SOUR GRAPES

When Susan Shand, a journalist in Washington, needed wine for a dinner party she was hosting, she headed for the store to buy her favorite brand: Kendall-Jackson Vintner's Reserve Chardonnay. Later that evening, however, she discovered that she had bought Turning Leaf, a new Gallo wine, instead. "I looked like an idiot," she recalls.

A petit faux pas, at worst, certainly nothing to make a federal case out of--unless you happen to be Jess Jackson. The burly lawyer turned winemaker created a new market segment with Kendall-Jackson Vintner's Reserve Chardonnay. When mistakes are made like Shand's, he believes it's because Turning Leaf's owner, industry giant E. & J. Gallo Winery, has unfairly copied his bottle design. So Jackson is suing Gallo, claiming it has co-opted sales of his category-topping Vintner's Reserve. Gallo disputes the charges, but there is no disputing Turning Leaf's rousing success. It shot up to second place in less than two years in the premium varietal market.

The trial between Kendall-Jackson and Gallo over so-called trade dress infringement has vintners from California's Santa Barbara to the Alexander Valley aghast at the spectacle of two of the industry's more cantankerous personalities' slugging it out. Some of the biggest names in the business--Sebastiani, Mondavi and Wente--have been called as witnesses. "This is like wrestling with a gorilla 30 times your size," says Jackson. "But if I don't fight them, who will?"

Jackson has the ego and pocketbook to do the job, and his efforts have paid off in a rare, unfiltered glimpse into the inner workings of the family-owned Gallo empire, the country's largest vintner, with sales last year of $1.2 billion. Gallo's wines may vary in quality, but its marketing and distribution muscle is top shelf. Turning Leaf turns up everywhere, and with good reason. Aided by a series of confidential memos, Jackson's lawyers showed how Gallo executives, pressured by their demanding chairman Ernest Gallo, took careful aim at the leader of the popularly priced Chardonnay market. Gallo launched its new wine directly at Kendall-Jackson, propelled by a $10 million advertising blitz and enough consumer surveys to fuel a presidential campaign.

Kendall-Jackson, whose total ad budget is $1 million, never knew what hit it. By late 1995, after a heady decade of 15%-to-20% annual sales growth, Vintner's Reserve Chardonnay began to falter. Gallo's Turning Leaf, priced at $6, was cheaper than Kendall-Jackson's $10 bottle; but its packaging, from the flanged top, visible cork and thin, cigar-band neck wrapper down to its multicolored grape leaf, was strikingly similar.

As the internal documents illustrated, Gallo had methodically tested every element of the labels and packaging of Kendall-Jackson and other brands to see what consumers liked. At a January 1994 meeting, Ernest Gallo set his goal: "We want to do in one year what it took Kendall-Jackson 10 years to do in a field they had to themselves."

Gallo had no choice. The market for its flagship jug wines was shrinking, and it desperately needed some winners in the higher price ranges. But the Gallo name was a problem. Focus groups identified it with cheap wine and high-alcohol brands like Thunderbird.