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Impact Seminar: Treasury And E.&J. Gallo On Premiumization Plans

March 18, 2016

With premium wines showing robust growth in the U.S. market, it’s no surprise that some of the industry’s biggest players are ramping up their efforts at higher pricing tiers. Market leader E.&J. Gallo has made a number of moves to diversify and premiumize its portfolio lately. Gallo’s general manager, Premium Wine Division, Roger Nabedian, addressed the Impact Seminar last week on the fruits of those initiatives.

“Wines selling above $8 now have more than a 51% share in the marketplace,” Nabedian noted. “Sparkling wines have been a key contributor—sparkling wines above $15 were up 30% last year.” Gallo has taken full advantage of the bubbly trend with its La Marca brand, the market’s top-selling Prosecco, and buttressed its position in the domestic sparkling segment with the acquisition of J Vineyards & Winery a year ago. “As we build our strategy at the $20 and above level, J will be a strong player there,” Nabedian said, adding that Gallo is also targeting the upscale segment through its LUX Wines import unit—including Allegrini, Poggio al Tesoro, Pieropan and Renato Ratti—and in spirits through its recent deal to become the U.S. importer for Whyte & Mackay Scotches including The Dalmore and Jura.

Meanwhile, Nabedian said Gallo is also taking advantage of new and fast-developing sales channels to drive gains. “On-premise, some of the fastest-growing opportunities for wine include theaters, natural/gourmet and fast-casual. We’ve seen great success selling a selection of wines in the Starbucks Evenings program,” he explained. “E-commerce is also on the rise for wine—this channel now accounts for $2 billion in winery revenues, and it’s expected to grow at least 12% annually for the next four years.”

Treasury Wine Estates (TWE) also has undertaken a broad premiumization strategy, combined with a decision to cull its portfolio. At the Seminar, TWE chief executive Michael Clarke discussed the group’s comeback efforts, emphasizing a continued migration up the pricing ladder.

“We’ve invested aggressively in our brands over the past two years, driving accelerated growth in the luxury portfolio,” said Clarke, adding that TWE’s 15 priority brands are collectively up 15% this year, compared to last year’s 3% gain. “By focusing on fewer brands, we’re accelerating revenue growth and also cleaning up our inventory position. We’re in a much better position today than two years ago, with a lot more luxury wine on the balance sheet.”

Clarke cited the Penfolds, Beringer and Stag’s Leap brands, as well as the higher-end tiers of Chateau St. Jean, as being key to TWE’s premium development. Meanwhile, recent innovations like The Gentleman’s Collection ($17), a Lindeman’s offshoot sourced from Australia and California that’s targeted toward Millennials, have been well received. According to Clarke, future TWE innovations will primarily focus on below-$20 extensions within existing brands and wines sourced from multiple regions, an approach which allows the company to “de-risk” supply.

Lastly, Clarke detailed plans for the brands TWE recently acquired from Diageo. Among them, Blossom Hill shows particular promise, he said, and TWE will move to it to a multiple-origin model looking ahead.

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