Could Yellowtail ales be Blue Ocean brews?

While Australia’s largest brewer slowly tears apart its less than successful attempt to also run a wine empire, one of our most internationally competitive (and innovative) winemakers is stepping into the beer business.

Casella Wines, who have grown extremely fast off the back of the game-changing Yellowtail wines (see this short case study for a sense of this success story), are advertising for a head brewer (see the ad here), and intend to brew “probably a few million litres a year” from a new facility at the Griffith, NSW winery site.

The firm’s wine brand has been lauded as a classic example of a Blue Ocean Strategy.  The central contention of Kim & Maurborgne is that:

“Casella created a social drink accessible to everyone. By looking at the alternatives of beer and ready-to-drink cocktails, Casella Wines created three new factors in the US wine industry – easy drinking, easy to select, and fun and adventure. It eliminated or reduced everything else. [Yellow tail] was a completely new combination of  characteristics that produced an uncomplicated wine structure that was instantly appealing to the mass of alcohol drinkers.

The result was an easy drinking wine that did not require years to develop an appreciation for. This allowed the company to dramatically reduce or eliminate all the factors the wine industry had long competed on – tannins, complexity and aging. With the need for aging reduced, the working capital required was also reduced…

In July 2001, Australia’s Casella Winery introduced [yellow tail] into this highly competitive US market. Small and unknown, they had expected to sell 25,000 cases in their first year. In fact, they had sold nine times that amount. By the end of 2005, [yellow tail]’s cumulative sales were tracking at 25 million cases.  [yellow tail] soon emerged as the overall best selling 750ml red wine, outstripping Californian, French and Italian brands.”

While the winery has made no claims that it is adopting such a strategy in its entry into beer production, it does raise some challenging questions:

What characteristics of beer are holding back new customers? Could Casella remove some?

The taste? The big name brews (think Bud, Miller, VB, Stella etc) tend towards the bland, but there is a lot of variety in the second tier (think wheat beers, stouts etc).  Certainly there are gains to be made in explaining such options in clearer language to neophytes, but a simply “this is beer message” doesn’t necessarily seem the best option. I will be very surprised if Casella if can stumble upon a clearly communicable alternative taste that is an inoffensive entrée into beer-drinking. Bitterness (i.e. ‘hopping heavy’) has become a big fave of craftbrewers, but that tends to play towards those already enamoured with beer’s dominant characteristic. Casella could perhaps go down the sweeter, more malted path… or, more courageously,  the fruity flavoured path (e.g. radler, kriek etc).

The fizz? Certainly the big name brews (think Bud, Miller, VB, Stella etc) have been reluctant to make non-gaseous product. Reductions in bubbles would match up with exploration of less typical styles of beer.

The overtly male/working class associations? Now, this might well be a possible target market.  Brewers have really struggled to ‘feminise’ their product (not helped by an obsession with perpetuating some other-beers-makes-you-fat-but-ours-doesn’t myth). De-rednecking has been the effective message in both the ‘imported’ and ‘craft’ segments, but that tends to have just pushed beer down wine’s snobbery path.  Targeting a more youthful market might require soft-drink/spirits type marketing (and, again, perhaps a sweeter/fruitier palate).

Is beer as confusing as wine? As snobby?

Again, there is some bifurcation here.  Major beer brands are typically presented as simply ‘beer’. Meanwhile, craft-brews tend to play up nuance and complexity, although to varying degrees. I guess if some of the current associations of non-beer drinkers can be overturned then confusion might decline.

What are the big element along which beers and brewers compete?

The Blue Ocean idea is that there are big gains to be made in making the normal battlegrounds less relevant and/or alleviating your firm of the ‘burdens’ of your competitors.

Despite all the discussions above of what’s in the bottle, most folks in the beer business will tell you it’s about access to drinkers (i.e. distribution), and finding a cost-effective production method to suit your intended price-point.  Beer’s core ingredients (malt/sugar, hops, yeast, water) are costlier when chasing more exotic/substantial flavours. Currently the big cost-savings come from large scale in bottling, packaging, trucking, marketing etc  Getting product on shelf and on taps is tough in the face of existing brand loyalties. Finding alternative delivery mechanisms that don’t cost much more is very, very hard (and even tougher given the legal constraints in multiple domains).

Might this just be diversification?

It is possible this is just old-school diversification, and Casella will ‘simply’ aim to leverage some of their current capabilities (in brand management, packaging, distribution, etc). They’re far from the first Aussie winery to go down this path (precedents include Moorilla, De Bertoli and Knappstein), but they’ll be the first with real international muscle.

What Blue Ocean opportunities (if any) can you see here?

 

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2 Responses to “Could Yellowtail ales be Blue Ocean brews?”

  1. Brewtopian Says:

    I would say that they have a pretty good shot at making some impact on the American market. I don’t think they can have the same sort of impact on craft beer that they’ve had with wine but I would have said the same thing about their chances with wine when it first hit the shores.

    I would say their best shot at finding a place in the US market is to target conversions of mainstream beer drinkers to entry level craft drinkers. These are the Bud/Miller/Coors/import lager drinkers that are moving into a Fat Tire, Sam Adams, Widmer, Saranac product line. Good packaging, approachable beers and a good price point will win them a lot of space in the fridge of this demographic.

    The other thing that gives them a huge head start in the market is they are already major players with distributors in every market in the country and have established supply chains and relationships with buyers for the major supermarkets and C stores. They unlike a typical start up craft brewery can have a regional or even national impact almost over night.

  2. Rogelio Melgar Says:

    Hey Andre,

    Its Rogelio Melgar, student for Strategic Management Class 2009. Its good to know you continue to write the blog, I remember reading it quite a lot while in uni. (Now I’ve subscribed).

    I believe that there are definitely some tints of blue ocean on this move. Regardless of its quality the recognition and the brand muscle that yellow tail has in American markets could definitely signify that they take this to a bigger scale, than what the previous competitors have. I understand that other Australian beers have also targeted overseas (FOSTERS), however they are only beers.

    Leveraging on Australia’s wine making reputation and approaching a full scale market with a beeine (beer+ wine hybrid). Is quite an innovative approach.

    Hope you are doing good! Keep in touch!

    Rogelio

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