John Casella, the man behind Australia’s second biggest wine exporter, has urged the wine industry to focus on innovation as he slammed critics who blame his winery’s Yellow Tail label for undermining premium wine sales abroad. Casella toasts billionth Yellow Tail

John Casella slams critics of his cheap Yellow Tail wine

PUBLISHED: 15 OCT 2013 19:48:00 | UPDATED: 16 OCT 2013 08:29:32

JULIE-ANNE SPRAGUE

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John Casella, the man behind Australia’s second biggest wine exporter, has urged the wine industry to focus on innovation as he slammed critics who blame his winery’s Yellow Tail label for undermining premium wine sales abroad. Casella Wines, founded by Mr Casella’s parents Filippo and Maria in 1969, has bottled its one billionth bottle of Yellow Tail and is embarking on a fresh shake-up of the wine market to tap new profit streams through the release of products such as a pre-mixed Sangria and sparkling sauvginon blanc. It is also preparing to enter the fast growing cider market with its beer joint venture partner Coca-Cola Amatil, through a new cider called Pressman.

Casella’s brightly coloured, kangaroo emblem Yellow Tail wine label is one of the nation’s biggest export success stories. It became America’s biggest selling wine and accounts for one in every two Australian wine bottles sold in the United States, where it retails for $US6.99 per bottle. With an initial forecast for 500,000 annual case sales, the brand sells 12 million annually, with 8.5 million cases sold in the US.

CHEAP AND CHEERFUL

But the label has been blamed by some Australian winemakers for fuelling perceptions in the key US market that Australian wine was cheap and cheerful.

Industry body Wine Australia has urged winemakers to focus on developing and selling premium wines, to better compete against low cost producers in Chile and Argentina and cushion against the high Australian dollar.

Mr Casella hit out at those who blame Yellow Tail’s success for hurting premium wine exports.

“People buying a $15 product don’t buy Yellow Tail,” Mr Casella said. “People buying Yellow Tail don’t buy $15 products. We are supplying one end of the market that has one type of consumer. If they are chasing consumers at the other end of the market it has nothing to do with us.” He cited the popularity of US label Barefoot which overtook Yellow Tail as America’s biggest selling wine last financial year. It is $US1 cheaper than a bottle of Yellow Tail.

“Does that mean Barefoot is destroying the image of American wine? They are all growing,” he said, noting domestic US wine sales were growing at about 6 per cent.

Yet Australia’s biggest wine company, Treasury Wine Estates, has been forced to dump $35 million of predominately cheaper wine it can not sell to US consumers, a move that cost the job of popular chief executive David Dearie.

Casella has had its own troubles in the US. The high Australian dollar pushed Casella to its first loss in 20 years in 2012.

CHASING THE NEXT BIG YELLOW TAIL

Mr Casella said the wine industry needed to focus on innovating.

“We are running around looking at what other people are doing rather than truly innovating ourselves,” Mr Casella said.

“There’s a lot of innovation people could do. It just means focusing on the region you are in and what you can do best.” Mr Casella is aggressively chasing fresh innovation to find his next big Yellow Tail.

To help him find the next big thing, he recruited Darren Peck, a trained brewer from the United Kingdom, to head a “new product development” team about 18 months ago.

The result are the release of a pre-mix Sangria, which Mr Casella hopes can deliver new drinkers to the label, particularly the America’s hispanic population.

He anticipated selling 500,000 Sangria cases.

The product, which is designed to be drunk chilled or over ice, also allows Mr Casella to find new homes for warmer climate fruit, which have lost some appeal as winemakers shift to cooler climate premium wines.

Casella has also unveiled a new brand, Bondi, to lure drinkers from cider and ready-to-drink products.

The Australian Financial Review

Casella toasts billionth Yellow Tail

October 16, 2013

E

It’s the family-owned winery from a New South Wales country town that has put the big companies of the Australian wine industry to shame, and today Casella Wines will flex its muscle even further when it pumps out the billionth bottle of its export-wine phenomenon, Yellow Tail.

And the family behind the label is now turning its entrepreneurial gaze to the fruity Spanish wine sangria, hoping Australians will guzzle it at parties, restaurants and barbecues with as much verve as their American cousins, who get through about $US700 million ($739 million) worth of the beverage every year.

Just in time for the Aussie summer, Yellow Tail will this month launch its sangria for the domestic market after a recent launch in the US.

”I think the reason that sangria hasn’t taken off in Australia is because there hasn’t been a product to lead the category and lead consumers to that category,” chief executive John Casella said on Tuesday. ”And I believe once they trial it, anybody who wants sangria will drink Yellow Tail Sangria.”

But the backbone of the Casella business, founded in 1969 by Filippo and Maria Casella, continues to be its portfolio of red and white wines under the Yellow Tail livery. Derided by some critics as the epitome of all that is wrong with Australia’s wine industry, as the wine that earned the industry the ”cheap and cheerful” tag, and as the first to inflict ”critter wines” upon the world, Yellow Tail rocketed from an idea after the Sydney Olympics to a product that has filled more than 10 billion glasses.

While bigger players such as Treasury Wine Estates, owner of prestigious brands Penfolds, Wolf Blass and Lindeman’s, have failed to capture the crucial US market, Yellow Tail has become its biggest imported wine.

Mr Casella said Yellow Tail had notched up its best year in fiscal 2013, with volumes increasing by 8 per cent. The one-billionth bottle will come off the production line on Wednesday, with supplier Amcor Glass presenting a commemorative bottle.

Pumping out about 12 million cases a year, almost 96 per cent of Casella’s Yellow Tail is exported to Americans, who just can’t get enough of the leaping yellow kangaroo.

Mr Casella said the business, now 45 years old, would transition to cope with a strong Australian dollar but that he believed fears of a dollar as high as $1.20 to the greenback – which would all but destroy export competitiveness – looked unlikely.

”There was talk of $US1.10 or $US1.20 and all that talk is gone so the Aussie dollar is oscillating between US90¢ and $US1.10, and at least we know we are in a region we are safe in, that it’s not going to rocket away and undermine the business,” he said.

”In an ideal world, I’d like it to be in the mid-US80¢, but I’m not sure if that’s going to happen. The low-90s area is something we are probably going to have to live with, and with a lot of hard work, it’s probably sustainable.”

But there have been some disappointments. Last year Casella slumped to its first loss in 20 years when the strong Australian dollar tarnished its accounts, forcing it to push through heavy write-downs and trigger a breach of its banking covenants.

”The issue with that loss was that it was never a trading loss,” Mr Casella said on Tuesday. ”We have always travelled OK, we haven’t really operationally lost money and it was just a matter of clearing up our books as far as our loans went.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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