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The Gallo Family – Vintage Conflicts

Source : Family Wars – Grant Gordon & Nigel Nicholson

Origins

The family name Gallo has become synonymous with the wine industry in California as they were the first movers in the industry. Their history in viniculture dates back to the early part of the 20th century. Over the years, Gallo became the world’s second largest wine producer, closely following the new owners of Mondavi’s Constellation brands.

Before the advent of Prohibition in the United States in 1920, Joe Gallo was the owner of small businesses in the hospitality sector, including the Gallo Wine Company (founded 1907 with his brother). In 1908 Joe married Susie, the daughter of an early California winery owner Battista Bianco, while his brother Mike married her sister Celia.

With more luck than foresight, Joe closed his liquor business, hotel and saloon they owned in 1918, and reinvested in the production of wine grapes. This turned out to be a smart move when Prohibition was ushered in, for wine grapes were in high demand among both home winemakers and bootleggers. Joe Gallo was a smart entrepreneur who built a good business and who was able to keep any brushes with the law to a minimum, for his was an industry very closely scrutinized by the authorities.

Joe and Susie had three boys: Ernest, Julio and Joe Jr, also known as Pete. Ernest was just one year older to Julio, while Joe Jr was born in 1919, a full decade post the birth of his oldest brother Ernest. As a father Joe was frequently absent, and difficulties emerged in his relationship with the two eldest boys, Ernest and Julio. Much of their childhood was spent in the care of the Biancos, their maternal grandparents.

It was a tough life for the oldest boys, without much freedom or material wealth, though it gave Ernest his first insight into winemaking, witnessing his grandfather filling the earthenware jugs of the Basque shepherds who came down from the surrounding hills to buy his grandfather’s home brew. However, things were different for Joe Jr. He arrived in times when the business was doing pretty good, and was allowed to do things in his youth that his brothers had been denied.

As the Prohibition years passed, the young Gallos were expected to spend most of their time in the vineyards, when not in school. The arrest of their father in 1923 on charges of violating the Prohibition laws was an embarrassment to Ernest and Joe, which later turned into relief when the charges were dropped later in the year. These events during their formative years had a strong influence on the two older siblings- it seemed to urge them towards creating their own distinctive identities and distancing themselves from their parents’ generation.

Father and Son

Steadily, Ernest’s resentment of his father was growing and he was inclined to stand up to his father. This resulted in a sour father-son relationship. Yet the ever observant behavior of Ernest helped him learn the tools of the trade from his father, which also fed his ambitions to succeed.

In 1930, Ernest confronted his father with an ultimatum: either give me a partnership with equity or I quit. Joe exploded with rage and threatened the kids with his shotgun. At this point, the kids fled the home but the breach was not permanent, and they came back a few months later at their parents’ begging.

Meanwhile, Joe Jr was being treated much more softly by their father. Although Joe Jr still looked up to his older brothers as heroes, they were jealous of him. Also, Ernest had found a new departure in his life by marrying Amelia Franzia in 1931, daughter of another prominent Californian winemaking family.

In June 1933, Joe and Susie were found murdered at their homestead. This threw a pall of gloom over the family. Of the brothers Julio was the most upset. Ernest’s way of coping was to immerse himself in the business, and be ready for the repeal of the Prohibition Act that was due later that year. Grape growers were all readying themselves for the new era that would emerge when they could start to trade as wineries. Meanwhile the parents’ probate had to be settled and Ernest was the appointed administrator.

Their mother, Susie’s will stipulated that her estate was to be divided in equal amounts between the three brothers when they reached 21, whereas their father Joe died intestate. One of the main assets of the estate was the vineyards, a key element in the plan for the two older brothers to establish their new winery. To get the requisite licenses’ they needed to be active in the grape-producing business. At this stage the older siblings were their brother’s legal guardians, with full powers to manage Joe Jr’s affairs. Trusting his elder brothers, Joe Jr innocently signed all documents. This included a consent form granting full powers of attorney to Ernest and Julio. At this time, the assets from their parents’ estates were put into a partnership, Gallos Bros Ranches.

Ernest’s Era

After their parents’ death, Ernest took on the role of business leader and worked alongside Julio. However, Julio struggled with mental health issues to the point of being hospitalized on several occasions. Ernest took charge of product promotion while Julio managed the vineyards. Ernest’s leadership style put pressure on Julio to increase production, causing tension between the two.

Joe Jr. returned from the war to work in the family business, but chose to work under Julio. Although Ernest offered to hire Joe to head up winemaking, dangling a carrot of potential partnership, he chose to work under Julio in the vineyard operation. Joe settled into his new role as employee and staff member. A few years later in 1950 any financial links he still had with the family were ended when the Gallo Bros Ranches partnership was dissolved.

The company transformed with the success of their best-selling product, Thunderbird. The next generation of Gallos joined the company without consideration of their abilities, causing morale issues and high staff turnover. The perception within the firm that nepotism was ruling key appointments was sapping morale in the company. Julio’s son and son-in-law also joined the firm, but tragedy struck when Julio’s youngest son committed suicide. Despite considering leaving the family business, Julio stayed with the encouragement of his brother Joe Jr.

Disputed Territory

In the mid-1960s, tension in the family increased when the brothers wanted to merge their glass bottle unit, through which Joe Jr held a minority interest in the wine group. He wanted to exchange his shares in the subsidiary for a small stake in E&J Gallo, but Ernest and Julio insisted on buying him out. This led to a dispute over the payout, which was eventually resolved after Joe’s family threatened legal action. In 1968, Joe’s eldest son Peter was killed in combat in Vietnam War, which motivated Joe and his surviving son Mike to focus on building their own business activities. They supplied grapes to the Gallo winery and launched a cheese making operation, which was successful in the market. In 1979 Gallo had acquired the trademark rights to Gallo Salame, a cold meat brand that had been on the market for many years, apparently wanting to protect the usage of the Gallo trademark in fresh foods. This was followed by a trademark dispute with Gallo wines escalated in 1986, with Gallo wines taking the battle to court. Joe’s legal battles were both unsuccessful, and his grape supply contracts to E&J Gallo were terminated. After over half a century, the brothers’ interests were finally completely separated.

Endgame

Today, Gallo still rides high in the marketplace and the company thrives in private ownership, controlled by the descendants of the founding family. Julio was killed in a car accident in 1993, Ernest and Joe Jr died in 2007, within a month of each other. With their passing, the strains of earlier generations were finally laid to rest, while the family and the business moved on.

The Gallos play an active role both in the governance and management of the business. In contrast to the Mondavis, they have consistently placed considerable importance on attracting, retaining and motivating high-quality non- family talent, which has stood them in good stead. By being adaptive and through adjusting their corporate strategy in line with the changing trends in the marketplace, Gallo remains the largest family- owned wine company in the world.