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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2009 in Review

Ooops, I’m a little later this year with my reflections on 2009 as a blogger (last year I managed to do it on New Years Day – oh well, better late than never).

I can tell you that I post exactly 100 times (but 42 of those were in the first 3 months), and that there were just over 14,300 visits to the site. January and December were the two busiest months, with about 2000 visits each. The busiest day was Dec 2 when this post got over 200 clicks.

The most popular posts from 2009 were:

#1 Can Aldi beat Wal-Mart?

#2 A juicy tale of international expansion (about Boost Juice)

and very strangely, one about toilets at #3 Toto, we’re not in Tokyo anymore…

The aforementioned Dec 2 post Why don’t more producers sell on-line? came in at #4 (and thus has the highest average visitors per day).

#5 confirms a retailing bias with Capabilities do matter (about Zara, Ikea & H&M)

And the post from 2008 asked is there Too much Wii in this Blue Ocean? still attracts loads of readers.

Thank you to all who have visited, commented, argued and critiqued. I relish the engagement and the challenge. Here’s to a great 2010…

A new Tune for Aussie accommodation market?

Low-cost expert Tony Fernandes (the man behind Air Asia) is launching his Tune discount hotel marque in Australia.

This is no-frills, low-cost at a pretty spectacular level. All you get is a clean room with a comfy bed (according to the firm) and shower. Every single extra (i.e. breakfast, a towel, hairdryer, toiletries, air-con, wi-fi) have a price, none of which seem exorbitant.

The company saves big expenses by not wasting space on gyms, lounges, restaurants, pool, or varied fitouts (i.e. suites etc), and on excessive and unwarranted laundry and other services, and the consumers shares in some of those cost savings.

As the article argues, other firms (such as Accor) are in this domain (e.g. Formule 1) but it strikes me that this slight tweaking of the model might work better. If the price point is a little lower (say $40-50 a night) and the locations satisfactory (i.e. very central), this offering may well bridge the gap between:

(i) the hostel market (which is highly idiosyncratic and uncertain for the customer),

(ii) the motel market (ditto, plus with very car-dependent locations), and

(ii) the low-end hotel chains (which often seem poor quality for the price)

You’d also think that South East Asian brand awareness might also assist in attracting customers in Australia (both from Malaysian, Indonesia and around plus other international travellers continuing on in their journeys).

In a business strategy sense, you could argue that the challenge for Tune is to capture as much of the tightar$e traveller niche (i.e. Focused Low Cost dominance), or alternatively shift the Willingness to Pay algorithm for a big chunk of the broad market (i.e. a Broad Low Cost play).

Blue Ocean proponents will no doubt view this as a creating new market space, on the ground of the bridging above, although the existence of the three current competitor groups should call that into doubt.

As an aside, I’m curious as to whether Aussie councils will allow such a garish paint job… and what Coke thinks of the logo…

Too much Wii in this Blue Ocean?

I am certainly not alone in relishing my user experience with a Nintendo Wii. Nor am I the first person to think about the Wii strategy as clearly Blue Ocean.

For those of you who haven’t encountered this concept, Blue Ocean Strategy is the idea, as espoused by two INSEAD academics and consultants, that firms will reap much greater rewards from seeking out a competitive space where they encounter few or no competitors. Doing so requires firms to identify non-customers who are ignored by current competitors in the red-ocean market space (it is red because of the “blood in the water”), and then offering them new and unexpected sources of value.

The Wii strategy fits this definition on several fronts. It targeted non-gamers, such as females, families and all of us folks who sneered at hardcore gamers. The Nintendo president has described the firm as “swimming in a clear sea teeming with women, pensioners and repentant couch potatoes” . It broke the nexus between console innovation and chip technology. It made gaming more of a collective, social, family endeavour. It did not pursue the console as a loss leader (i.e. didn’t adopt the razor model – ‘charge a little for the handles but a lot for the blades’). The firm reportedly makes a nice profit on the consoles (unlike Sony and Microsoft who drop >$100 on each pricey console they sell but hope to make it back on games sales to their frequently purchasing customers).

This analysis highlights the extent to which Nintendo’s new value proposition is built around fun (and the elimination of costly elements that the new customer segments weren’t after anyway, such as the ability to play movies or experience hyper-real graphics). There is further discussion of the Blue Ocean arguments here.

Most of these discussions have ignored the other key (non-Blue Ocean) strategic advantage that Nintendo have – that they control a greater proportion of their Value Chain than their rivals. Nintendo do much of their game development in-house, and thus reap greater returns from the decision of consumers to choose the Nintendo format over others. As Forbes has noted, the biggest sellers for the Wii are Nintendo’s own products, and not having to pay license fees (plus the simpler technology involved) has kept game prices down (and thus sales up).

Of course, this also means Nintendo bear the risk of any new game failing. For example, there is considerable doubt in the market about the Wii Music offering. The general criticism is that it doesn’t match up to our typical expectations of a game – it is too educational, with no clear winner/loser. But isn’t that what Blue Oceans are all about?