this knowledge is coming out into the open.
    The lapse in PR and marketing I mentioned has to do with the fact that Gallo has a history of very aggressively quashing any competition (and even going after companies that pose no economic threat). In the minds of those who remember them, these practices are tied to the Gallo name – as is a reputation for jug wines.
    Since all chickens come home to roost, the company needs to clean up the Gallo namesake brand because, as I said earlier, it will ultimately become common knowledge that the brands you listed are Gallo products.

  7. Arthur,

    People in the wine business know about the fake wineries, but very few consumers do. As long as these big companies are helping line the pockets of stores and restaurants with “offers they can’t refuse”, few of them are willing to pass this info on to the consumer in a major way.

    Gallo is still very aggressive, and I wouldn’t say they’ve let up. I would say that their techniques are now being widely implemented by other companies who are trying to get a bigger piece of their pie. The mega-wine business has generally been given a makeover, but there’s still a gangster mindset (and actions) behind the scenes. Gallo has done a better job over the last few years in that respect at polishing up their image to the public, but not to people who are familiar with the way they get their wines on the shelves.

  8. I don’t think that stores and restaurants are the best (or maybe the most objective sources of wine information – no offense). There are other sources and venues. All that said (and Gallo’s practices notwithstanding), I think that some of their brands are good and some just plain suck. Ironically, I think the traditional, namesake labeled jug wines represent the company’s best quality and value wines.

  9. You can add Alamos to the list as Gallo just recently bought the rights to the Alamos brand from Billington, imports. At least Alamos is a made a a real winery.


  10. Not trying to pick a fight here, but “real winery”? As opposed to what? One made of Legos? One that makes imaginary wine?

    Whether the wine is imported by Gallo in bottles or in large containers and bottled in a large facility, or if it’s made from bulk juice in fermenting tanks the size of the fuel tank on the space shuttle, it’s still *real* wine making and the resulting stuff is still wine (at times only technically and at others, a damn good value and of good quality).

    Saturn is a real car brand, but was created by GM to appeal to the consumer who gravitates towards the import car market. Scion is made in real factories – probably by the same people who make Toyota and Lexus (that last part may be inaccurate, but it makes the brand no less legitimate).

    Every industry diversifies its product lineup to reach different categories of consumers.

    The Gallos may have been ruthless in business and cunning in strategy, but the consumer wants a product to bend to their preferences, believes that price is proportionate to quality and refuses to inform and educate themselves about the product they buy.

  11. I also don’t think most customers know the extent of the Gallo Empire. I have a lot of people who think I’m crazy for recommending Gallo of Sonoma when they have a cartful of Dancing Bull and Mirassou.

    PS True story about Hearty Burgundy. I met with one the of the winemakers from R wines, and he was telling me about one of their pricy California reds, which 50% of it is Old Vine Carignan from a lot they discovered, which previously had been used almost exclusively in the Gallo Hearty Burgundy!

  12. Another true story about Hearty Burgundy. Back in my college days, and those of you who know me, realize how long ago that was, I used to go over to the local “package” store and buy Gallo Burgundy for our Saturday night barbecues, which happened in our dorm room fireplace. We thought we were sophisticated drinking wine instead of cheap screwdrivers,and we were sure our dates thought likewise.

    On one occasion, after the owner got to recognize me, he suggested that we try Gallo Hearty Burgundy instead. It was ten cents more a bottle in those days and I went along with his suggestion, but also bought a bottle of the regular Gallo Burgundy. That night was the occasion of my first blind tasting. We put the wines in bags. Had one of the dates label them A and B and got everyone to drink two glasses of wine before dinner instead of one.

    Marvellous results all around, as you can imagine, and we did become converts. By the time we graduated, we had moved up to $1.69 bottles of Beaujolais.

    Then I moved to California. The stuff was practically growing in our backyards. It is no wonder that I never went back to New England.

  13. Price can make for a huge influence on perception. Consider this–if something costs very little, does it not speak in your mind to how little the seller values that product? Contrary, if a product is priced highly you may expect that product to be of higher value in the seller’s eyes. Of course where the perceived value and actual value meet is a different story entirely. Thanks for the fun anecdote.

  14. Great opinions and insights by all here. As an employee and member of the salesforce for Gallo winery, I can attest to a lot of what has been said.

    I agree that we have done a much better job relative to the competition of providing a greater value to the consumer. This is a core strength of the company, driven by a committment to R&D research and continuous improvement from a production standpoint.

    The PR/Marketing debate is a difficult one, and I think you are all in a better position to judge that as you can see the marketplace in a much more objective way than I can.

    With technology going the way it is, it will not take long for more consumers to realize which brands are part of our portfolio – in fact, they are all listed on our main website. Therefore, I do believe our flagship brand with the company namesake on the label will play an important role in the future.

    Thanks again for your perspectives.
    Twitter @ GeoffColeman

  15. That’s rather an excess of courtesy from Geoff Coleman–damned decent of him, in fact, since some of those ‘insights’ betray embarrassing degrees of ignorance and snobbery. [Don’t like Gallo? Fine–but accusations of cheating cus-tomers are below the belt.] Whether consumers know that, say, Dancing Bull is a Gallo pro-duct or that some wines are from “fake” win-eries depends on whether they a) read the label and b) care. Consumers care–and always have–about enjoyable at a livable price; this is true even at the high end. (This year, for example, recession-minded British importers demanded and got large price cuts for the 2008 Bordeaux–even from top chateaux.) Gallo and other companies serve the value-wine market by buying and bottling [real]wineries’ over-production under as their own brands. They are NEGOCIANTS. Almost all wine was sold in bulk until after WWII, so negociants were indis-pensable to producers for whom aging-bottling-labeling-selling was too much work or (as in Burgundy, even now) uneconomical. Nowadays many negociants are draining the Wine Lake–the overproduction that comes from [mainly]France, where winemakers get EU subsidies (increasingly important as French wine consumption keeps falling). The subsidy is available for 2 consecutive years but NOT three–unless he rips out his wines. So, when Year Three rolls around, and with it the prospect of an unsubsidized, potato-growing future, farmers DON’T seek subsidies. Instead they bulk-sell to negociants (and so preserve their right to future subsidies). That could tempt farmers to simply grow for tonnage–super-high-yields of second-rate fruit. Some surely do BUT with Gallo and others seeking wine and many growers seeking buyers, the result is lots of tasty European wine under $12–and not so many American ones (see earlier discussion).

    The dead-on comment here is Charlie Ol-ken’s “Does this bring us back to the reasons for blind tasting? Let the wine speak. Not the label.” Price’s effect on PERCEIVED value is unquestionable but apparently insufficiently well known. Sometime last year yet another study of same was revealed. In it, tasters were given two flights of the same wines, each marked with a price. The higher-priced wines came out on top both times–even though, for the second flight, the prices were switched. Tasters still voted as if price equalled quality.

  16. […] to unchecked seller liberties in marking price to quality, a recent Dr. Vino  blogpost shared a quote from the Economist demonstrating the deep historic reaches of this systemic […]

  17. The consumer is being deceived. If Gallo, Bronco and all of the other mega-wineries who create multiple brands to satisfy their customers are doing a service, then why do they refuse to acknowledge what the wineries (winemaking facility) name is on the back label. Dancing Bull, Charles Shaw, Barefoot all say “bottled by Dancing Bull”, “bottled by Charles Shaw”, “bottled by Barefoot”. They do not mention, anywhere on the label, that they are made in the Gallo Winery in Modesto, etc. This is a deception no matter how you look at it.

  18. it’s very helpful! I’m waiting for it! lingxue blogI’ll come back one day.

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