The Yellow Tail Wine Story.

How Blue Ocean Strategy helped them change the wine world forever.

How do you create a blue ocean in a $20 billion US wine industry with over 1,600 wineries which faces intense competition, mounting pressure, increasing bargaining power on the part of the retail and distribution channels, and flat demand?

The US wine industry in the late 1990s competed on factors which were viewed as key to the promotion of wine as a unique beverage for the informed wine drinker, worthy of special occasions. Conventional strategic logic-benchmarking competitors, choosing either differentiation or low cost, offering more for less - over-delivering on prestige and the quality of wine at its price point - dominated the industry.

The case demonstrates how the U.S. wine industry was overcrowded, highly competitive, and increasingly squeezed at the distribution and retail stages of the supply chain.  Even though the industry was intensely competitive, wine manufacturers have systematically competed along the same set of factors that have hardly changed over the last few centuries.  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.

This case examines the strategic move executed by [yellow tail] that made it the number one imported wine and the fastest growing brand in the history of the US and Australian wine industries.

Yellow Tail is a dramatic example of a Blue Ocean Strategy. Here are the steps that any company can take to get out of the red ocean of competition:

1) Eliminate factors that the industry takes for granted but adds no perceived value to customers. Casella Wines recognized that most wineries touted aging and tannin qualities, two factors that intimidated customers. Casella decided to focus their efforts on different qualities.

2) Reduce factors well below the industry’s standard to avoid the mistake of over delivering in order to beat the competition. To avoid customer confusion, Casella Wines limited their offerings to just one white wine and one red wine.

3) Raise factors well above the industry’s standard so your customer won’t have to make compromises. Casella Wines raised the involvement of retailers with [yellow tail]’s success by giving retail employees Australian outback clothing that made [yellow tail} seem friendly instead of intimidating like other wines.

4) Create new sources of value that the industry has never offered. Casella wines created new customer experiences for wine drinking: easy drinking, ease of selection, and a sense of fun and adventure.

If you are ready to discover your Blue Ocean Strategy, contact us today.