Casella – the Yellowtail Phenomenon

In all the years I have been writing about wine, I have not encountered a more compelling story than this. I make no apology for it taking up a lot of space in this publication, for it covers such a wide range of issues central to the past and future of Australian wine. It’s about immigration by Italians to Australia, about a family company, about a quality product whose very impact overseas is challenging everything we thought we knew about what it took to become successful. It’s an optimistic story about small guys taking on the big players, learning what it takes and coming up trumps. It’s also the sort of story you never hear much about in Australia, but would be celebrated from coast to coast in the US. It’s also unlikely to be repeated in my lifetime.



‘There’s no way we’ll ever be able to sell a wine with ‘yellow’ in its name and a kangaroo on the label.’ So spoke Bill Deutsch, chief executive of major US-based wine distributor WJ Deutsch. Less than two years later, Yellow Tail, the most spectacular export success story ever in the history of Australian wine, had become the second-largest selling Australian wine label in the USA, overtaking Rosemount Estate. These days there’s still hardly an Australian who knows the first thing about it, although Bill Deutsch has gotten over his first reaction.

Yellow Tail is produced by Casella Wines, a third generation family producer in Griffith. The concept was created by well-known Adelaide-based designer Barbara Harkness, whose wine credits include Tamar Ridge, Ralph Fowler and Oxford Landing. For her sake I hope she’s on a royalty, since in its first full export year, 2002, Yellow Tail sold significantly more than two million cases.

Yellow Tail is not sold in Australia, but principally in the US. It is also distributed in Ireland, the United Kingdom, Germany, South Africa, Belgium, Holland, Finland and several other European countries. Its sales are increasing at such a rate that to quote annual figures – or even six-monthly figures – is entirely meaningless.

Like any true success story, Yellow Tail has already spawned a generation of imitators. US giant Gallo is developing an Australian brand called Black Swan, to be made by McGuigan Simeon. McGuigan Simeon is also producing its own competitor called Crocodile Rock.

Yellow Tail has caused Casella Wines to move overnight from nowhere to being Australia’s sixth or seventh largest wine producer and, depending on De Bortoli’s recent performance, either our largest or second-largest family-owned wine producer. Furthermore, contrary to the predictions of its banker, Casella has funded this astonishing growth without having to seek equity capital. That, ladies and gentlemen, is as amazing as any other part of this story.

The Casella Story

Filippo and Maria Casella arrived in Australia from Sicily in 1957, electing to live in this country ahead of the US. Filippo had spent seven years as a prisoner of war in India, and found work cutting cane in Queensland and picking fruit in Griffith. By 1965 the Casellas could afford the deposit to buy a farm in Griffith and build their home. Today their home and garden still exist, but are surrounded on all sides by winery sheds and tank farms! For some private reason Filippo Casella used to dislike looking across the landscape at the nearby McWilliams winery. These days he couldn’t if he wanted to.

Filippo Casella built his first winery shed in 1969, making wine from Griffith grenache, shiraz and semillon, some of which he grew. He would put the wine into old wooden beer barrels, load his truck and take it to sell to his cane-farming friends in Queensland. Things grew steadily, if unspectacularly after that, as the Casellas processed steadily more of their own fruit.

Joe Casella is the family’s oldest son. He’s taken charge of the company’s domestic sales and his son Phillip is one of the winemakers. Joe’s youngest brother, Marcello, looks after the viticulture and capital expansion. John Casella, Filippo and Maria’s second son, manages the affairs of the company, in close consultation with his family.

Dressed like most of his team in monogrammed company working attire, John Casella is a quietly spoken guy who pays attention to detail. He’s a thinker, who does the best to play down his obvious intelligence and mental strength. To have achieved what he and his company have done in recent years has required a substantial measure of both. He enjoys his anonymity and for a man at the head of one of Australia’s largest wine companies, he’s virtually unknown in the wine trade and to the wine public. He puts in around eighty hours a week in the winery office, and says that once the company’s growth slows down a little he’ll find some people he’s confident in to reduce his hours. He’s glad his parents live where they do, for he still sees them four or five times a day. ‘We’d hardly see them if they moved off site’, he says. ‘Family is more important than money.’ And Sunday is for the kids.

John Casella completed the winemaking course at Wagga Wagga in 1982, starting the following year as winemaker manager for Riverina Wines, a post he held until the end of 1995. In his last two years at Riverina he’d arrive home in the evenings before commencing virtually another full day at Casella. That’s when he found he didn’t need much sleep. Today he misses the hands-on elements of winemaking and says he never became tired, for he simply loved the work he was doing. In 1994, his first year at the family operation, he oversaw the processing of 2,000 tonnes of fruit. Since then, the tonnages crushed at Casella have virtually risen exponentially, as the rather astonishing chart below illustrates.

1994 – 2000

1995 – 3400

1996 – 6500

1997 – 7800

1998 – 7800

1999 – 11000

2000 – 15000

2001 – 21000

2002 – 35,000

2003 – 50,000*

*plus contracts to buy another 12,000 tonnes of juice and wine

Why yellow tail?

While Casella produces a small series of brands including Cottler’s Bridge, Yendah Vale and Carramar Estate, its growth can largely be attributed to a single factor: Yellow Tail. But what’s so special about Yellow Tail and why has it prospered to such an unimaginable extent?

‘The market was ready for this product or one like it’, says John Casella. ‘The wines are not too complicated. They have nice up front fruit and make easy drinking. You don’t have to think about picking up a second glass.’ Yes, but so are plenty of others. For the record, I’ve tasted most of them and understand why people enjoy drinking them. They’re generous, soft, easy and smooth, and each are pointed around the 15.0 to 16.0 mark or slightly above.

Packaging is certainly important behind its success, despite Bill Deutsch’s initial reaction. The label, name and look are simple, unique and memorable, and say ‘Australia’ as loudly as any label could.

Price is clearly another factor. John Casella strongly refutes the allegations that the wines are heavily discounted in the US. Brian McGuigan, chief executive of Australia’s fourth largest winemaker McGuigan Simeon, has suggested that Yellow Tail’s success in the US has ‘put a lot of pressure on the Australian sector’ in that market and it appears that Southcorp has matched the price of its Lindemans Bin wines to Yellow Tail.

Contrary to McGuigan’s claims, recent research reveals a price average across the US for Yellow Tail of $US6.50 per bottle, although the wines are indeed sold within a range of $4.99-$7.99. Although this come-from-nowhere phenomenon might hurt the pride of some of its competitors, I’d suggest that Yellow Tail’s emergence has reintroduced a measure of competitiveness and enthusiasm into the Australian sector. Someone was going to fill this niche, and in doing so remind some of our larger makers that quality was always an issue, even at the lower price points. Yellow Tail happened to be the brand that did so, but it appears that this message might be too difficult for some of its outspoken competitors to understand.

John Casella claims his brand delivers. ‘Yellow Tail has changed what consumers view as value for money. They realise they’re getting more than they expected to and they’re letting other people know by word of mouth’, he says.

As Casella’s chief winemaker, the highly respected Allan Kennett is ultimately responsible for maintaiing Yellow Tail’s standards. He returned to Casella after a spell at Lindemans Karadoc and today heads a team that includes Con Simos, Peter Millamace, Damian Starr and Phillip Casella. John Casella isn’t the only person in the industry to describe Kennett as one of Australia’s best winemakers.

The Yellow Tail phenomenon could not have occurred without cracking the key to distribution and if you’re looking for the slice of luck to the story, this is it. Major US importer WJ Deutsch, which also sells Georges Duboeuf in the US, were left without a major Australian brand when Rosemount and Southcorp consolidated their US distribution. Beneath them a large number of other US wholesalers in a similar position. ‘Yellow Tail just happened to be there at the right time’, says Casella. ‘Today it is already sold in as many US liquor stores as Jacob’s Creek.’

Furthermore, Yellow Tail’s ‘pull-through’ or level of acceptance by customers once it’s placed in stores is unprecedented for such a new Australian brand, and significantly higher than many of its more established competitors.

Although there’s bound to have been some cannibalisation of other Australian brands in the US, John Casella argues that the overall growth of Australian wine sales in the US, up 64% to A$ 741 million in 2002, gives plenty of room for other Australian wines. ‘Sure we’ve helped the growth, but there are a lot of consumers still out there who have yet to buy an Australian wines. We want to give them the opportunity.’

Since it’s taken him, his importers and distributors by surprise, John Casella hasn’t the first idea of how big Yellow Tail might become. Given the family’s huge reinvestment in its winery in Yenda he clearly doesn’t expect the US affair with Yellow Tail to be a one-night stand, but he does recognise there are limits on how far the brand could go. ‘There’s no reason for it to be a fly by night brand’, he says. ‘If it was just a pretty face and it wasn’t delivering on quality it could be that, but we are making sure consumers are happy. I’m convinced that the best the opposition can do is to match it – they’ll never beat it. Whatever happens down the track we want the wine to maintain its standard.’

2003 will see the launch in the US of a Yellow Tail Reserve range priced around US$12 comprising a Shiraz and a Chardonnay.

Casella recognises the differences between the US and Europe’s commodity and supermarket-driven wine market ‘where people will buy someone else’s brand if it’s a dollar less’ and the American attachment to specific brands. While he might trial the range here, he’s also cautious about Yellow Tail’s potential to sell in Australia, saying it’s possible that it’s simply ‘too Australian’ for Australian drinkers.

Casella also acknowledges the role played by John Soutter, his company’s export manager, the guy on the ground in the US who put the match with Deutsch together. Soutter had the deal signed by 1999, although Yellow Tail was nowhere in sight. Deutsch began handling a merlot, shiraz and chardonnay under the Carramar Estate label and didn’t receive their first shipment of Yellow Tail until the fist half of 2001.

Looking back over his short-term success, Casella acknowledges that all the ingredients had to be right. ‘Then have to be strong enough to take advantage of it’, he says. ‘You need the production capacity and the capacity to grow – otherwise you wouldn’t take full advantage of the brand and its opportunity.’ The hardest part, he says, has been coping with the growth. ‘There was just one difficult vintage when there wasn’t enough cash flow which really strained the resources.’ By remaining a compact organisation based on high volumes but low stock levels he’s unashamedly following the Rosemount model, but concedes he might now be about to expand his marketing department. For the time being, Casella has just one overseas employee – in Germany – and relies entirely on his distributors to represent him in his key markets.

Threats

John Casella says he’s not about to become complacent. ‘Our biggest worry is the exchange rate, followed by possible fruit shortages in the longer term. We’re addressing that pretty well and are having a fair bit planted, but looking onwards from 2006 there could be a problem if present sales trends remain and the national slowdown of plantings continues. This year we had 2000 acres planted for us from one grower, but we won’t see much from that until 2006, when I anticipate that fruit will be in short supply.

‘You can’t sit back and assume there will always be a surplus of fruit. The industry cycles have seen a surplus perhaps 10-15 times this past century. I got caught out when everyone predicted a chardonnay lake, but it’s not going to happen again. Right now I’m seriously looking at planting more cabernet, for the trends could turn very quickly.’

Is Casella concerned about the ability of other countries to compete against his brand? ‘While the threat is there, provided we’re delivering what we should be delivering, it shouldn’t be an issue. We’re selling the image of Australia, as well as wine. Australia has an image (overseas) that no other country can come near. Other countries clearly trying to produce cheaper wines are doing themselves a disservice by being seen to do so. The best thing they can do for us is to continue what they’re doing.

‘Were always looking at our viticultural practices and our clonal selection to continue to give us the edge over other countries. There’s still much to be done to optimise the quality of the fruit we get.’

Is he taking a risk by having too many eggs in the Yellow Tail basket? ‘Not really. We’re still way off optimising that market, and this brand still has a long way to go. Mind you, we’re certainly building other markets. My preferred ratio would be no more than two-thirds in the US and one-third elsewhere. Of course I’d love half in the US, but given the volumes involved, that’s rather unlikely!’

More than just yellow tail

There are more strings in the Casella bow than Yellow Tail. I was surprised to learn of their fruit contracts in Mudgee, the Adelaide Hills, Langhorne Creek, McLaren Vale, Coonawarra and the Mornington Peninsula. They’re looking for their first Coonawarra crop in 2003 – where they have access to more shiraz than cabernet sauvignon – and are looking to source old vine fruit from the Barossa.

Several of these combinations of different regions and varieties appear under the $15 Yendah Vale brand, which includes a delicious 2000 Tempranillo (16.8, drink 2002-2005), a richly textured 2000 Durif (16.3, drink 2002-2005), a Petit Verdot, Sangiovese and Pinot Grigio. With 140 acres of this variety under vine, Casella committed to tempranillo much earlier and much larger than anyone else in Australia with this variety. He’s also got access to a staggering 200 acres of durif, 120 acres of viognier (although he reckons it’ll never sell in the US ‘because they can’t pronounce it’), more than 200 acres of petit verdot plus a ‘fairly small’ 20 acre trial planting of sangiovese. ‘Unless we have a decent area of a grape there’s no point in starting with it’, says Casella. ‘Most of these grapes will easily enhance whatever wine we might blend any excess into.’

Casella isn’t about to let go of a grape grower just because they mightn’t have the correct mix of grapes in today’s market. ‘There’s not one grower I have tossed out’, he says. ‘They were there to support me when I started, and today they need a winery to take their grapes.’

Three wines currently comprise the Carramar Estate range: a Shiraz and a Cabernet Sauvignon from McLaren Vale and a Chardonnay from Cowra. The company’s fighting brand in Australia is Cottler’s Bridge which sells for around $7-8. John says it’s ready to receive some serious marketing later in 2003.

The family is ultimately looking to create an upmarket range under the Casella brand to be priced around $50 per bottle on today’s terms. ‘Whatever their price, the most important thing behind our wines will be value’, Casella declares.

I’ll leave the final word to him: ‘I recently said to my parents that they’ll talk about Yellow Tail for years. That doesn’t often happen.’

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