Gallo is investing $423M to build a new production and distribution facility

Dive Brief:

• E. & J. Gallo Winery (Gallo) is investing $423 million to construct a new production facility and distribution center in Chester County, South Carolina, according to a press release. Over the next eight years, it will create nearly 500 jobs. Construction will begin immediately with the first phase of the project to be completed in October 2022. 
• The facility, which increases its bottling, canning and warehouse capacity, will strengthen Gallo’s position on the East Coast, as well as help reduce its carbon footprint. With the Port of Charleston nearby, Gallo also gains a new hub for its import and export business.
• As some winemakers have struggled to stay competitive in the cheap wine segment, Gallo, which makes low- to mid-range wines, has seen growth, growing 2.1% to $4.8 billion in 2018. Pandemic stockpiling, fickle millennials and an uptick in reopenings have cast a shadow over projections regarding wine’s performance during the coming years, however.

Dive Insight:

Gallo’s investment is well-timed considering its recent focus on acquiring brands to expand its offerings. At the start of 2021, the Modesto, California-based winery and distributor closed the deal to acquire over 30 wine brands from Constellation Brands priced at $11 retail and below for roughly $1.1 billion. Encompassing mostly low- to mid-range wines, the deal included brands like Arbor Mist, Black Box, Clos du Bois, Estancia, Hogue, Manischewitz and Wild Horse, among others.

Constellation also sold its Nobilo Wine brand to Gallo for $130 million through a separate deal and became the exclusive U.S. importer for Italian Gruppo Montenegro, which encompasses brands like Amaro Montenegro, Select Aperitivo and Vecchia Romagna Brandy.

In April, Gallo also acquired Agave Loco, the maker of cream liqueur brand RumChata. The acquisition was aimed at expanding Gallo’s premium spirits offerings, according to vice president and general manager of the brand’s spirits segment, Britt West. The purchase also included Agave Loco’s RumChata production facility, Midwest Custom Bottling, in Pewaukee, Wisconsin, as well as brands The Tippy Cow and Holly Nog.

Gallo has plenty of challenges ahead as it ramps up production. Although the wine segment is expected to post positive year-over-year growth, a number of factors are shaking up the industry including pandemic-related ripple effects like restaurant closures. Although wine sales saw a 60% spike during March 2020 and substantial subsequent growth, Silicon Valley Bank estimates it is unlikely positive year-over-year growth rates will continue. 

Younger consumers such as millennials aren’t consuming as much wine as expected, for reasons varying from lower financial capacity to a preference for premium spirits, craft beers and hard seltzer.

A flood of new beverages to the market including hard seltzers and ready-to-drink cocktails are also pulling consumers’ attention away from traditional beverages like beer and wine. This also includes innovative players entering the wine space with health-focused products including FitVine, which offers wine with less than one-third of the sugar and the same alcohol by volume as traditional wine. The company’s offering takes aim at traditional winemakers like Gallo as well. 

“We didn’t invent the wheel, but Gallo or Constellation or The Wine Group — they can’t make wine the way we do,” said Mark Warren, co-founder of FitVine, in an interview earlier this year.

As Gallo continues to scale, it will need to find new ways to appeal to a diverse range of consumers including aging drinkers who prefer traditional beverages, as well as millennials who value different flavors and traits in their food and drinks.