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.

But then, the problem for top-shelf Australian wines isn't price so much as taste. In the last decade, ultraripe, high-alcohol, extravagantly oaked shirazes from the Barossa Valley and McLaren Vale, regions close to Adelaide, came to dominate the luxury end of the Australian wine market in the United States. It is a rendering of shiraz that Robert Parker happens to adore, and the huge scores that his publication, the Wine Advocate, awarded many of the wines made them wildly popular, which encouraged producers to pump out more and more of these purple people-eaters (the ever-decorous Australians refer to them as "leg spreaders") and retailers and importers to load up on them.

But consumers have now soured on this genre. Hayward thinks it is a case of fruit-bomb fatigue—that people ultimately found the wines to be overbearing and tiresome. It didn't help that a lot of these wines seemed to share the same basic profile—sweet, jammy fruit, strong oak influences—and were more or less indistinguishable from one another. It has also been suggested that many of the hulking shirazes were simply overrated. Whatever the case, pricey Australian wines are now the lepers of the fine-wine market, and many oenophiles appear to have written off Australia entirely. "It is a nightmarish situation," says Posner.

It is certainly an unfortunate one, because Australia is capable of producing sensational wines, a point convincingly demonstrated at a Penfolds tasting I attended in New York last fall. Penfolds is Australia's best-known winery and makes its most famous wine, Penfolds Grange, a shiraz that has long been considered among the pre-eminent liquid collectibles. The lunch included the 2002, 1991, and 1990 Grange, all of which were terrific, as well as the 1990 vintage of the Bin 707 Cabernet Sauvignon, another benchmark Australian wine. They also served the Penfolds 1962 Bin 60A Cabernet-Shiraz and the 1967 Bin 7 Cabernet-Shiraz, two celebrated rarities. Although both were now a little creaky, they were still superb, with as much complexity and nuance as you could hope to find in a wine.

While Penfolds is itself one of the major Australian brands and is owned by an even bigger brand, the Foster's Group (yes, that Foster's), it continues to turn out an impressive portfolio. The Grange is a hefty investment—$250 to $400 a bottle, depending on the vintage—and the Bin 707 isn't cheap, either, selling for around $90 to $100. But Penfolds produces a number of less-expensive bottlings, including one of the wine world's best-kept secrets: the St. Henri Shiraz. Made without any new oak (it can be done!), the St. Henri is a delicious shiraz that can age for decades and easily holds its own against wines from France's Northern Rhone Valley (syrah's heartland). It goes for around $50 a bottle and should ideally be kept in the cellar for at least a few years; if curiosity pulls the cork, you should decant it for several hours before serving.

Not every Australian wine is big and red: The country also produces excellent dry rieslings. Look for examples from Grosset, Frankland Estate, and Kilikanoon as well as the Penfolds Bin 51 Riesling ($17) and a favorite of mine, the Leeuwin Estate Art Series Riesling ($21). Leeuwin, which is in the Margaret River district of Western Australia and also produces well-regarded chardonnays, cabernets, and shirazes, is represented in the United States by Old Bridge Cellars, one of several importers putting an accent on regional diversity and finesse-driven winemaking. While I definitely prefer elegance over power, I find that some of the more restrained Australian wines lack personality; it is almost as if they've had the character leached out of them. Harnessed exuberance is exactly what I want from Australian wines, but achieving that state of equilibrium is evidently not easy. That said, there are some good wines being imported by Old Bridge, as well as the Australian Premium Wine Collection, Epicurean Wines, and Southern Starz.

Surprisingly, some of the best Australian wines I've tasted recently are the handiwork of a pair of Americans, Aspen-based sommelier Richard Betts and his friend Dennis Scholl, an art collector and oenophile. Betts & Scholl, as their label is known, is producing wine in France, California, and Australia. Teaming up with winemaker Christian Canute, one of the leading talents in the Barossa Valley, Betts & Scholl puts out two exemplary grenaches, the O.G. ($29) and the Chronique ($49). These are big but balanced wines, full of sunshine and warmth and with a terrific herbal kick that evokes thoughts of Châteauneuf-du-Pape. With an assist from another eminent Australian vintner, Trevor Jones, Betts & Scholl also crafts a very winning riesling ($29); made in the Eden Valley, in South Australia, it is a crisp, spirited wine with bright fruit and pronounced minerality.

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