Blue Ocean Strategy Applied - An Australian Case Study

The question: 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 logicbenchmarking 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 underlying structure of the US wine industry from the market perspective is best
captured on the strategy canvas which is both a diagnostic and an action framework for
building a compelling blue ocean strategy. Wines, whether budget or premium, imported
(i.e. France, Italy, Chile, etc.) or domestic (i.e. California), all competed head-to-head
with each other and shared the same strategic profiles - their value curves had the same
shape.

In looking at the demand side of the alternatives of beer, spirits, and ready-to-drink
cocktails, which was three times the wine market, Casella Wines found that the mass of
American adults saw wine as a turnoff. It was intimidating and pretentious and required
cultivating a discerning taste.

Armed with these insights, Casella Wines turned to the second basic analytic underlying
blue oceans: the four actions framework. Combining its use with a supplementary
analytic called the eliminate-reduce-raise-create grid, Casella Wines was able to craft a
unique and exceptional value curve to unlock a blue ocean based on introducing three
new competitive factors of "easy drinking", "ease of selection" and "fun and adventure".

The result is "yellow tail" which appealed to a broad cross section of alcohol beverage
consumers.

From the moment the wine hit the retails shelves in July 2001, sales took off.

Casella Wines expected to sell 25,000 cases in the first year. Sales at the end of 2001
were nine times that amount.

Yellow Tail rapidly became the number one imported wine and the fastest growing brand
in the history of the U.S. and Australian wine industries. It is the overall best selling
750ml red wine, outstripping California, French, and Italian brands.

And by the end of 2005, Yellow Tail's cumulative sales were tracking at 25 million cases.