April 23, 2006
The Wallaby That Roared Across the Wine Industry
By FRANK J. PRIAL
WILLIAM J. DEUTSCH was apprehensive when he first agreed to import an unknown Australian wine called Yellow Tail into the United States in 2001. Its handsome black-and-yellow label featured what looked like a kangaroo, and he felt that animals had no place on wine labels. But he liked the wine. "So," he said recently, "I agreed to take 25,000 cases."
His son Peter disagreed about the animal, which actually was a rock wallaby. "That label is fabulous," he told his dad.
"O.K.," said the elder Mr. Deutsch. "60,000 cases." Their wine-and-spirits importing company, William J. Deutsch & Sons, paid about $2 million for that first shipment; it arrived in June 2001. By the end of that year, 225,000 cases of Yellow Tail had been sold to retailers. In 2002, 1.2 million cases were sold. The figure climbed to 4.2 million in 2003 — including a million in October alone — and to 6.5 million in 2004. And, last year, sales surpassed 7.5 million — all for a wine that no one had heard of just five years earlier.
John Casella, whose winery in southeastern Australia produces Yellow Tail, is predicting sales of 8 million or 8.5 million cases in the United States this year, and he says that sales in Europe, Canada and Asia — which started only recently — could add 3.5 million to the total.
Nothing like this has ever happened before in the American wine business. The breakneck success of Yellow Tail has lifted the Deutsches, or, more precisely, their business, into the top ranks of the American wine trade. (The elder Mr. Deutsch is chairman of the company, and Peter is the president.) In addition, the Deutsches stand to profit handsomely from the wine's success. As part of their arrangement with the Casellas, they own 50 percent of the Yellow Tail brand.
At the same time, the brand has transformed Mr. Casella's company, Casella Wines Ltd., from a modest enterprise into a major wine producer with a huge, Gallo-like winery. What had been a modest farmhouse has, in a brief time, become an immense wine-making complex with some 600 wine holding tanks, 48 of which hold a million liters each.
The Yellow Tail phenomenon took everyone in the wine business by surprise. In retrospect, however, it was probably inevitable. Interest in wine had been growing steadily in the United States for two decades, but the domestic industry had never had much success in meeting the need for a good, inexpensive wine to attract all these newcomers. "There were good wines at $15 and up, but nothing between those wines and the jug wines at the bottom of the scale," said Rich Cartiere, editor of The Wine Market Report. "Yellow Tail, at $6, was and remains better than most American wines at $8.99 and $10.99.
"When I think of Australian wines, I think of a big, juicy, red apple," he added, "and that's what the American wine consumer looks for, too, even if he can't say why. Couple that with a label that's friendly — not a joke, like so many now — and excellent distribution, and you have an unbeatable package."
THE Yellow Tail story began in the late 1990's. Casella Wines, in the Riverina district of New South Wales, west of Sydney, was seeking to expand. It had been started in 1969 by Filippo Casella, a Sicilian immigrant who arrived in Australia in the 1950's — after seven years as a war prisoner in Italy during World War II — and worked as an itinerant farmhand until he could afford to buy some vineyard land of his own. In 1994, his oldest son, John, joined the business and began to look for new markets, particularly in the United States. He enlisted the Australian Trade Commission to help him find an American distributor.
About the same time, 12,000 miles away in White Plains, Bill Deutsch was looking to expand his portfolio. He marketed a variety of products, but his most important client was Georges Duboeuf, a prominent producer of Beaujolais. After having considerable success in the United States during the 1980's and early 1990's, Beaujolais had fallen into a slump, partly because the "nouveau" phenomenon — selling the new vintage in November, a few months after the harvest — had grown stale and partly because of the burgeoning American disenchantment with French wines in general.
Meeting for the first time at a trade show in San Francisco in 1997, Mr. Deutsch and Mr. Casella agreed to team up. "It was a perfect match," Mr. Deutsch said. "Two smallish, family-owned businesses looking for new business." They agreed that in exchange for half-ownership of the label, the Deutsch company would market a line of Casella wines in the United States.
That line, introduced in 1999, was called Carramar Estate, and it was a flop, in part because it could not compete with established brands in the same price category. "John was distraught," Bill Deutsch said recently. "He said he felt he had let me down. He said he would buy back the wine and that he was ready to dissolve the partnership. I told him to forget it. It was only 30,000 cases and there were other things we could do.
"He said: 'Good. I know I can make better wine.' "
Back in Australia, Mr. Casella and his marketing director, John Soutter, came up with a new wine and a new package. They had found a graphic artist in Adelaide, Barbara Harkness, who offered them a design of a black and yellow rendering of a yellow-tailed marsupial styled to emulate Australian aboriginal art; the image was seen as friendly and typically Australian. The Casella company paid her $4,800 for the design and a marketing program based on it.
Sometime late in 2000, Mr. Soutter came to the United States with the new Yellow Tail wine — a chardonnay and a shiraz.
Though William and Peter Deutsch, the importers, would initially disagree about the packaging, they always agreed about the wine. "It was — it still is — delicious," the elder Mr. Deutsch said. "It's an easygoing wine, uncomplicated, fun to drink. In fact, it's better tasting and a better value than the price would indicate. I have to say it: with this one, the Casellas overachieved."
Jon Fredrikson, a California wine industry consultant, calls it "the perfect wine for a public grown up on soft drinks." Yellow Tail, Mr. Fredrikson said, is "round, fruity and user-friendly, and it's immediately drinkable." Even more important, he said, is the consistency of the wine's high quality. "With a lot of wines," he said, "the first batch is great and the second and third are disappointing. Yellow Tail has been consistently good since the first shipment arrived five years ago."
American wine writers — including the dean of wine critics, Robert M. Parker Jr. — have been consistently enthusiastic about Yellow Tail. "In some wine circles, it is fashionable to criticize wine of this genre," Mr. Parker wrote, "but if the truth be known, these are surprisingly well-made offerings."
Yellow Tail is an uncomplicated wine meant for undemanding wine drinkers. But Mr. Casella says that in tastings, experts often identify it as a $60 or $70 bottle. "We've found that some knowledgeable people prefer it to more expensive wines," he said in a telephone interview.
Building on the original two wines, chardonnay and shiraz (or syrah, another name for the same red-wine grape), the Casellas have expanded the line to include merlot, cabernet sauvignon, pinot grigio, riesling and three blends: shiraz-cabernet, cabernet-merlot and shiraz-grenache. In 2003, the Casellas introduced a reserve line of Yellow Tail, which includes merlot, cabernet, chardonnay and pinot grigio. The reserve wines, which sell for $2 or $3 more per bottle, undergo a longer fermentation than the regular wines and are aged in oak barrels.
The wines are all bottled in Bordeaux-style bottles, in both the standard 75-centiliter and 1.5-liter sizes. The Casellas buy about 80 percent of their grapes from other growers.
Yellow Tail was introduced in a number of United States markets with almost less fanfare than had accompanied the ill-fated Carramar Estate line. "We had some point-of-purchase materials," Mr. Deutsch said, referring to displays in stores, "but that was it."
No longer. The Deutsches have scheduled some $24 million for promotions this year, up from $4 million in 2005. Billboards featuring yellow tails on a bird, an airplane and a mermaid, as well as a yellow ponytail on a pretty girl, have become familiar sights in some cities.
Perhaps more important, Mr. Cartiere and others in the industry say, the Deutsches provided Yellow Tail with almost instant access to the American market, using the distribution network they had built over two decades for Duboeuf wines.
The increasingly familiar Yellow Tail label is loosely meant to depict the brand's namesake, a yellow-footed rock wallaby, a smaller cousin to the kangaroo. The bottle labels and in-store advertisements always put the brand name in lower case and within brackets: [yellow tail].
As for those brackets, the story is that the Casellas were looking up "kangaroo" in a textbook when they came upon a technical description of a wallaby. In the margin, alongside the Latin derivation of the name, was the Australian version, in brackets: [yellow tail]. They decided to keep the brackets "to set the wine apart" and to retain the lower-case lettering "to underscore the wine's lack of pretension," John Casella said.
Yellow Tail's success is a hot topic in the wine trade, but so is its future. The history of popular wines is replete with labels that were once wildly popular but no longer are. Blue Nun, Reunite, Lancers and various brands of cold duck are sobering examples. Charles Shaw wines — better known as Two-Buck Chuck — were a sensation a couple of seasons back, and while "Chuck" still sells well, it is no longer the marketing marvel it briefly was.
Two-Buck Chuck, which was created as a way to drain off some of California's last wine surplus, is carried only by stores in the Trader Joe chain. It sells for about $2 in California and $3 elsewhere. Yellow Tail sells for $5 to $7. An attempt to move up the price of Yellow Tail by a dollar in some markets was unsuccessful, Mr. Cartiere said.
FOR the fiscal year ended last June 30, Casella Wines reported an after-tax profit of $77 million on revenue of $255 million, up from $61 million on $230 million in revenue in fiscal 2004. The profit was based almost entirely on sales of Yellow Tail in the United States, the company said.
The wine is now sold in Europe and Canada, and throughout Southeast Asia. Less than 2 percent of production is sold in Australia.
Mr. Casella acknowledged that Yellow Tail's recent growth was unsustainable, and Mr. Cartiere agreed. "It will plateau out, maybe in 2006," he said, adding that competition would stiffen when American winemakers moved successfully into Yellow Tail's price category. "The question is when."
Yellow Tail's impact has not gone unnoticed among bankers. A report issued earlier this month by Silicon Valley Bank, a major wine-industry lender based in Santa Clara, Calif., blames the United States wine industry for allowing wines like Yellow Tail to grab so much of the market. What's more, it questions the very future of vast portions of California's Central Valley, the source of most of the inexpensive domestic wine sold in jugs and boxes, the wine meant to compete with Yellow Tail and brands like it. Criticizing the region's production and marketing methods as obsolete, the report notes that imports have doubled, to 27 percent of the United States market recently from 13.2 percent in 1990.
"Are American vintners starting to look like Detroit in the 70's, when gas prices soared and automakers kept putting out big gas guzzlers?," the report asked. Mentioning the success of Yellow Tail along with that of Italian pinot grigio, the report warns that "the U.S. will no longer be able to ignore the depth of the world glut (which keeps import prices low), or the high cost of American production for lower price-point wines."
Mr. Fredrikson, the wine consultant, predicted that Yellow Tail could enjoy a relatively long run so long as it remained consistent in price and quality. "Yellow Tail caught the wave," he said. "It's perfect for the newest generation of wine drinkers and potential wine drinkers." Furthermore, "the label is subtle," he said. "My daughter pointed it out to me. With the brackets and lower case, it looks just like e-mail."
This kind of techno touch, he said, will resonate, probably unconsciously, with new, young wine buyers. "It's the biggest achievement in the history of wine," he said.