Casella Wines resists price hikes to protect market share for its brands such as Yellow Tail

The family-owned winery whose Yellow Tail wine is the biggest imported wine into the US is fighting price rises to remain competitive, but can’t hold off for ever.

John Casella, Casella Wines managing director, is resisting inflationary pressure to keep his wines competitive, but doesn’t know for how long he can fight the rising cost of doing business.

Casella Wines, whose global juggernaut Yellow Tail label became the most popular imported wine in the US, is resisting lifting its shelf prices in the face of rampant inflation across its key markets in the US, Europe and Australia to maintain market share, but believes price hikes are inevitable.

It comes as Casella has also closed the bidding for the planned sale for most of its vineyards in NSW and South Australia in the biggest vineyard sale in recent history, with a mix of private equity, superannuation funds and real estate investors on the short list to buy the large parcel of vineyards.

Managing director John Casella said there was a strong number of bidders looking to buy up his family owned vineyards and accompanying property, covering 7258ha across 35 properties — representing about two-thirds of Casella’s total vineyard footprint — with the family now going through each bid.

Meanwhile Casella Wines, founded by Maria Casella and her husband Filippo, who migrated from Italy in 1957, and is the nation’s largest family-run winemaker, has ruled off another successful year with revenue only dipping slightly and profits stronger.

Latest accounts for the Griffith-based Casella show the winemaker posted revenue for fiscal 2021 of $499.61m, down from $518.38m in 2020. Profits moved in a different direction – helped by favourable exchange rates and a pull back in advertising and marketing over Covid-19 — with net profit hitting $56m, up from $48.75m in 2020.

It was also a good year for the three brothers and their families who own Casella, as the winemaker paid a dividend of $168 per share that totalled a dividend payout of $9.52m, up from $8.348m in 2020. A dividend to the family of $7.77m was paid in 2019.

Mr Casella said the winemaker, famous for its Yellowtail wine as well as its growing portfolio of other brands such as Brand’s Laira, Peter Lehmann and Morris of Rutherglen, was resisting lifting prices — despite strong inflationary pressures — as it wanted to remain competitive.

But ultimately winemakers would need to lift prices.

“Obviously we are fighting the price rises as much as we can to try to maintain our market share. So there are challenges going forward, how we react to those challenges I‘m really not sure, it depends on the degree of inflation and what margin shrinkage we can accept before we have to move prices,” he said.

“It always plays out in the marketplace with the competitors and what they do, and we will get to the point where we have to increase prices, but obviously the first one to do it will suffer the most so we will see what happens.

“But we’re in a good financial position so we don’t really have to do anything other than what is correct for the brand.”

Mr Casella said the business had performed strongly through Covid-19.

“The UK was quite strong, the growth was phenomenal there, and post Covid-19 we‘ve kept most of the gains. In the US there were solid gains, and we’re beginning to retrace back to pre-Covid sales levels in that market.

“What we saw during Covid was consumers just buying what was familiar or a safe buy and sometimes they‘ll buy multiple bottles because shopping trips actually reduced markedly during Covid-19 as consumers didn’t want to go out so much. So they bought a lot more of what they felt was secure knowing what the quality is going to be like, rather than speculating and trying new wines.”

Mr Casella said the closure of the China market following punishing tariffs imposed on Australian wine didn’t have a huge impact on Casella’s profitability as the company’s margins were a lot thinner in that market which required heavier investments in advertising and brand support.

“China was only a small part of our business and I don’t think China was giving us a big margin as we were reinvesting most of the money in marketing so there wasn‘t a big return to the bottom line.”

In May, Casella launched the sale process for its vineyards with the land up for grabs vineyards that produce grapes for Casella’s Yellow Tail, as well as other brands that feed into its rapidly growing portfolio of wines. The planned vineyard sale includes first-class vineyards dotted across some of Australia’s most respected wine regions, such as the Barossa Valley, Clare Valley, Langhorne and Currency Creek, Limestone Coast, and the ­Riverina.

The decision for the family owned winemaker to sell a large portion of its vineyards marks the biggest single sale of vineyards as one lot in recent history in Australia, and is expected to raise tens of millions of dollars for the Casella family who are planning to inject the fresh cash from the sale into its wine portfolio and create new alcoholic beverage brands, including ambitions for its burgeoning whisky distilling.

During the year Coca-Cola Europacfic, which bough the local bottler Coca-Cola Amatil, decided to withdraw from the Australian beer market and its joint venture with Casella, Australian Brewing Co, which makes the Arvo beer brand. Casella said in its latest financial report it is yet to make any decisions about the ongoing investment in Australian Brewing Co.