Australian Wine’s Problems Persist In 2011, But Yellow Tail Stands Apart With Success

Australian wine is still struggling in the United States, once a booming market for the category. The top 10 Australian wine brands declined by an aggregate 5.2% in the U.S. market last year, according to Impact Databank, and their performance doesn’t appear to be improving in 2011. For the 12 weeks ending March 20, 2011, Australian table wine was down by nearly 10% by both volume and value in the food and drug channel, according to SymphonyIRI. The food and drug channel represents about 30% of Australian wine sales in the U.S.

But category leader Yellow Tail is thriving in the food and drug channel, and its performance there is driving growth for the brand across the U.S. market. “Our biggest channel growth area has come from drug stores, led by Walgreen’s expansion into wine,” says Tom Steffanci, president of WJ Deutsch & Sons, which handles Yellow Tail in the U.S. “We’re off to a good start in 2011, with Yellow Tail up 3.7% in the first quarter—and that’s without Moscato, which didn’t hit most markets until mid-April. We’ve seen a steady improvement in Yellow Tail trends over the past year, but Q1 2011 was a marked acceleration.”

Yellow Tail’s entry into the burgeoning Moscato category follows successful Moscato launches by several key rivals, including Lindemans and Jacob’s Creek. “Moscato is growing because people like lighter, sweeter wines,” says Francesca Schuler, chief marketing officer at Treasury Wine Estates Americas, which markets Lindemans. Lana Pattinson, marketing director for Jacob’s Creek at Pernod Ricard USA, echoes that sentiment. “Moscato is one of the few growing varietals. Initial signs are looking very positive,” she says.

The category’s low pricing power continues to be an area of concern. The average price of Australian wine in food and drug stores is $5.99—below that of wines from Italy, Argentina, Spain, Germany and New Zealand. Still, Steffanci says Yellow Tail—which accounts for around 40% of Australian wine sales in the United States—is focused on the bigger picture. “We don’t pay too much attention to the pricing of Australian wines because our primary competitors aren’t Australian—and our consumers don’t think of Yellow Tail as just part of an Australian category,” he says. “Pricing at our tier is ultra-competitive, and Yellow Tail (which retails at around $7 a 750-ml) faces constant pricing pressure from competitors, whether via the explosion of private label brands, new entrants coming at cheaper prices or existing brands intensifying their price promotion. While the economy is improving, we haven’t seen much change in the hyper-price sensitivity of wine consumers. That’s why it’s so important that we never compromise on quality. Because ultimately, you can’t fool consumers on quality, and they’re willing to pay an extra dollar or two for a brand that they prefer and trust.”

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