How Yellow Tail crushed the Australian wine industry.

Wine, beer, and other potent potables.
April 8 2009 1:46 PM

Not Such a G'Day

How Yellow Tail crushed the Australian wine industry.

Yellow Tail wine logo.
Yellow Tail's wallaby once charmed wine drinkers

A few years ago, Australian wines were the hottest around: Consumers couldn't get enough of those strapping shirazes with the quirky names (the Mad Hatter, the Dead Arm, the Ball Buster) and the eye-catching labels. Across all price points, Australia was ascendant. Not anymore: Buyers who used to make a beeline for the Antipodean section of their local wine shops are today waltzing right past it. Depending on who's doing the counting, exports of Australian wines to the United States fell by 15 percent to 26 percent in value last year; whatever the precise figure, the arrows are all pointing sharply downward, and with retailers paring back their Aussie selections in response to the flagging demand, this year threatens more of the same. Foster's may be Australian for beer (mate); it appears that screwed is now Australian for wine.

To be sure, vintners everywhere are struggling on account of the global economic crisis, and Australia has been hit especially hard by the gyrations in the financial markets. The Australian dollar surged to a 25-year high against the U.S. dollar last summer, which was a big headache for a wine industry heavily dependent on sales abroad. Unremittingly severe weather has also had devastating consequences. Droughts have ravaged parts of Australian wine country. The recent heat wave and wildfires in Victoria destroyed wineries and damaged a number of vineyards, with as much as 70 percent of the crop lost in some areas. But while the Australians have been victimized by a run of bad luck, their woes are mostly self-generated; they've trashed their own brand, a point many of them now concede.

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The biggest problem is that Australia has made itself synonymous in the minds of many drinkers with cut-rate, generic wines. Thanks to industrial giants like Jacob's Creek and Rosemount, Australia has long been a prime source of mass-market chardonnays and shirazes. In recent years, however, it has flooded the planet with discount juice. Much of the credit, or blame, for this can be pinned not on a conglomerate but on a family of Sicilian immigrants in New South Wales. In 2001, Filippo Casella and his son John launched a line of wines called Yellow Tail, whose colorful label featured that iconic Australian, the wallaby. The appealing packaging, combined with the decent quality of the wines and the low price ($7), proved to be a masterstroke: In just three years, Yellow Tail became the most popular imported wine in the United States, with sales of around 4 million cases annually. (Sales have nearly doubled since, and according to industry analyst Eileen Fredrikson, Yellow Tail today accounts for almost half the Australian wine purchased here.)

However, what was good for Yellow Tail wasn't so great for the Australian wines as a whole. For one thing, Yellow Tail spawned a legion of imitators, and retail shelves were soon crawling with "critter" labels featuring penguins, crocodiles, and other regional fauna. At the same time, Yellow Tail's success prompted rival Australian brands to focus even more of their efforts on the budget category. As a result, consumers came to equate Australia with wines that were flavorful but also cheap and frivolous, a perception that became a major liability when those same consumers got interested in more serious stuff; rather than looking to Oz, they turned to Spain, Italy, and France.

Sales of inexpensive Australian wines ($12 and under) are still fairly robust, but Australia's dominance in the bargain bins is being challenged now by low-cost producers in countries like Argentina (whose exports to the United States jumped 31 percent last year), Chile, and South Africa. Among industry insiders, it is widely agreed that Australia no longer has a competitive advantage in this segment of the market and that the emphasis on value wines has been a colossal blunder. Paul Henry of the Australian Wine and Brandy Corp., a government-sponsored marketing organization, recently told Reuters that the days in which Australia led the world in its "ability to produce large volumes of compellingly branded easy-drinking wine" were over. The consensus is that Australia needs to reintroduce itself to consumers—to acquaint them with the quality of Australian terroir and with the country's enormous viticultural diversity. The hope is that this will help persuade them to pony up for pricier wines.

However, premium Australian wines are suffering, too. According to Nielsen, while overall sales of wines costing $15 and more are up 2 percent in the last year, Australian wines in that category have declined 17 percent. The market for the costliest Australian wines has essentially collapsed. Chuck Hayward of the Jug Shop, a San Francisco retailer with one of the best Australian selections in the country, says his sales of Australian wines costing $40 and up are off 50 percent. Another merchant, Daniel Posner of Grapes the Wine Co. in White Plains, N.Y., reports a similar fall and says he has cut his Australian inventory by half in recent months—from 135 different wines down to 70.

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