Jeff Jardine

For Gallo, it's family that matters

Of all that's been said since wine icon Ernest Gallo's death at age 97 Tuesday afternoon, one thing stood out to me.

It came from the letter written by his son, E.&J. Gallo Winery Chief Executive Joseph Gallo, to the company's 3,000-plus employees.

"My father always believed strongly in the power of family-owned businesses, and he took the necessary steps to insure that, after his death, the Gallo winery would remain family owned," he wrote.

Ernest Gallo made it clear long ago that the winery he and brother Julio began building in 1933 would always be a family-owned company. The family would base its decisions on what's best for its future — not to appease a bunch of Wall Street analysts who crunch numbers but know nothing about crushing grapes.

The family company is Ernest and Julio Gallos' legacy, handed down to their children and now their grandchildren.

They've certainly got a successful template to follow.

The Gallos built a vast wine empire with the family's name all over it, becoming the largest winery in the United States. They rank 110th on Family Business Magazine's list of the top 150 family-owned American companies.

Julio, who died in 1993, was the vintner. Ernest handled the marketing, developing a reputation as an aggressive and tenacious businessman, crushing the competition whenever possible.

"My first-grade teacher told me I was the dumbest student she ever had," Ernest told Wine Spectator magazine several years ago. "She did me a favor. If she had told me I was very smart, I wouldn't have tried to improve. Anyway, I'd rather be lucky than smart."

Lucky, maybe. But Ernest clearly hedged his bets by knowing an industry he in no small part created.

The Gallos did it their way and still do.

Ernest never answered to a board of directors. He refused to take the company public, understanding that any infusion of cash from a stock offering — no matter how lucrative — eventually would come at a price: control of the company.

"I am glad we do not have to divert energy to what public stockholders think of our management, our future, or the value of our stock," he wrote in "Our Story," a book he and Julio wrote in 1994.

Dan Solomon, the company's first official spokesman, said Ernest never wanted "yes men" among the company's junior executives. He wanted to know what they really thought — not what they thought he wanted to hear. So, as they assembled for meetings, Ernest would pick their brains for ideas. He knew that once the meeting started, and the higher-ranking managers began talking, the younger ones would be afraid to speak their minds.

He valued new ideas and considered himself an out-of-the-box thinker but was old school when it came to ownership.

The Gallos weren't about to sell out to a conglomerate that could wipe out their creation with a single boardroom vote.

"If you have a private firm, stay private," Ernest wrote in the 1994 book. "If you are public, buy it back."

As long as Ernest lived — and beyond — the Gallo winery would be run by Gallos and their offspring.

I suspect several hundred employees in Oakdale wish Milton Hershey had heirs who could take back the company and control it the same way the Gallos have.

Once a family-run company — and one known for treating its employees as family — Hershey's has become pure Wall Street since Milton Hershey's death in 1945. Its board and chief executive are outsourcing jobs to Mexico and cutting 1,500 jobs from plants in the United States and Canada. Why? Because as a publicly held corporation, its first priority is the stockholders — not the employees or communities in which they live.

Consequently, Hershey workers in Oakdale are worried about their jobs — and rightfully so — as they await word of whether the plant will close.

When major corporations tried to buy Gallo, Ernest and Julio refused to play the game. According to Time magazine, they rejected an offer of $150 million to $200 million for the winery from Seagram LTD in 1972.

To the contrary, they seized upon opportunities to dominate the competition.

In the early 1980s, California Cooler controlled the growing wine spritzer and cooler market with roughly $150 million in annual sales.

Enter the Gallos, who introduced their Bartles & Jaymes wine cooler line with a $50 million ad campaign. California Cooler's ownership soon sold out to Brown-Forman, a liquor conglomerate that owns whiskeys Jack Daniels, Early Times, Southern Comfort and several wine lines including Bolla.

The Bartles & Jaymes commercials, starring a pair of folksy farmer types, were extremely popular and helped Gallo take over the wine cooler market by 1986. Three years later, Brown-Forman discontinued California Cooler.

Gallo watched in 2004 as Constellation bought the Robert Mondavi Corp., which included wineries in the Napa Valley town of Oakville, and Woodbridge, near Lodi. The acquisition did wonders for Constellation because Mondavi wines immediately became the best Constellation has to offer.

Then, son Michael Mondavi bought another winery and wanted to use his last name. Constellation balked, saying that it owned the name and would "protect that asset from anything which could result in marketplace confusion to the consumer," according to the Los Angeles Times.

In essence, the Mondavis sold the rights to their name as well as their company — something Ernest Gallo didn't do, would never have done and went to great lengths to make sure wouldn't happen after his death. The Gallos were so protective of the name they built that they prevented their brother, Joseph Gallo, from using the name when he started a cheese company.

That focus on their legacy is why Joe Gallo's letter to the employees stood out to me.

For all the rumors and speculation that can occur when a company's patriarch passes, it appears Ernest Gallo had a plan for that, too.

It's a family matter.

To comment, click on the link with this column at www.modbee.com. Jeff Jardine's column appears Sundays, Tuesdays and Thursdays in Local News. He can be reached at jjardine@modbee.com or 578-2383.

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