The Prisoner & The Penguin

This week’s story is about a family owned business that is now the leading provider of Californian wines – E & J Gallo. The story is about how the brand followed a simple but effective strategy at the end of the Great Depression (and the end of Prohibition) and then drove further growth after WWII.

While Californian wines really rose to international prominence in the 1970s and 80s, the history of wine in the region goes back much further. Californian wines had been successful in international competitions as far back as the early 1900s. The double whammy of Prohibition, which was introduced in January 1920, coupled with the Great Depression (which also started in 1929), meant the once thriving industry went into a steep, almost terminal decline. Vines were uprooted across thousands of acres and cash crops such as apples and walnuts were planted in their stead.

When Prohibition was repealed on December 5, 1933, only 160 of California’s original 700 wineries were intact, and taxation and legislation had decimated domestic wine consumption.

It is at this point that Ernest and Julio Gallo, then aged 24 and 23 years enter our story. Both their parents had recently died, and they needed a plan. They decided to enter the wine business.

They applied for and obtained a winery license. They bought winemaking equipment on credit and leased a small Modesto warehouse for $60 a month. Some sources say that despite having worked in their father’s small vineyard when younger, they got their technical education from two pre-Prohibition wine pamphlets from the Modesto Public Library.

Perhaps even more important was that the brothers recognized that while the Great Depression was ending, money was still tight for most people. They agreed on a marketing strategy that not only reflected this but aimed to take advantage of it. They decided that they would made acceptable wine and sell it at a low price. Their aim was to build volume and gain share.

They then visited local growers, offering them a share of the profits in return for the use of their grapes.

In December 1933, Ernest had made his first sale of 6,000 gallons of wine to Pacific Wine Company, a Chicago distributor. Profit in the first year was $34,000, a sum that was immediately plowed back into the business.

The business grew, but it wasn’t until WWII that Ernest identified an opportunity to drive the business further faster. It was an insight that would make him renowned throughout the industry.

At the time wine was relegated to a position behind beer and hard liquor. It wasn’t the focus and priority for the people in the liquor salesforces.

At a time of uncertainty, Ernst followed his intuition and introduced the novel concept of salespeople who exclusively sold wine. He recruited a team of zealous salespeople to push Gallo products and get them high visibility on the liquor store shelves. It would prove to be a highly successful idea which was soon widely imitated by the other wine makers.

Gallo had always followed a strategy of expanding into new markets only when existing markets were ‘conquered’. The new salesforce accelerated the growth and the brand was soon available nationwide. Nowadays Gallo wine and its numerous brands are available all around the world. Its portfolio runs from more economical brands to super-premium.

 

What are the implications, if any, for brands now?

Today our economy has fallen in recession, a depression that many analysts are saying could be deeper than the Great Depression. It seems highly likely that value-for-money, economic offerings will do well. (The earlier lesson of the original Mini is another example of tailoring your offer down). What can you do in this sector of the market by broadening your portfolio and changing the focus of your marketing efforts?

The second implication is to try and use the time now to look for opportunities, to try and take a fresh look at your market and address some of the issues and barriers to growth – and if and when you do find new ideas, I’ll raise a glass of Gallo wine to you.

 

It is more than 100 years since the end of World War One, and it is now hard to imagine the true scale and horror of death and injuries, though recent films like 1917 have gone way in bringing it to life (and death) for a younger generation.

It was another period in history when so many relied on the heroic actions of medical staff: doctors, nurses and ancillaries. Like the current Covid-19 crisis it was also a time of shortages for doctors and nurses. In particular, during the heaviest periods of fighting, soldiers were getting wounded in such large numbers that the medics often ran out of bandages.

Also like now companies and brands stepped up and did their bit. Kimberly-Clark was one of them. It offered the army a new product of theirs, Cellucotton, a highly absorbent fluffy paper wadding product that could be used for filters in gas masks, stuffing for emergency jackets but more importantly for pads and bandages.

By a strange co-incidence the technology for it had been found during a visit to Germany by two Kimberley-Clark executives, Ernst Mahler and company president J.C. Kimberley.

Kimberly-Clark committed to selling Cellucotton to the War Department and Red Cross at cost, taking no profit whatsoever.

When Armistice day arrived and the war was finally over, Kimberly-Clark found it had partially filled orders for 750,000 lbs (over 340 tonnes) of Cellucotton and in another altruistic act Kimberly-Clark allowed these orders to be cancelled without penalty.

It left the company with a huge surplus.  Worse still, the Army also had a large surplus of Cellucotton – and they began selling it to civilian hospitals at a ridiculously low price, instantaneously killing the market for Kimberley-Clark.

The better news for Kimberley-Clark, and perhaps one small contributing factor to their generosity, was that word had got back to them about an alternative use for Cellucotton.  Not long after its first arrival at the battlefields that a completely unexpected use was found for some of the bandages.

The female nurses and the nuns tending the wounded started using it for their “Lady Days” (as periods were referred to then), it was after all five times as absorbent as cotton and so was much better and more hygienic than the pieces of rags which they had been using previously

Kimberley-Clark decided to try and market them to women as feminine hygiene pads. They were rechristened Cellunaps (cellucotton – napkins) and positioned to retailers as the first disposable sanitary napkin.

Kimberley-Clark however had to find their way over another barrier. Retailers, though seeing the potential, were worried about public sensitivity and many women were not happy to ask the mostly male assistants for them at the counters.

Sales did not go well.

Kimberley Clark decided on a new approach.

They changed the name to KOTEX, a meaningless word merger of c[K]Otton-like TEXture that would hopefully not reveal anything in a crowded drugstore. The second and perhaps crucial change was the introduction of counter displays so that women could buy their Kotex without talking to the clerk. At the time this was not something that every retailer immediately agreed to, but as results were soon to show it solved the problem of a product people didn’t want to really talk about, and definitely didn’t want to ask a member of the opposite sex for.

As counter and shelf displays grew so did the sales and the brand.

What are the implications, if any for brands?

At the moment when there are still shortages of so many medical essentials it is difficult to make any concrete predictions but it maybe that marketers will need their ingenuity to re-purpose hand sanitizers, PPE and even ventilators. Alternatively they may want to explore any opportunities that arise for future utilisation of their new capabilities to move into different sectors.

For example, a number of the large automotive companies  who could probably use some long-term diversification strategies might want to look at Medtech opportunities, and Dyson is another obvious candidate to do this as The James Dyson Foundation has already made significant investments to support the advancement of medical research, as well as regular donations to medical research charities.

Footnote : As Kotex sales began to grow, letters started to pour in to the company, mostly favourable but many were from women who wanted to know more about their bodies and the menstrual process. As a result Kimberly-Clark built its Education Division and began mailing out information packs, including a pamphlet called “Marjorie May’s 12th Birthday” which was initially banned in some states for being too sexually explicit.

Later they were to work with the Disney Company to create a movie called “The Story of Menstruation” which would be shown in schools and was seen by over 70 million schoolchildren – a most unlikely most-watched movie from the Disney catalogue.

History tells us that a British constitutional crisis can be an inspiration. No, I’m not talking about Brexit but the Suez crisis.

On 29 October 1956, Israel invaded the Egyptian Sinai and began what is known as the Suez Crisis, or the Second Arab-Israeli War. The Israelis were soon joined by the British and the French. The aims for the three allied countries were to regain control of the Suez Canal and to remove Egyptian President Gamal Abdel Nasser, who had recently nationalized the canal.

As the fighting started, an international crisis developed and after a short period, a combination of political pressure and financial threats from the US, the Soviet Union and the United Nations led to a withdrawal by the three invaders.

The episode humiliated the UK and France and strengthened Nasser. The British Prime Minister, Anthony Eden, resigned.

Another side effect of the crisis had been a reduction in the supply of petrol to the UK, which in turn had led to the Government introducing petrol rationing.

It was this rationing that was the spur, the inspiration that drove the rapid development of the car we know today as the Mini.

Alexander Issigonis was a former racing driver who became a successful engineer and designer. He had worked for Humber, Austin and Morris Motors Ltd when in 1955 he was recruited by British Motor Corporation’s chairman Sir Leonard Lord, to design a new range of three cars. The XC (experimental car) code names assigned for the new cars were XC/9001, for a large comfortable car, XC/9002, for a medium-sized family car, and XC/9003, for a small-town car.

During 1956 Issigonis had concentrated on the larger two cars, going as far as producing several prototypes.

However, at the end of 1956, following the introduction of the fuel rationing that had been brought about by the Suez Crisis, Issigonis was ordered by Lord to focus on and bring the smaller car, XC/9003, to production as quickly as possible.

As early 1957, prototypes were running, and in August 1959 the car was launched as the Morris Mini Minor and the Austin Seven. (It wouldn’t be until 1961 that it would be renamed the Austin Mini, and eight more years before the Mini became a marque in its own right.

 

Issigonis and his team were incredibly innovative with their design, introducing a space-saving transverse engine front-wheel drive layout, which allowed 80% of the area of the car’s floorpan to be used for passengers and luggage, so helping give the car its compact size and good fuel efficiency. It was an approach that would influence a generation of car makers.

The car was an immediate and huge success and went onto become an icon of 1960s British popular culture, not least for a starring role in the 1969 film, ‘The Italian Job’.

This same speed, ingenuity and innovative thinking, the repurposing and redirecting of energies are things we are seeing at the moment in how companies respond to help the Government and the people in the midst of tis COVID crisis.

In the longer-term organizations, brands and marketers need to think how they harness these attributes to develop new products and services for a world recovering from a pandemic and facing a recession.

We need ideas that will help give employment to people made redundant or furloughed, to make profits to help repay the national debt and rebuild pension funds, not just line the pockets of the very rich.

It will however be in a big challenge as nobody really knows how the world will change and the innovations will need to take account of the needs of that other crisis – climate change.