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Bulk order: How Australia’s Casella Family Brands cracked the US wine market

Joe, John and Daniel Casella on top of Casella Family Brands' tanks

A bouncing kangaroo, like that brandished across Yellow Tail wine bottles, might be a stereotypically Australian image, but Casella Family Brands, the company behind it, built its company offshore. While other Australian wine companies built their brands locally before venturing overseas, Casella went the other way. Instead of clashing with his well-heeled rivals, with their extensive cash reserves, second-gen John Casella redefined wine as an accessible tipple and opened a new market. The result has been astonishing. Casella now exports some 12.5 million cases of Yellow Tail to more than 50 countries – accounting for more than a quarter of all bottled wine leaving Australia. How did a family-run winery rocket from a small regional player to holding a 51% share of the Australian category of the US wine market? By doing things differently.

The Casellas don’t come from Melbourne or Sydney. They are in Griffith, a small city in southwestern New South Wales. A six-hour drive from Sydney, Griffith is known for its Italian cuisine and hospitality. Casella’s parents, Filippo and Maria, emigrated to Australia from Italy in 1957. Coming from wine growing families, Filippo sold grapes from his farm to local wineries. Then in 1969, he set up his own winery.

It was a small operation – just Casella’s parents and his brother. “They were producing their own bits of wine and selling it to Italian immigrants to bottle it themselves,’’ he said. For the next 20 years, Filippo and Maria continued to build their small family vineyard and winery.

The big change came in 1992 when Australian wine exports started taking off. The big wineries didn’t have enough wine to fill the orders and the Casellas set themselves up as a supplier. “The focus moved away from the small Italian guys who bought 200 litres and bottled it themselves to producing bulk wine for other wine companies,’’ Casella says.

Casella, who studied oenology at Charles Sturt University, came back to the family in 1994, taking over as managing director and winemaker full time, having built over a decade’s experience outside the family business at Riverina Estate Wines. He was joined by his brothers, Joe, and Marcello (their sister Rosa left in the 1970s). These days Joe, a director in the business, is semi-retired and John’s younger brother Marcello had to step down as director when he was hauled before the courts in 2014. He was charged over his alleged involvement in a major drug syndicate.

Keen to avoid any reputational impact, the family swung into action and distanced themselves from the recalcitrant former director. “Mr Marcello Casella resigned as a director of Casella Family Brands earlier this year and therefore this matter is entirely unrelated to the company or any of its associated brands,’’ the family said in a statement at the time.

Sadly, Maria died last August. Filippo, her childhood sweetheart and husband of 62 years, had died five years earlier. But the third generation has already joined the business – Joe’s son, Daniel, works at the business full-time as commercial manager and is involved in product development, innovation, and future planning.

Running a family business, John Casella knew he had to be more strategic than his well-resourced competitors.

Rather than taking them on in a battle for market share, he decided to tackle a different market altogether. Thus when he launched Yellow Tail in the US market in 2001, Casella eschewed wine drinkers; embarking on a strategy to convert beer and ready-to-drink consumers to drinking wine. As he put it, this was a market too big to ignore.

Casella felt his target market wanted a social drink. They weren’t interested in something with a taste and tradition they found difficult to appreciate.

“Intuitively I felt being a wine maker and having drunk wine since we were very little and not liking them and it always stood out why we didn’t like them,’’ Casella says. “It was the harsh tannins and overly acidic whites. It’s quite foreign to what we are used to when you are drinking soft drinks and milk. You really want something a lot friendlier. Yellow Tail was much friendlier to drink. It still had wine character but it was a lot softer and easier to drink, both the whites and the reds.”

Wine critics were unenthusiastic about Yellow Tail. Los Angeles Times wine writers, for example, described the Yellow Tail 2002 chardonnay as “reminiscent of pineapple juice”. But then, Yellow Tail drinkers, who were not wine enthusiasts, didn’t really care for wine critics.

Winemakers entering the US have traditionally focused on the wine country of California. Casella’s team on the other hand drove across America, zeroing in on big-box outlets, beer halls, drive-through liquor stores, and mom-and-pop liquor outlets.

One big step came in 2000, prior to the US launch, when he bought the Yellow Tail label from a South Australian designer with its distinctive kangaroo.

Casella believed the picture of the kangaroo against a yellow background would appeal to his target market, but his distributor, Bill Deutsch from New York-based WJ Deutsch & Sons, was not enthusiastic. “Having a kangaroo on the front label is like having an Eiffel tower on a French wine,” Deutsch growled. Casella stuck to his guns.

“The idea was that it looked a little too Australian to be credible and we obviously proved them wrong.’’ Casella says.

“Everybody also had concerns about the label being yellow on Shiraz. Yellow is not an attractive colour because it’s associated with disease.

“But we presented a product we truly believed in ourselves and we were able to convey that belief and confidence to them to the point where the label wasn’t changed, in spite of their concerns and in spite of any reservations.”

The Yellow Tail offer was different from other wines. Less sophisticated and simple: it came in a red or white label.

At the same time Yellow Tail was packaged in a heavier Bordeaux bottle that looked like it deserved a premium price.

With the wine in a premium bottle, Casella adjusted the price to make it even cheaper. Casella saw there were more sales in the $5.99 bracket, with the Australian dollar trading at AUS$0.57 to the US dollar. “I thought it was so much more accessible and the market was so much bigger and I felt that we could over-deliver at that price point,’’ he says.

At the time, the company was hoping to sell about 10% of what Rosemount, the then top selling Australian wine in the US, was making. They planned to sell about 150,000 cases in the first year. Deutsch thought they were dreaming, he said they would sell 50,000 cases.

They ended up selling one million cases in 13 months. “The new drinkers would look at something that was a little bit different and easier to drink,’’ Casella says. “So instead of drinking one glass, they drank two. I remember in the early days so many people started telling me they didn’t realise they had drunk a whole bottle.”

All this was done with no paid advertising for Yellow Tail in the US. Being a family company, Casella didn’t have the cash to pay for it. But he found word-of-mouth was a priceless strategy. “When Yellow Tail first launched, there was no marketing to be done. All new customers had made recommendations,’’ he says. “We didn’t spend a penny on marketing, it marketed itself.”

Casella’s success did not come about by his company stealing customers from companies such as Melbourne-based Treasury Wine Estates (he says the Treasury brand Lindemans is the next biggest competitor and has less than 10% of the Australian category in the US). Its strategy was to create a bigger market by making wine less complex for unpretentious adults.

This has boosted annual revenues to more than AUS$400 million ($308 million), and although Casella says the family business is making good profit, he is reluctant to divulge how much the company is looking at investing into the business.

Certainly the wine trade is tough. “We have 199 Australian competitors,’’ Casella says. “When you look at the telecommunications market, there are about seven major players and two mega players. If you look at the wine industry, you have got 300 major players and 10,000 minor players all wanting the same market. It’s much more fragmented and much more difficult to gain traction. It just makes it a bit more challenging.” Its nearest competitor Treasury has posted a net profit of AUS$42.6 million, a 60% decline on the previous corresponding period’s AUS$106.2 million.

Wine industry analyst David Errington from Merrill Lynch says Casella Family Brands is killing its competitors because it’s a family business. “If a family-owned business makes $1 million they think they have won TattsLotto (the big Australian lottery). They don’t think about return on assets. A listed company that made one million would be expected to generate a return on capital of $100 million.

“Family-owned companies don’t think about return on capital. They think about having enough cash to pay the school fees, the golf club, and having a great lifestyle. So they don’t think about returns and they are focused on long-term decisions.”

The other great advantage for Casella, he says, is their relationship with their distributor Bill Deutsch. John Casella got the distributor on side and fully focused on Yellow Tail with an exclusive arrangement that saw them becoming the only Australian product in their range.

Casella says part of the reason for the success is that his family and the Deutsch family have now become good friends, something only a family business could do. “We have a long-term contract with them, and it’s a partnership, not in the financial sense but in the physical sense of us being the only Australian suppliers and they are the only American distributors that we have,’’ Casella says.

The business has since been expanding. “I needed a high volume, high cash flow business that wasn’t dependent on the weather. I wanted to get a high turnover, big volume business.”

In 2012, it launched Arvo beer, competing against Australia’s two dominant beer makers Carlton & United Breweries owned by SABMiller and Lion Nathan. “We are a 95% export business so I thought ‘We need a cash flow business that is predominantly domestic’,” he adds. Beer is not yet making big profits but Casella takes a long-term perspective.

And in 2014, Casella acquired premium wine company Peter Lehmann for AUS$57 million. The acquisition was given the blessing of Lehmann’s widow, Margaret, who says under Casella her husband’s legacy “would continue to flourish because the patient capital of private ownership is better suited to the cyclical nature of the wine industry.” It was a good move strategically, giving Casella a foothold in Australia’s prestigious Barossa Valley wine-producing country. With Yellow Tail selling well at one end of the market, he plans to ramp up production at the Barossa Valley winery and use the brands to quickly lift Casella sales at the premium end.

“In the short term, it will probably contribute very little. Long term, it’s about having a footprint in the Barossa, it’s about having a stable of premium products and having the capability of expanding that stable of products and complementing the volume products.

“You have the regionality of the Peter Lehmann brand, you have the winemaking capability of Casella, and the distribution of Casella.

“We have the relationship with key people around the world who are capable of delivering the process to various markets we haven’t until now been able to supply. We are going to exploit that to the best extent that we can.”

Working out the portfolio for this will take time but as Casella says, as a family company, that’s something they have plenty of.
“My argument always was that I would prefer to have market share than money in the bank. No matter how big the bank is, it can always go bust but with market share, it’s always there, ready for when it becomes profitable.”

“It’s good not having shareholders to answer to. We are in a very comfortable space. We are profitable enough to be able to give the bank financial comfort and for us to keep investing in marketing and assets like Peter Lehmann and growing the business both organically and inorganically with purchases.”

Casella Family Brands does not have a board. Asked where the board is, Casella responds: “You’re talking to it.”

“I was having a discussion about it with my bank manager and I talked about all the other wine companies that had boards that were in trouble,” he says. “We’re not in trouble, we don’t need a board.”

“The last time a bank manager told me what to do, I went to another bank”.

While his brother Joe and nephew Daniel are in the business, the next generation is not being groomed to take it over. He believes they will step up to the plate. “It’s up to them to rise to show they have the depth and capability to take responsibility for the company and family,’’ the father of two says.

Jon Kenfield, a consultant who specialises in family businesses, says family businesses like Casella’s outfit are made for wine. “Wine is more personal, it lends itself to family companies,’’ Kenfield says. “People will always prefer drinking family-owned wines to wines sold by corporates.”

Laura Hougaz, who has just written a book, Entrepreneurs in Family Business Dynasties, which focuses on Italian-Australian family businesses over the last 100 years, says Casella Family Brands is a perfect example of this group. She says most of these immigrant businesses were in two sectors: food, beverages and hospitality, and construction. “I struggled to find three generational businesses outside of those groupings,’’ Hougaz says.

The other great distinguishing feature, she says, is family loyalty, which always translates into loyalty to customers.

And that, according to Casella, is the key to the success of his family business, something he sees as being very much part of the experience of coming from a family of Sicilian migrants. “There’s a lot that’s inherent here,’’ he says. “It’s about a mindset of keeping the business strong, serving the community, and family. A lot of that came out of us being immigrants.

“For us it wasn’t about making money. Money is good when you don’t have it, but when you have it, you look to other things.
“It’s about having a positive impact on the community, on employees, the family, and the wine industry.”
 

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