Food & Beverage Processing: Technology Ferments Transformation - InformationWeek

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9/18/2002
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Food & Beverage Processing:
Technology Ferments Transformation

IT is key to secretive winemaker's move to a collaborative business

Modesto is just 80 miles east of San Francisco, but the journey there is like traveling into another dimension. The highways from the Bay Area to Modesto get smaller and straighter, dominated first by late-model SUVs, then long-haul semi trucks, and finally, pickups pulling horse trailers and produce trucks loaded with the August crop of tomatoes.

On the agricultural city's outskirts is E.&J. Gallo Winery, the biggest producer of wine in the world. To get there, you drive through Modesto's brief downtown, through a neighborhood of tidy little houses, and past an A&W burger joint with a banner advertising karaoke every Saturday night. If you don't know the way from there, you'll probably have to ask a local, because there are no signs identifying any of Gallo's buildings. "The Family"--what every employee calls the group of Gallo family members who run the 69-year-old business--doesn't want tourists on their way to nearby Yosemite National Park stopping by for a visit. Gallo Winery doesn't offer public tours of its grand administration building, its 2.5-acre underground wine cellar, or its vineyard-research lab, bottling plant, or bottle-making factory.

Gallo is an enigma in the wine industry. Its tremendous market force, along with a culture of intense privacy that was cultivated by founders and brothers Ernest and Julio Gallo, generates a great deal of curiosity about the $1.5-billion-a-year winery. At the same time, Gallo is changing as a company, realizing that it must allow a certain degree of openness to strengthen its relationships with business partners and customers. One of the most powerful drivers of this change is IT, which lets Gallo work more closely with the distributors and retailers that sell its wines and better understand the consumers who drink them. Gallo now boasts some of the most effective technology-backed business processes in the food and beverage industry, and that's earned the company the No. 9 spot on this year's InformationWeek 500.

Kent Kushar -- Photo by Angie Wyant

The Gallo family has supported the IT team, Kushar says.
The Family has let its team of VPs spearhead much of this transformation and has entrusted them to make the right decisions about IT. "We've gotten really good support from the owners," says CIO and VP Kent Kushar, a folksy yet intense man who dotes on his 238-person staff and, when not leading them or the company's various IT initiatives, likes to hit the local highways on his Harley-Davidson Softail Deuce. "When you've got that support, good priority-setting, and good people on the IT team, it's hard to stop you."

The result is several successful business-technology projects in the past year. People in the wine industry are most impressed by Gallo's efforts in product-category management. Specifically, by using its enterprise resource planning system and data-mining technology, Gallo helps distributors and retailers categorize and position its 50-plus brands to improve sales to consumers. Other initiatives include an extranet that provides distributors with an up-to-date view of the supply chain and lets them place orders online, and a consumer market-research effort that uses the Internet and videoconferencing.

The United States is the fourth-largest producer of wine in the world, and more than 90% of its wine comes from California. Wineries in the state sold 450 million gallons of table, dessert, and sparkling wine worldwide last year, with Gallo wines accounting for one-third of those sales, according to industry-research firm Gomberg, Fredrikson & Associates. Gallo's market share has remained steady since it distanced itself from its reputation as a jug-wine company and got in step with the increasingly sophisticated consumer palate and rising per-capita consumption of wine in the United States. (Americans drank an average of about two gallons of wine in 1999, up more than 10% from the average between 1991 and 1995, according to the Wine Institute, an association of California wineries.) Yet consumers' tastes vary widely; wine preferences in Atlanta are different from those in San Francisco, and preferences differ even among neighborhoods within those cities. Gallo still makes inexpensive brands such as Thunderbird and Carlo Rossi, but its portfolio has ballooned to more than 50 brands that include its premium labels such as Turning Leaf and Indigo Hills, and its ultrapremium, award-winning brands like Gallo of Sonoma Estate that can sell for more than $50 a bottle.

The successful execution of Gallo's brand expansion, including nearly 20 new ones in just the past year, has the rest of the industry on its toes. "Gallo is a secretive winery, and they've always played their cards close to the vest," says Paul Tincknell, a wine-industry consultant. "But they're very widely admired. They're viewed as very innovative in their marketing techniques and have been fairly successful at moving their brand upscale." Gallo doesn't disclose details about profits or revenue, but many say the brand-expansion move is paying off. "As they've grown into the premium segment, they're much more profitable in terms of their margins than they've ever been," says Jon Fredrikson, president of Gomberg, Fredrikson & Associates.

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