Australia's quiet achiever

John Casella’s parents, Filippo and Maria Casella, migrated to Australia from Italy in 1957. In 1965 they established a vineyard at Yenda, in New South Wales’ Riverina region, a warm, irrigated agricultural area. In 1994, John Casella took over what was then a bulk business, moving it to branded wines. [yellow tail], released in 2001, has been one of the great commercial success stories of the 21st century. Released at $6.99, [yellow tail] was one of the first wines to take this category seriously, offering drinkers sound, quality wine at an affordable price. Today, [yellow tail] sells more than 12.5m cases a y

Casella Family Brands (CFB) has since acquired a number of venerable Australian brands, including Peter Lehmann Wines in the Barossa Valley, Brand’s Laira in Coonawarra, and Baileys of Glenrowan and Morris of Rutherglen in Victoria. Most recently, the company launched Magic Box, a new mass market brand. IBISWorld reported that Casella Family Brands’ 2018 turnover was $481m, which Casella confirmed as correct.

MEININGER’S: All the talk at the moment is about premiumisation and getting out of the volume end of the market, yet big players like Gallo are still buying popular brands. What is and is not attractive about this end of the market?
CASELLA: When you look at that end of the market and the players in there, it’s not just about selling wine at these low prices, it’s about having a comprehensive portfolio. It helps pricing and profit on the high priced products. If you’ve got a facility that’s producing low margin high volume, it’s the same facility that does the higher-priced production. You try and keep it optimised with as much volume as you can.
It’s a declining market. I’ve asked myself many times, when is it going to stop? Is it something that declines when there’s economic buoyancy and as soon as there’s a shudder in the economy, people want to pay a bit less? It’s hard to predict.

MEININGER’S: Your [yellow tail] Super Bowl ads always generate a lot of chatter. They’re extremely expensive, in an industry which rarely does advertising at any scale. I would be interested to hear the thinking behind them.
CASELLA: With the Super Bowl, it’s not just about the ad on that day. It’s the in-store activity that precedes the ad, that helps build consumer engagement, and it keeps the brand fresh and relevant. It’s not about the 30-second ad, it’s about what happens in store and social media. From memory, we had double-digit sales increases. It was quite strong. The spike doesn’t happen after the ad, but leading into the ad. It’s been wearing out a little bit and that’s why we are not doing it again. We’re working on a combination of traditional (advertising) and the new way of marketing through social media and so on. It’s a 20-year-old brand we need to keep investing in and we need to be investing in a way that reflects where the money is best spent.

MEININGER’S: The commercial category is going to come under increasing pressure, from multiple angles. First is environmental, with key buyers looking for sustainable credentials. There’s also the increasing push towards transparency, with plans by the EU to introduce ingredient labelling within the next two years. How are you planning for this strategically?
CASELLA: In Australia we use tartaric acid, which is naturally derived, but there are not a lot of things added to wine. Sulphur, tannins sometimes. We’ve stopped Roundup use in our vineyard, and we’re working with growers to make sure they stop. We’re working towards minimising pesticide and fungicides and reverting back to copper and so on. It’s about getting the best grapes and keeping it as pristine as you can for the consumer. It’s surprising how little difference there is between winemaking today and 50 years ago. We do use some oak chips, but they’re natural anyway.
What we do here at the winery is we reclaim all the water. We take irrigation water, use it in the winery, then bring it back to a set standard and use it for irrigation again. With our growers, we’ve worked to optimise their water usage. We’re reducing herbicides, and we’re working with growers to help them to understand when disease events are going to happen, to reduce spray by a substantial amount. If you monitor rain events, you can modify your spray programs.

MEININGER’S: In 2016 CFB acquired Morris Wines from Pernod Ricard. Morris is a venerable name in fortified production, but it’s a difficult category. Why buy it?
CASELLA: I saw a report on the ABC [a news report about the sale of Morris] and I thought, there’s 160 years of history there and it’s going to be destroyed overnight. There are 100-year-old vats, and all this wonderful wine. We ended up getting it and David [Morris] still works there.
Look at things like gin: gin was dead for years and I remember thinking why aren’t we drinking more gin? It’s such a nice drink. These fortifieds are just magnificent as they are, and we need to work hard at reawakening the interest in that. They’re so charming and sophisticated and we need to market that. It’s a matter of getting people to try them.

MEININGER’S: How does the Morris acquisition dovetail with Baileys of Glenrowan, which is also a historic producer in Victoria?
CASELLA: So there are some parallels between Baileys and Morris. There was 300-plus acres [121ha] of organic vineyard that came with Baileys, and there is a lot of learning there about how they get by on a purely organic basis. Now we’ve got grapes for when we’re ready to release an organic range.

MEININGER’S: Peter Lehmann is, of course, an incredible Australian name, but some of the lustre had gone when you bought it in 2014. What have you done with the brand, and where do you see its future?
CASELLA: When we got Lehmann it was a standalone company that needed a lot of cash flow. They had a lot of different brands and some lower-priced products. We’ve gone through and systematically cleaned up the range so it’s simple and easy to understand, and we’ve released The Barossan, a true reflection of what the Barossa is all about, in line with what Peter Lehmann would have liked his company to produce. It’s doing extremely well.

MEININGER’S: Have you got any plans to build a premium mass market brand, in the sense of an Apothic or a Meiomi?
CASELLA: I think Magic Box sits pretty well in that area. I remember talking to university students, where [yellow tail] was their wine at university, and then grey nomads, and [yellow tail] was their wine as well. You’ve got to have a broad appeal and everybody loves magic. It’s vibrant. There needs to be a degree of comfort for people to make that first purchase.

MEININGER’S: I was very struck by the artwork for Magic Box when I saw it at ProWein. How do you go about creating and launching a brand like that – did you look for gaps in the market, or was it more that your distributors were asking for something?
CASELLA: : A combination of both. We were looking at where the growth was and what other companies were doing and we weren’t strong in that area. We had products that weren’t distinctive enough. That’s what made [yellow tail] so strong – it’s distinctive and it stood out when displayed, but it was warm, reassuring and in good taste.
We’ve got good holdings in South Australia and access to growers, so that gave us a core of higher-quality product. Magic Box is going to be a combination of local and South Australian fruit, but sitting well above [yellow tail]. The striking label is about getting the consumer’s attention. That’s the first purchase, but beyond that it’s so important to get the quality.

MEININGER’S: How difficult is it to create a fine wine? Is this an area where you really need to acquire an existing winery, rather than start one from scratch?
CASELLA: If the opportunity arises to acquire, it’s better to acquire. It takes a long time to build your reputation and consumer acceptance of your price. There are many things you can do with a known brand with history and a following.

MEININGER’S: You had a brand called Young Brute, aimed at the young male market. Do you still have that or, if not, what happened?
CASELLA: That was doing some reasonable numbers, but it was out there on its own. It wasn’t going to build into anything. It’s about how the different brands help each other and complement each other. The sales weren’t stellar and we thought it would be better to put that Wrattonbully fruit into a family of wines, than [leave it] on its own.

MEININGER’S: How do you determine the life cycle of a brand? When do you say, “We need to change strategy”, and when do you say, “It’s time to shut this down”?
CASELLA: We’ve done a fair bit of that with our acquisitions. When you’ve got all these brands floating out there, you have a good look. You want the core range that everybody knows and understands. We’re a brand-oriented company, so it’s not just about volume, it’s about how brands complement each other and build long-term profitability. Everything’s interrelated.

MEININGER’S: CFB went through tough times when the Australian dollar rose to achieve parity with the US dollar around 2011. You made the decision not to raise your retail prices in the US, despite the wafer-thin margin. Why did you make this decision, and how did you survive?
CASELLA: I felt that maintaining our market share was more important than making a profit. We have a good strong relationship with our bankers who understood the reasoning. We’re a family company and I didn’t have to explain to investors why profits were down and I thought it was a good strategy given the dollar couldn’t sustain those levels. It did pay dividends, and I’ve kept my market share. If you lose market share, the opportunity to regain it might never be there. I thought it was more prudent to maintain market share and put up with the pain knowing logically that the [Australian] dollar couldn’t sustain parity.

MEININGER’S: Your entire region went through a dreadful period when demand for its wine dropped at the same time the Australian dollar strengthened. As a major buyer of grapes and a member of the community, how did that impact you?
CASELLA: There were difficult times, but I can honestly say from my end that I didn’t shed any growers and we paid way above average on our purchases. I wanted to maintain our growers and our position in the community, so we weren’t taking advantage of the situation. Even during that difficult period we didn’t reduce grape prices. I thought, I have to do the right thing. We’re a family business and we want to be respected in the future. In keeping the grower base I had to make sure we had a market post-crisis. I had to make sure I had viable growers to see me into the future.
We’re doing really well. Our grower base is intact. Our supply is assured, the industry is booming.

MEININGER’S: The perception from overseas is that China is taking a significant percentage of Australian wines, but Casella is more engaged in other markets. What is your decision making around China?
CASELLA: It would have been easy to go to China and throw a few brands around but we’re about the future. We’ve teamed up with Telfords, our Hong Kong importer, and we’ve worked on building [yellow tail] in a sustainable way and keeping the respect of the retailers and wholesalers. There is no discounting to build up volume. In the long term we’ll have a good solid sustainable brand. We were named fourth in the Wine Intelligence [Global Wine Brand] Power Index.

MEININGER’S: What does the future hold for Casella Family Brands?
CASELLA: [yellow tail] continues to grow; in the UK it’s growing in double digits. Premiumisation. Consolidating the products that we have in Peter Lehmann. Wanting to do better things with Cabernet Sauvignon. Australia is behind the ball with Cabernet. We need to build a Cabernet style that the world wants. It’s the only country where Cabernet’s not king and we need to do more work. We need to understand the best regions and growing methods.
The other interesting thing we’re doing is working with lower alcohol. We’ve produced a [yellow tail] with about 25% less alcohol.