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Wall Street History
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03/16/2007
The Creators of Thunderbird
In the past few weeks, two of the three Gallo brothers of winery
fame passed away; Ernest, 97, and kid brother Joseph, 87. The
third, Julio, died in a car crash back in 1993. Oh, what an
interesting story this family was.
The three boys were the sons of Joseph and Susie Gallo who
lived in the Modesto, Calif., area. The elder Joseph, along with
his brother Michael, purchased wine from smaller wineries and
then resold it in bars in Oakland and San Francisco, operating as
the Gallo Wine Company by 1906. Susie’s family, the Biancos,
were already successful winemakers.
In the 1920s, Joseph and Susie bought a farm near Modesto and
like everyone else in the area began growing grapes. As the New
York Times’ Frank Prial writes:
“Their fruit was loaded on railcars and shipped east (private
winemaking was still allowed during Prohibition). The railheads
in Eastern cities, from Boston to the Carolinas, from Pittsburgh
to Cleveland and Buffalo, were dominated by thugs who took a
cut of whatever was sold. By the time he was 17, Ernest was
traveling with the grapes to ensure the family received top
dollar.”
But the Depression slammed the Gallos and the debt piled up.
On June 21, 1933, Joseph Gallo shot and killed his wife and then
himself, leaving Ernest, now 24, Julio, 23, and Joseph, 13.
Two months later, Ernest and Julio started their own winery with
$5,900; $5,000 of which was a loan from Ernest’s mother-in-law.
But while they had a rudimentary knowledge of the business,
they didn’t know how to grow grapes so they studied pre-
Prohibition pamphlets on the topic that they found in the
Modesto Public Library. Soon the two were making ordinary
wine for 50 cents per gallon, half the market price at that time.
In just their first year, working 18 hours a day, they made
177,847 gallons and $30,000 in profits.
The Gallos focused on making a quality product at a good price,
starting with everyday wines such as Hearty Burgundy and Carlo
Rossi. They then evolved into specialty and fortified beverages
like Night Train Express, Thunderbird and Ripple.
Ah yes, Thunderbird. For years Gallo wines were known for
their screw-caps and marketed to the bottom end of the American
market. But what they began to notice was that folks in the
minority communities were dumping concentrated lemon juice in
a bottle of Gallo’s wine port. So the Gallos, who long had the
goal of becoming the “Campbell’s Soup Company of the wine
industry,” decided to fortify and sweeten an existing product and
came up with the name “Thunderbird.” Launched in the mid-
1950s, the Gallos blitzed the country with one of the more
famous ad campaigns.
“What’s the word?” “Thunderbird!” “What’s the price?” “A
dollar twice.”
Thunderbird had an alcohol content of 21% and it became the
brand for America’s slums, as it turned out; forging an unsavory
image in the consumer psyche ever since.
The Gallos sold other downmarket wines including Spanada,
Boone’s Farm and Bartles & Jaymes. And the brothers,
particularly Ernest, the brains behind the operation (Julio was the
wine expert), were aggressive, with early salesmen for the
company being taught the “three Rs”: rigorousness,
relentlessness and ruthlessness. It was said, “If you turn your
back on a Gallo salesman, he’ll turn the place into a Gallo
outlet,” one liquor store manager told Time magazine in 1986.
But while the lower quality brands were big sellers, the Gallos
did branch out into more upscale fare such as Turning Leaf and
Gossamer Bay and even into the $30 market.
Ernest wasn’t afraid of a fight, such as his battle with Cesar
Chavez’s United Farm Workers who launched a national boycott
that lasted around five years in the 1970s. The UFW was upset
they lost out to the Teamsters and as Ernest said, “We believe we
have turned the other cheek too long,” even as his sales
temporarily declined 30%. Chavez called off the boycott in
1978.
Ernest Gallo was very tough on his own employees as well. In
1986, he learned two longtime executives were secretly planning
on buying a winery of their own. Gallo fired them on the spot.
Ernest and his brother put California on the map for wine
growing, and then the world through their aggressive exporting.
By most estimates, today E. & J. Gallo Winery is one of the
largest privately owned businesses in the country, producing
anywhere from 70-80 million cases a year, or in excess of 2.5
million bottles per day. Ernest’s own net worth was last judged
by Forbes to be in the neighborhood of $1.3 billion. The
company employs 4,600 with Ernest’s son, Joseph, CEO. It’s
now up to him to protect his father’s wish that the company
continue to remain private.
The Gallo brothers were very secretive but one thing they did
was foster some rather key political relationships with the
likes of Senators Alan Cranston and Bob Dole. Thanks to
pressure from Ernest and Julio, wealthy families today can
spread their estate-tax payments over a decade (dubbed the
“Gallo amendment”).
But what of brother Joseph, who died in February, you might be
asking? It was said that Ernest and Julio were always jealous of
little bro Joseph because their father never forced him to do the
hard labor the older brothers had to.
When the father killed their mother and himself in ’33, Joseph
was just 13 but he did help his brothers establish the winery
during high school and while attending Modesto Junior College
(it’s not known for sure whether Ernest and Julio even graduated
from high school, at least from everything I read). Then when
World War II hit, Joseph served in the Philippines and Korea.
[One of his three sons would later die while serving in Vietnam.]
Upon his return Joseph became ranch manager for Ernest and
Julio, but began acquiring raw land on his own for some grape-
growing and a dairy business. Joseph ended up splitting from his
brothers totally by 1967 and developed his own dairy empire
with some 37,000 cows by 1995.
But it was in 1982, after launching Joseph Gallo Cheese, that his
brothers went ballistic and sued him, claiming trademark
infringement and complaining that such an inferior product
employing the family name was damaging the winery’s
reputation.
“I have only got one name,” Joseph said at the time. “I don’t
know how I’m supposed to look for another one.”
A federal judge ruled against him, saying it was confusing
customers who’d connect the cheese to the wine operation. [The
cheese today is sold under the Joseph Farms label and is the
largest-selling retail brand in California.] Later, Joseph sued for
one-third of Ernest and Julio’s business, arguing the two had
used their parents’ estate to launch E. & J. Gallo Winery and he
was thus entitled to a slice. But a judge dismissed this one.
Doesn’t the above give you a craving for some Joseph Farms
cheese, washed down by a quart of Thunderbird? I thought it
did.
Sources:
Julia Flynn Siler / Wall Street Journal
Mark Bridge / London Times
Frank Prial / New York Times
Valerie J. Nelson / Los Angeles Times
Claudia Luther and Jerry Hirsch / Los Angeles Times
Wall Street History returns next week.
Brian Trumbore
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