Yellow Tail is the best selling imported wine in the United States. Yellow Tail accounted for 11 percent of all U.S. imports in 2005. This one wine brand represents about 8 percent of all Australian wine production and 15 percent of that country’s total wine exports. Yellow Tail sells more wine in the U.S. than all French producers combined.
This is an aerial photo of the winery, which is located in a small village called Yenda in the Riverina region of South East Australia. If it doesn’t look like a quaint little craft winery it is because the volumes are so large. The warehouse structure in the upper right corner can store 900,000 cases of wine at a time, according to Wine Business International. The bottling line next door is the fastest and loudest in the world, filling 30,000 bottles per hour (two more lines are planned to increase capacity). Total production is about 11 million cases, of which about 8.5 million are exported to the United States.
It is a sophisticated factory, with blending facilities that assure that each bottle tastes just like the one before. That differentiates it from Charles Shaw wine (a.k.a. Two Buck Chuck), the Trader Joe’s wine, which people say can vary considerably from case to case.
Yellow Tail is expanding in every imaginable way: more varietals (an Australian Pinot Grigio), a Reserve line of wines sourced from cooler-climate vineyards and now sparkling wines, too. The Yellow Tail’s distinctive yellow-footed rock wallaby “critter” is everywhere.
Yellow Tale is a phenomenon, but not one you will read about in the supermarket wine magazines. They don’t waste much ink on wine that costs about as much per bottle as the magazine itself does per issue. Magazine? Bottle of wine? It’s easy to tell which one the Yellow Tail customer will purchase! So I’ve been trying to find out more about Yellow Tail and here is my report.
Wine as a Family Affair
The interesting thing about the Yellow Tail success story is that it can be told in several different ways. This is not unusual in my experience. Stories of success and failure are frequently spun into meaningful narratives to try to make particular points. One version of the Yellow Tail story, for example, focuses on family and the importance of family businesses in the wine business.
This Yellow Tail Tale begins with the Casella family, winemaking immigrants who came from Italy in the 1950s and eventually planted their own Australian vineyards in 1965, selling grapes under contract to larger producers. Keen to make their own wines and export them, Casella invested in production facilities in the late 1990s and started looking for ways to crash the emerging U.S. wine party.
The key event in this version of the story is the alliance that was struck between Casella Wines Ltd, an Australian family business, and an American one, the William J. Deutsch company. Deutsch is a major U.S. wine distributor — they helped make the French Georges DuBoeuf wines a major U.S. brand — and they were willing to take a chance on an unknown Australian wine with a clever label. A partnership was established, with each family firm owning half of the Yellow Tale brand. Casella made the wine, Deutsch sold it. U.S. sales soared, from about 60,000 cases in 2001 to more than 8 million cases today.
Why was Yellow Tail so successful? One theory is that it is family and trust that are the key elements and that the cooperation and commitment that Casella and Deutsch have demonstrated would not have been possible if either of them had been a public corporation, beholden to shareholders and driven to meet quarterly profit targets Family is the key to Yellow Tail.
Red Ocean, Blue Ocean, Yellow Tail
A second group of business analysts have also appropriated Yellow Tail and made it the basis of a wholly different narrative, this one told using some unfamiliar jargon (unfamiliar to me, at least). Here is the Yellow Tail story told in terms of Blue Ocean versus Red Ocean.
The oceans in question are markets. Blue Oceans are markets for new products. Red Oceans are markets for existing products. Why are they red? I don’t really know but based upon what I saw last summer on the Discovery Channel’s “Shark Week” I’m willing to guess that existing markets are a tough environment to enter. You’ve got to compete with well-adapted predators who will cut you up badly if you aren’t really strong (Red Ocean = bloody ocean — get it?). A Blue Ocean, on the other hand, is uncontested open water. You’ve got a much better chance of profit if you can stake out the market for a new product before the competition gets there.
So how is Yellow Tale a Blue Ocean product? According to one article it is because Yellow Tail isn’t wine as we know it — it’s a whole new thing. The Wine Business International article cited above provides the details. People don’t really like wine, the article suggests. Even the Casellas don’t like it (is this possible?). It’s very tannic and acid and people aren’t used to those qualities except in tea. Who wants to pay $6 a bottle for something that is bitter and sour. The key to Yellow Tail was the realization that wine without tannin and acid could be very appealing, especially to the majority of Americans who really don’t like wine. (It was designed to appeal to the 85% of non-wine drinkers, according to the article, while not offending the 15% who already like wine. That’s 100%, if my math is correct. No wonder it is so popular). Yellow Tail isn’t as strong a brand in Great Britain — maybe it’s because the British actually like wine, acid tannin and all?
The Red Ocean, then, is the market for wine and the Blue Ocean is the market for wine that doesn’t taste like wine. (You might call it the Blue Nun Ocean in honor of a popular semi-wine wine of the 1970s.) If this analysis is correct, then you can see why Yellow Tail is such as success. But you can also see why its success might be short lived (and why, therefore, Casella may be moving into other markets). The Blue Ocean of semi -wine was quickly populated by competing predator species. Two Buck Chuck is an obvious example but there are really dozens and dozens of copycat critter wines out there. The trick for Yellow Tail is thus how to succeed now that their Blue Ocean is turning Pink.
Here’s a final Yellow Tail Tale that continues the focus on water. A third explanation for Yellow Tail’s success can be summarized in a single word: irrigation. Yellow Tail was made possible by the existence of enough water to irrigate the vast Casella and South East Australia vineyards. Water made it possible to grow grapes so efficiently that you could ship the wine half way around the world and sell it cheaply and make a fortune.
But the environment is changing for Casella’s vineyards. It’s not Blue to Red, but wet to dry. Australia has experienced several consecutive drought years, which have caused vineyard yields to crash and changed the whole business model of Australia wine. Put simply, the plentiful cheap fruit that has fueled Yellow Tail’s growth is now just a memory. What is to be done?
Casella seems to be considering several approaches. The first is conservation. According to their website, they have invested heavily in water recycling facilities, which will allow them to reclaim 400 million liters of wastewater each year for use in their vineyards. That’s a good start — and sustainable winegrowing is everywhere a concern — but I don’t think it will be enough to irrigate all the vineyards.
So another strategy may be considered: outsourcing. There are many places on earth where inexpensive wine can still be produced. Will Yellow Tail consumers care if their wine comes from Chile, South Africa, France or maybe even Romania instead of Australia? My guess is that it won’t matter very much and that Yellow Tail may become a globally-sourced brand. Boy, that little wallaby gets around.
But the long term threat to Yellow Tail probably isn’t water, it is wine. If Yellow Tail customers ever learn to like wine (you know — the stuff with tannin and acid?) then the brand’s days will be numbered! Until then, little critter, wallaby wine is safe.
This really is a case that is more about wine as a comodity and how cheaply it can be produced and distributed. I would be curious to learn what role Costco plays in the success of Yellow Tail.
As for keeping up with changing tastes, I’m sure Casella’s lab can adjust tannin and acid levels should they ever need to.