What does a Yellow Tail sale say about the future of cheap wine in the U.S.?
This year’s unprecedented cheap wine sell-off might include an even bigger shocker — a Yellow Tail sale. The $7 Australian supermarket wine is the biggest imported wine in the U.S., but the company acknowledged last week that it had been approached by several prospective buyers. This came after an Aussie financial newspaper reported that the Casellas, the family that owns Yellow Tail, had hired an investment bank to help them sort through the offers.
The Yellow Tail sale news comes on the heels of Banfi ending its 52-year partnership in March with Riunite, the $5 Italian sweet red, plus the Constellation Brands fire sale in April. That’s when it sent most of its $10 wines to E&J Gallo.
Know that almost all of the wine brands in these deals are profitable, and some immensely so. In fact, Yellow Tail is the fifth best-selling brand in the U.S., while Banfi’s marketing agreement with Ruinite helped it sell 2 million cases a year. And Constellation was so eager to rid itself of its cheap wines that it sold them at a tremendous discount and included Black Box, the sixth best seller in the U.S.
Does any of this make any sense? Not really, if this was 1999. But it’s 2019, and the wine business is obsessed with premiumization, and that trumps all. There was an odd and meandering story on wine-searcher.com last week, which asked if popular wine brands could be successful. This seemed, at first glance, like asking if rain was wet. How could something like the 20-million case Barefoot not be successful?
Because, said the article, size doesn’t matter. And, given the perspective of premiumization, that makes perfect financial sense. Whether it’s good business is a post for another day.
Hence, it’s not enough to sell millions of cases of wine anymore, like Yellow Tail, Ruinite, and Black Box. In this, Yellow Tail seems to be a private equity takeover target, just like any other business with cash flow and a well-known brand. The new owners would buy the company with cheap borrowed company, cut costs, strip Yellow Tail of its least profitable assets, goose up the bottom line, and then re-sell it.
Banfi’s CEO admitted it was too difficult to sell cheap wine given premiumization, and that the company would focus on its “premium and luxury offerings.” In other words, wine for the one percent. What a terrifying thought for those of us love wine and who are part of the 99 percent.