Casella Wines chief John Casella warns of price war amid China lockout

Wineries with high exposure to China will find it difficult to find new markets at similar volumes and premiums, warns John Casella.

John Casella: ‘You can’t just redirect that volume of premium wine to other markets.’ Picture: Dylan Robinson

The boss of the nation’s biggest family-owned winemaker Casella Wines and its global juggernaut brand Yellow Tail, John Casella, has warned that wineries with high exposure to China will find it difficult to find new markets that pay the type of premiums they could extract from the region and at such large volumes.

Speaking to The Australian from his winery in Griffith, NSW, Mr Casella also said he feared desperate winemakers carrying excess wine in their cellars and warehouses could spark a round of price wars and heavy discounting not only in Australia but in key export markets that could damage the entire industry.

With China now cut off as an export market following its imposition of a 200 per cent-plus tariff wall and other markets such as Europe and North America mired in a COVID-induced recession, the last thing the $45bn Australian wine industry needs is a panic on prices.

Mr Casella, whose business reaps almost $500m a year in sales through its hugely popular Yellow Tail brand as well as more premium labels Brand’s Laira, Peter Lehmann and Morris of Rutherglen, believes many winemakers will struggle to find new homes for the $1.3bn in wine exported to China every year.

“You can’t just redirect that volume of premium wine to other markets. All markets are well supplied, have very strong competitive tension and pressure and it is not that easy just to redirect products and sell them at the same rate that you were selling them to a major market like China,” Mr Casella said.

“Companies like Treasury Wine have supplied high-quality wine at very high prices. That is just going to stop.”

The music stopped last weekend, when China slapped a 160.2 per cent tariff on its wine imported into the country, slightly below the 169.3 per cent tariff applied to Treasury Wine and 212.3 per cent on most other imported Australian wine.

The trade war was blamed on allegations Australian winemakers had engaged in dumping cheap wine in China, but everyone knows it is political payback for a range of slights from the nation’s alliance with the US to calling for a global investigation into the origins of COVID-19.

However, whereas Treasury Wine earns as much as 40 per cent of its earnings from China and the nation is the biggest driver of its profit growth, Casella only exports about 2 per cent of its wines to the Asian giant with as much as 50 per cent headed to the US, where Yellow Tail is the biggest imported wine.

But Mr Casella remains fearful of a price war that could hurt everyone if some wineries panic and look to dump excess wine at any price.

“That is a possibly and will really depend on how clever wine companies are,” Mr Casella said.

“Price wars don’t lead to more sales, they lead to less value for the sale and so we have to be really clever and solid about the way we [as an industry] redirect our product because ultimately if we choose the wrong way we will just destroy value and our brands, and it will be really hard to recover those in the coming years when the volumes rebalance.”

Treasury Wine CEO Tim Ford on Monday unveiled his plan to recover from the lockout of the China market, hoping to redirect some of his luxury and premium wines such as the Penfolds range into other Asian markets and into Europe and North America. He also indicated Treasury Wine had the balance sheet strength to keep much of its more premium wines on its books and protect the brand equity of its wines.