Casella at the crossroads

Joe, John and Marcello Casella

Australia’s biggest winery has a warehouse just for cartons, 900 000 of them, stretching across the concrete floor in colour-coded towers of red, purple, yellow and green. In another warehouse, a conveyer belt races 36,000 bottles an hour to be filled, along the fastest – and most deafening – bottling line in the world. Outside in the blinding sun stands a city of steel tanks, holding 60m litres of wine. Welcome to Casella Wines, the home of Yellow Tail.

Yellow Tail is the number one imported wine into the USA, having sold more than eight million cases this year alone. The wine represents 8% of Australia’s production and 15% of its total wine export.

Yet less than a decade ago, this winery was nothing more than a shed at Yenda, outside Griffith in northern New South Wales, a region more famous for mafia executions and drug deals than for its wine. The Casella family were just another Italian-descended family, making a living out of bulk wine. They had no contacts, no international expertise, no financial resources and little experience with bottled wine.

The winemaker who didn’t like wine

When Filippo and Maria Casella arrived from Italy in the 1950s, they must have thought they’d come to a special corner of hell. In summer, temperatures can rise beyond 45°C, with hot winds beating across semi-arid plains. When explorer John Oxley passed through in 1817, he hated the acacia-covered country so much that he wrote “I am the first white man to see it and I think I will be undoubtedly the last”.

He wasn’t, thanks to irrigation. A century ago, irrigation turned south eastern Australia, which sits in the Murray-Darling Basin, into the country’s food basket. One of those who came to carve out a farm was Filippo Casella, who was finally able to buy his own land in 1965, where the Casella winery sits today. There he grew grapes, from which he made wine to drink himself or sell to friends. What was left over went to other wineries, to be blended anonymously into commercial wines. For the next 30 years he produced the kind of wine the irrigation areas are known for: simple, friendly, and plenty of it. But although Filipo’s friends might have liked it, his son John couldn’t stand it. Though the way John Casella tells it, it wasn’t just his father’s wine he didn’t like—it was any wine.

“It had this really horrible taste that sort of stayed with you,” says Casella, adding he saw others pretending they liked wine, when they clearly didn’t. But he went on to study wine making anyway. Casella is, like many of the people of Italian descent in this area, a quietly spoken, thoughtful man, who eventually decided he understood why many people didn’t like wine: tannin and acidity.

“I mean, tannin’s foreign,” he says. “There’s no other food, apart from tea, that’s got that much tannin. You get acidity in association with other things, like a little bit of tart flavour that comes with apples. But not in liquid form.”

But Casella forgot about his insight and concentrated on building a business. One of the decisions he made was to employ John Soutter as general manager. Soutter believed that wineries like Casella had the potential to move out of bulk wine, not just into bottled wine, but into the American market. It was the late 1990s, when the export trade was booming, and anything seemed possible.

The Deutsch connection

Things were not that easy. Casella Wines were unknown, with no track record, and couldn’t get anyone to talk to them, much less find a distributor. Eventually they turned to Austrade, an agency of the Australian government that assists Australian businesses looking to export. Austrade created a list of potential distributors, one of whom was William J. Deutsch, the distributor who had launched George Duboeuf into the US market with such success. Serendipitously, Bill Deutsch was looking for Australian product.

“The Australian category was hot,” recalled Soutter, who resigned in June to start his own consultancy. Soutter created some labels he liked, Casella put together some wines, and they convinced Bill Deutsch to take 20,000 cases of their new ‘Carammar Estate’ wine. “I was pretty pumped,” says Soutter. “Considering we had never sold a bottle of wine prior to that, here we are selling 20,000 cases. I thought that was pretty good.”

Only, it wasn’t. At the January 2000 Deutsch sales conference, the salespeople got up one by one and said what they really thought of the wine. It was a ‘me too’ brand that looked like everything else from Australia. The labelling was ordinary. It was expensive. It was dead in the water.

Bill Deutsch told them to try again. That’s when Casella decided to create the wine he’d been thinking about, the one with lowered tannin and acidity.

The creation of Yellow Tail

Casella also decided he needed a wine that would stand out in the US at the crowded US$6.99 price point, so he says he put wine in the bottle that could have been priced at US$10.00.

Meanwhile, Soutter met with designer Barbara Harkness, from a business called ‘Just Add Wine’, which created wine brands. Soutter caught up with her when they were both passing through Sydney airport, and bought three of her designs from her portfolio on the spot, one of which was Yellow Tail. Casella didn’t like it, but was finally persuaded by favourable staff comments.

Casella Wines had learned a lesson from their first attempts to enter the US market—if you want people to talk to you, you have to make it worth their while. Wine Australia gave Casella Wines a subsidy, which they used to invest in Australian bushman hats and oilskin jackets to give to the Deutsch sales force. They fell in love with the merchandise, which became a popular sales tool. Soutter also commissioned bright point of sale material, including coloured wine cartons. What the company never did was discount the wine. Instead, they built healthy margins into every level of the pricing structure, to ensure that everybody who came in professional contact with the brand could make a profit from it, predisposing them to become an advocate for the brand. But above all was the wine created, as Soutter later said, “to appeal to 85% of people and not offend the other 15%” of people who know about wine.

Expanding under pressure

When the orders finally came in, they didn’t stop. The initial orders alone totalled 30,000 cases. Soutter recalls watching as paper kept pouring out of the fax machine. Finally he walked Casella’s office. “I think we have a problem,” he said.

Casella looked up. “How big is it going to be?” he asked.

“I have no idea,” said Soutter.

By the end of 2000, Casellas sold 500,000 cases into the USA. But while it was clear the market wanted more, the Casellas didn’t have any. They didn’t have the grapes, they didn’t have the crushing capacity, they didn’t have the storage and they didn’t have the cash to expand. Casella went to suppliers and went to the bank, asking them to extend their credit terms, asking for additional finance, stringing out the cash flow. They got the money. Not only were their relationships strong, but the strategy of ensuring everybody could make a profit had paid off.

There was definitely luck involved as well. Just as the Casellas were bringing their wine to market, the Americans were feeling good about Australia thanks to the 2000 Olympics. And the winery could expand rapidly because of the grape glut, which meant an excess of raw material available at a good price. And the timing was ideal. Southcorp, which then owned major brands like Lindemans and Penfolds, had been the subject of a reverse takeover by Rosemount. The first move by the new CEO was to rethink distribution of all three brands in the USA, often handing them to regional distributors who had only handled Rosemount. This effectively created a vacuum among former Southcorp distributors. Wholesales that had made good money selling Lindemans Bin 65 Chardonnay were happy to replace such wines with an exciting new brand.

Yellow Tail became the biggest export brand Australia has ever created. In that first year, they sold half a million cases. By February 2004 they had become the number one wine in the USA and by May 2005 combined sales of Yellow Tail had reached 20 million cases. It hasn’t all been unvarnished success, with the brand failing to take off in the UK market. This year, however, the company expects to sell more than 11m cases, at least 8.5m of which will head to the USA—making Casella Wines a bigger exporter to the US than France.

The brand that just keeps growing

Yellow Tail wasn’t the first ‘critter’ wine, but it was the brand that spawned a multitude of imitators. Since 2002, nearly one in five new wine brands in the US have been critter wines.

The me-too brands don’t bother Casella, who says a cute label won’t convince consumers to switch brands. Bill Deutsch is so confident that Yellow Tail can keep growing that he’s jointly invested in vineyards in the premium Wrattonbully area of South Australia, where they planted Pinot Gris grapes.

“I do believe that the Yellow Tail Pinot Grigio will become one of the largest selling Pinot Grigio [brands] in the years ahead,” says Deutsch, a prophecy that must terrify the Italians. “When we first introduced the Pinot Grigio, we had to put it on allocation, because the demand far exceeded the supply.”

Deutsch’s explanation for the enormous success of Yellow Tail is that the taste doesn’t vary. “In most wineries, the quality falls off,” he says. “One of the important reasons that Yellow Tail continues to grow is the quality doesn’t change, regardless of the quantity sold.”

One of the persistent myths surrounding Yellow Tail is that Casella Wines make different blends for different markets, tailoring the wine to suit the local palate. Casella says that isn’t true and that what the success of Yellow Tail has taught him is that taste is the same the world over. “I know a lot of people disagree, but at the end of the day, if the wine isn’t too complicated and enjoyable, and priced at an affordable level, that’s what people are after,” he says. “That’s why we’ve only got one standard blend.”

The Yellow Tail range, which began with a Shiraz and a Chardonnay, now has14 different wines within it, not all of which are exported to all markets. Next up for the US market is Yellow Tail Bubbles, already released in Australia. Deutsch has high hopes for the wine, suggesting it may take sparkling out of its ‘special occasion’ niche in the US.

Another view of Yellow Tail

Despite being the biggest brand Australia has ever produced, in any category, not all Australians are happy about it. It’s become such a phenomenon, that it now defines what ‘Australian wine’ means for the USA. This is something that troubles many in the Australian wine industry; at a time when Australia is trying to redefine itself as a country that makes regional wines, it doesn’t want to see articles like the one about Australian Cabernet Sauvignon, published this January in the influential San Francisco Chronicle. Writer W. Blake Gray had to exhort Americans to overcome their reluctance to consider high-end wines from “the same country as Yellow Tail”.

Casella dismisses the criticisms. “We’re not dragging the industry into the bottom end,” says Casella, arguing the Australian industry has done it to itself by selling wine too cheaply.

Not that Casella himself is content to keep making big volume wine. One of the first things he did to keep his winemakers interested was buy in high quality, cool climate fruit and expensive oak barrels for the winemakers to play around with. One of their projects, the Premium Yellow Tail Cabernet Sauvignon 2003, went on to win the 2004 Jimmy Watson Memorial Trophy, Australia’s most prestigious wine award—a win that shocked the audience into frosty silence.

“Yeah, but we were jumping up and down,” says Phillip Casella, some time winemaker, current PR man and nephew of Casella.

Thirsting for water

One of the projects on the drawing board is the production of a premium brand made from high quality, cool climate fruit, of which there was abundance during the recent glut. Such a move could keep Yellow Tail drinkers loyal to Casella Wines when they begin to trade up.

“The Casellas and the Deutschs have been discussing that for over a year,” says Deutsch. “Yes, we are discussing someday down the road introducing a premium brand. Right now the currency is against us, so we’re biding our time.”

Deutsch says the future brand may or may not use the Yellow Tail name, but will definitely be aimed at the premium end of the market. “We might even use the Casella name,” says Deutsch, adding that when Casella first approached him, he asked if he could create a wine with his own name on it. That was 1998 when the Casella family were complete unknowns, and Deutsch said no. But today, of course, the Casella name means a great deal.

More ominously, the real problem with any new brand—and with Yellow Tail itself—is whether or not Casella Wines can get the fruit they need, given that the 2007 vintage in Australia was a disaster, thanks to a combination of drought, frost and fire. Not only that, but there are long term questions over whether the grape growers in the Murray Darling Basin, who produce 60% of Australia’s grapes, can stay in the industry if Australia’s ferocious drought doesn’t break some time soon. These growers, who supply 95% of Casella’s grapes, are wholly dependent upon irrigation—which may soon be in short supply.

As Casella has recently admitted to the Australian media, if the drought doesn’t break soon, then grape shortages and big price increases lie ahead. This, coupled with the strengthening of the Australian dollar against the greenback could finally see Yellow Tail derailed. So worried is Casella about the situation, that he has invested in an advanced water recycling facility.

“If we can’t see that Australian production will return in the foreseeable future, how we will take advantage will be with a combination of imported wine,” he told Reuters news service in early September. At the same time, he dropped a bomb shell—that Casella Wines might have to set up production and marketing facilities in a “place like South America, even Europe, south of France or somewhere like that”.

Commercial wine brands moving beyond their national roots aren’t new: Robert Mondavi, Lindemans and Blue Nun have all taken this route, though with limited success. But a brand on the scale of Yellow Tail doing it would signal a seismic shift in the way the world makes wine. If global consumers prove happy about French wine with a wallaby on it, Casella Wines will send yet another shockwave through the world of wine.

This article first appeared in Meininger’s Wine Business International in 2007.

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