Family-owned Yellow Tail wines takes on the beer giants

Casella Wines, the family-owned winery behind one of Australia’s most successful export wines, Yellow Tail, is moving into the beer market.

Casella Wines is launching a premium lager called Arvo in an attempt to lure beer drinkers away from market heavyweights Lion and Foster’s and international brews.

Arvo will be made at a specially built brewery at the family site in Yenda, New South Wales, which has the capacity to pump out 35,000 bottles of beer an hour.

Managing director John Casella told SmartCompany he decided to diversify the business into the beer category late in 2010 and has now invested an undisclosed amount in the state-of-the-art production facility.

“It was a substantial investment, more than we thought, but part of the reason we spent so much money was we wanted to be sure we could expand the facility in the future while keeping production at the same time,” says Casella.

“We could triple or quadruple our production without disrupting our current brew house, so the capital cost is much higher now, but in the long term it becomes lower.”

Casella says Arvo is aimed at the premium market segment, which is around the $50 mark for a slab, a similar price to imported products.

“It gives beer drinkers the opportunities to trade up and still drink Australian,” he says.

“We are the only Australian brewers besides Coopers, the majors are now owned by overseas companies.

“Our barley is such high quality, our water is as pure as it can get, hops are grown in Australia as well, so there is no reason we can’t produce world class brews out of Australia.”

While Arvo beer is launching in Australia, Casella Wines is eventually looking to achieve the same success exporting Arvo as it found with the Yellow Tail label, which has become the most popular imported wine in the US.

The facility has a capacity of 8 million a year, which is 7% of Australia’s beer market, and Casella says that in an “ideal world” the company would achieve this market share with Arvo.

“We are 10% of Australia’s grapes and almost 20% of Australia’s wine export and while it looks like a big figure, it is not impossible,” says Casella.

“The volume potential is quite large. The market is ready for new and different products. We can use our large infrastructure effectively – our expertise in packaging and logistics.”

Casella says it will use its existing sales force of 25 to sell the beer and it has already secured a deal to sell Arvo to Woolworths and its Dan Murphy’s chain.

“We can even cross promote wines and beers,” says Casella.

“We need to settle the Australian market first before we look at export and hopefully we will see some weakening of the Australian dollar, as it is a hindrance in terms of export.”

He says the high Australian dollar has been “an issue” for the company, which has managed to maintain prices through limiting itself to “very low margins”.

The new venture is the first significant threat to the foreign-owned brewers Lion and Foster’s that control 90% of the Australian beer market.

Casella Wines currently brings in group revenue of about $400 million a year from its wine operations and Casella says he expects this figure to stay stable over the next year, depending on the exchange rate.

“We haven’t lost volume in sales, but we have lost revenue in terms of the exchange rate. At the moment our revenue figures are holding par,” he says.

“It takes a lot of courage, but we are a dynamic company and we have to look at ways of increasing efficiency. We believe we understand consumers and have the infrastructure to do this.”