Posted on | March 1, 2006
Written by | Kristen Wolfe Bieler
By the time the wine industry began to view [yellow tail] as a force to be reckoned with, the revolution was already well underway. The seemingly innocuous Australian brand, which W.J. Deutsch & Sons, Ltd. launched in 2001, was certainly not the first competitively priced Aussie wine to hit our shores; in fact, it arrived when many believed the segment was at a saturation point with brands like Lindemans, Rosemount and Penfolds which were already wildly successful. But “wildly successful” was a term that [yellow tail] quickly redefined when it leapt from zero to 112,000 cases in its first year to 7.5 million cases in 2005.
To say that [yellow tail] is one of the most dynamic brands we’ve seen in decades is not an understatement. In 2003, [yellow tail] earned the top spot in the imported wine category by overtaking Concho y Toro, and this summer, it surpassed Sutter Home to become the country’s number one supermarket brand. So how did a small family importer build the hottest wine brand in the industry?
That is the question we posed to William J. (“Bill”) Deutsch, chairman and chief executive officer. He founded W.J. Deutsch & Sons, Ltd. 25 years ago, with a solid 20 years of experience in beverage alcohol behind him at companies like Austin Nichols and Somerset Wine Company. “In 1980, I came to the realization that by being a family importer working closely with family wine producers selling to family distributors and family retailers and restaurants, we could carve out a niche and work around the big corporate wine and spirits companies,” Deutsch explains. “We’ve always had a greater sensitivity to their needs and can act on things much more rapidly than the big corporations.” But it’s safe to say he had no idea how large a little Australian brand his company introduced in 2001 (in partnership with the Australian-based Casella family) would become. “[yellow tail] was priced well ($5.99-$6.99), packaged in a unique way (one of the first to have an animal on the label) and immediately struck retailers as over-delivering on quality for the price. Retailers began recommending it to customers who recommended it to their friends and families and the momentum began to grow east coast to west.” Which all sounds fairly uncomplicated and straightforward.
“Quite a Mouthful”
Convinced there was more to this puzzle, we asked Peter Deutsch, president and chief operating officer, who joined his father’s company in 1985, the exact question his competitors pay marketing firms millions of dollars to try to answer: How does one create a brand like [yellow tail]? “It’s a question that doesn’t have a simple answer,” he says. “There are a lot of successful brands in the marketplace, but when you see a brand like [yellow tail] that has so quickly achieved such size and velocity, you have to look back at a number of components.” First, he credits the product, an unbelievably consumer-friendly wine which “the American consumer has an enormous affinity for.” Wine drinkers, he observed, quickly came to see [yellow tail] as “quite a mouthful of wine for the price.” Second, there is the complicated process of bringing a product to market in the U.S. with fifty different sub-markets governed by different laws. “Our distributor relationships enormously impacted the speed with which this success took place. It is very difficult to launch a new product in a consolidating marketplace. A lot of people don’t want to put the time and effort into building something from scratch, but we were lucky to have really strong relationships with our distributors.” Third, Peter points to the $24 million marketing campaign – perhaps one of the most aggressive ever for a wine brand – which continues to catapult the brand forward as well as maintain its integrity. As a result, he believes “consumers still see [yellow tail] as a discovery brand; it isn’t perceived as mass market.” And finally, a very sucessful partnership with the Casella family in Australia has contributed immensely.
The bottom line, according to Peter, who has spoken to scores of retailers and restaurants, is that no competitor has yet come to market with a better quality wine for the price with the same resonating package and message. “We know our customers have tried other brands, but they seem to keep coming back to [yellow tail]. I don’t think our competitors have yet solved the riddle.”
And it’s not for lack of trying. In the past few years the market has witnessed a deluge of animal-themed labels, many with more than an uncanny resemblance to the [yellow tail] moniker. Some have since disappeared, and those that remain enjoy only a fraction of [yellow tail] volume. Partly, this has to do with the uncommonly high level of consumer loyalty the brand has earned, which translates into retailer support, says Roy Danis, executive vice president, sales and marketing. “Retailers know they can stock [yellow tail] and be assured of repeat business, or they can take a chance on a competitor and hope that the consumer comes back and purchases again. As a result, our retailers naturally choose to support a brand like [yellow tail]; it’s a sure cash register ring. Right now there is no other wine brand in the industry that moves with that kind of velocity.”
The W.J. Deutsch World Beyond [yellow tail]
One might imagine it would be hard for any other wine to co-exist in the same portfolio as a brand this successful, but it seems that quite the opposite is true. Rather than being drowned out by the blinding spotlight on the Australian behemoth, W.J. Deutsch & Sons’ other brands are basking in its light, benefiting from the increased leverage with distributors and manpower investments that [yellow tail] has afforded the entire portfolio. “One of the things we’ve been successful at is balancing what’s required to take a dominant brand like [yellow tail] to market and also manage the niche brands in our portfolio by keeping them top of mind at the wholesale tier and with our sales force,” says Roy. “Our distributor partners know that there is a lot more to our portfolio than just [yellow tail].”
The W.J. Deutsch & Sons portfolio today consists of just over 20 international suppliers, including Georges Duboeuf, Pommery Champagne, Carmen, La Francesca, Kunde Estate, Artesa, Esser Vineyards, J. Vidal Fluery (owned by Guigal), Andre Lurton, Sparr and Osborne among others. “Our portfolio is not chosen on volume alone; we want diversity,” says Bill, who adds that they insist that each brand they acquire possess five elements, or “the five ‘P’s: People, product, package, promotability and pricing.” The last element is particularly important to him: “We get very upset by so many wines out there that are overpriced and ripping off the consumer! I get thanks from retailers all the time for our price continuity. So many importers raise prices after a brand catches on. Restaurants add our wines by the glass because we try our best to maintain price consistency.”
[yellow tail] aside, the W.J. Deutsch team has an impressive track record of brand building. Bill, Peter and Roy have a combined wine experience of over 100 years. They’ve watched consumer behavior evolve and they apparently know what the market is looking for. “The most evident change with consumers is the movement toward fruit-forward, easy drinking wines, which has really evolved in the last 5 to 7 years, and [yellow tail] has had a lot to do with that change,” says Roy. Consumers have gotten more sophisticated and more educated about value. They’ve gotten smarter about what sort of quality they can get for what they are paying.” But while sophistication levels are rising, Peter is adamant. “Sophistication doesn’t mean complexity. Consumers have been tortured with a sea of new products, regions and labels and they are telling us that they value simplicity.”
Bill believes that the retailer’s evolution has been just as dramatic. “Back in the early 1980’s, retailers used to sit behind the counter and wait for customers to come in. Today they’re knowledgeable and on the floor, hand-selling wines. Their stores are fine-wine oriented and they’ve become so creative in their advertising.” The vastness of the wine world today has made the game much more competitive; all the more reason to understand what the retailer wants and needs. According to Peter, “the retailer should be paying attention to our portfolio because we have a record of winning brands; it’s not a collection of hopeful opportunities. Secondly, we have a long-term strategy, and the retailer can count on a major investment in our brands to raise consumer awareness. We want the retailer making money with our brands. It’s worthwhile for the retailer to consider that when they decide where they want to put their time and energy.”
Looking into the Crystal Ball…
If W.J. Deutsch has shown it is good at one thing, it’s forecasting future consumer behavior. [yellow tail] is staying ahead of the curve, releasing a 2004 Pinot Grigio last May; the first Pinot Grigio to leave Australian shores (their partner, Casella, had to plant their own vines since the grape virtually doesn’t exist Down Under). All 200,000 cases were sold soon after its release and Casella is scrambling to make more. The brand’s Riesling will hit shelves this Spring, and they anticipate similar reaction. After that, the baseline will remain unchanged and the company will continue to focus on the [yellow tail] Reserve line which they launched two years ago. Last year, the line added three new varietals for a total of five. Peter explains: “It’s been challenging to get the same rate of turnover as we have on the base brand, but the reserve tier is starting to pick up steam. It’s been a way for us to solidify in the consumer mind that we are a brand based on quality.” The Reserves – which retail for $10 and above – “offer greater margin opportunities for all our trade partners,” says Roy. “We think we can become the dominant under $10 brand in America and the dominant over $10 brand in America.”
But even though [yellow tail] might be one big basket, the Deutsches aren’t about to put all their eggs in it. “Let’s be realistic. [yellow tail] brands don’t come along that often. If we’re going to continue to be successful, we need to build many other successful brands,” says Roy. “We have a track record of building brands from case one. We have, in fact, done that with La Francesca, our Pinot Grigio from Italy. This year we’re projected to sell 150,000 cases.” The company is about to explore new terrain with an entry in the spirits category. “We’ll always be committed to wine, but we see tremendous opportunity in the imported spirits category, and we’ll be launching a new entry this spring,” he shares. The team will also unveil their new fine wine division, which will essentially split their portfolio into two companies and open the door to more acquisitions at the high end. “We want to accommodate those products that might be a bit more niche, and require a bit more of a hand-sell than the more mainstream brands,” Peter describes. “We’ll be making a significant investment in manpower and marketing to drive that section of our business.”
And although they have volumes and profits similar to many of the big companies, they remain different in many important ways. “We’re a family company, so we have no quarterly dividends to meet,” says Peter. “We know that a short term play, that will only include problems down the road, isn’t right for us, so we focus on a long term strategy. This is one thing that separates us from the competition.” While W.J. Deutsch is a radically different company than it was five years ago, it is still surprisingly lean; 161 employees (96 salespeople) moving nearly 10 million cases, up 630% from 2001. “Because we’re not saddled with red tape, we can do things our competitors can’t, like move swiftly in response to current trends,” Roy says. “We launched [yellow tail] in 2001 and had three new varieties within six months. Big corporate companies have difficulty moving that fast.”
Proud of what they’ve accomplished, the three take nothing for granted. “The industry is changing. We believe that the companies that anticipate those changes, and can react, are the ones that will be successful,” says Peter. “The importance consumers place on third-party endorsements when they are buying a bottle of wine will not disappear, but retailers are the ones that place our bottles in the hands of our customers. No matter how big we become, that’s how my father has operated for 25 years and we’ll never forget that moving forward.”