Insights from Yellow Tail's blue ocean strategy for startups

I’m currently helping a Conwy Valley farmer, Rhys Edwards, create an online business for his brand of farm-produced country wine on an industrial scale from his hillside land. On our first meeting, I knocked on his farmhouse door to be greeted by a friendly, physical handshake and a beaming smile: Come on in, would you like a drink of my wine? Was the first thing he said. He’s always looking for a victim said his wife.

Right, I’ll be back in a minute. He disappeared into a large pantry at the end of the kitchen and came back with a bottle of amber liquid and two glasses. This is my rhubarb he said, tipping two good measures. I took a sip. And gasped as the liquid blazed a fiery trail down my throat. It’s strong stuff I said breathlessly, but it was very pleasant indeed. Yes, two years old. I drained the glass, and felt glowing tendrils creeping along my limbs.

He jumped up and trotted to the pantry to emerge with another bottle, a clear, colourless liquid. Elderflower, he said. When I tasted it, I was amazed at the delicate flavour dancing on my tongue. Smashing. I never thought farm wines could taste like this. I sipped appreciatively. I hadn’t got more than halfway through it before Rhys was clattering inside his pantry again, emerging with a bottle of blood red liquid.

You try that! he gasped. I was starting to feel like a professional wine taster and rolled the first portion around my mouth with eyes half closed. Wow! A fruitiness in the background. Blackberry, one of the best I’ve done. Leaning back in the chair, I took another sip. It was warming, a hint of brambles. I saw heavy-hanging clusters of berries glistening black and succulent in the autumn sunshine.

Rhys ambled over again to the pantry and reappeared with two more bottles. What a charming man! Wide eyed and impassioned he told me about the niceties of fermentation and sedimentation, of flavour and bouquet. We discussed learnedly his plans for his startup online venture. I sat spell bound listening. And drinking.

We tasted more with meticulous attention - dandelion, gooseberry and crab apple. Incredibly he had turnip wine, which was exquisite. Everything gradually slowed as we sat there. Rhys’s pantry visits became laboured unsteady affairs, sometimes he took a roundabout route across the kitchen. ?Eventually it was time to go home – I called my wife to pick me up, and I left with four bottles.

We’re now just a few weeks away from launch of his online venture. I promise we’ve been talking and planning and thinking, not just drinking. But how do you take the idea of Welsh Farm Wines startup to launch as a new venture, into a mature, crowded market? ?

Most startup strategies tend to focus on working out ways that they can perform better than the existing competitors by having a ‘different’ product. The size of the market, however, remains constant and startups are trying to corner a market share. Some do have an innovation edge that enables them to create their own new markets – Airbnb for example - but few really achieve greatness with this approach.

With Rhys, I’ve been adopting the Blue Ocean Strategy?- a business strategy methodology to explore uncontested marketplaces – ‘blue oceans’, where there is plenty of open space, as opposed to ‘red oceans’ where there are many competing firms and the ocean red from the blood of frantic competition. The thinking is to avoid the sharks of an overcrowded market and go fishing where there is clear, uncontested water. In blue oceans, demand is created rather than fought over.?

It’s a methodology which I’ve used many times with startups to make blue oceans attainable. The story of Yellow Tail wine, launched in 2001, is a case study relevant to how I’m helping Rhys; here’s a summary of their approach to strategy development.

Historically, the wine industry promoted wine as a refined product with tradition. This alienated many potential consumers who viewed wine as pretentious. Alternatives -?beer, spirits,?and cocktails - captured three times as many consumer-alcohol sales. The Australian winery?Casella Wines addressed these challenges with a strategy that?transformed the market, but not by competing on traditional factors. They used two key blue ocean strategy tools.

Strategy Canvas The strategy canvas is an two-dimension framework that analyses those factors on which companies compete in the market. The purpose of the strategy canvas is to help a startup to work out ways they can attract the attention of customers and non-customers so that they ignore the competitors.?Casella used this framework to identify the existing market dynamics and where the gaps and unfilled opportunities were. They applied this analysis to the four actions framework.

Four actions framework Casella created Yellow Tail,?a fun, non-traditional wine brand designed to?embody?the characteristics of Australia's?culture - bold, laid back, fun and adventurous - that appealed to a broad, cross-section of consumers using the Blue Ocean Strategy ‘four actions framework’:

The four actions framework is used for building a new customer value curve and to eliminate or break the trade-off between differentiation and low cost, Startups need to ask four vital questions:

• Eliminate:?Which of the factors that the industry takes for granted could be?eliminated?
• Reduce:?Which factors could be?reduced below?the industry’s standard?
• Raise:?Which factors should be?raised well above?the industry’s standard?
• Create:?Which factors should be?created?that the industry has never offered?

A startup ?can use the information from the first question to eliminate those factors which had contributed some value in past but no longer had much value for today’s consumers. The answer to the second question can compel us to consider reducing those factors which had been over-designed in order to compete in the market. By using the answers to this question, the cost structure can be reduced. The third question can be used to increase the standards by improving certain factors and the fourth question can be used to discover new sources of value for buyers. Yellow Tail created a new market adopting this approach:

• Eliminate:?Enological terminology and distinctions; ageing qualities; above-the-line marketing
• Reduce:?Wine complexity; wine range; vineyard prestige
• Raise:?Price versus budget wines; retail store involvement
• Create:?Easy drinking; ease of selection; fun and adventure

Yellow Tail was marketed as an uncomplicated, fruity wine that was instantly appealing to the mass of alcohol drinkers. It was sold as a social drink, not for wine drinkers. By dramatically reducing the range of wine characteristics, Yellow Tail simplified a wine choice many consumers had traditionally seen?as overwhelming and intimidating.

Yellow Tail removed all technical jargon from the bottles and created a striking, simple?and non-traditional label. It leapfrogged its competitors and grew its market by bringing in non-wine drinkers to offer an entirely new experience, making the existing rules of competition irrelevant. In just two years, Yellow Tail?emerged as the fastest-growing brand in the histories of both the Australian and the American wine industries, and the number-one imported wine into the United States, surpassing the wines of France and Italy.

I took the strategy and tactical takeaways in the Yellow Tail story for Rhys. Here’s a summary:

Clear Vision Casella’s mission was to make wine that people could enjoy on a regular basis, removing the perceived complexity of wine. The global wine industry was overcrowded and highly competitive so they needed to create a brand and a product offering with a clear point of difference

Rhys will replicate this and set out to mark the appeal of Farm produced country wine – a new category - making it approachable, accessible and enjoyable for everyone. We’ll replicate the Yellow Tail vision - that wine can be inclusive and bring people together through everyday moments as a social drink, not just for wine connoisseurs.

From this, we will execute three other strategic drivers:

Create your own market space Yellow Tail was designed to demystify wine, positioning itself in an unexploited market segment by creating value and differentiating itself from established competitors. It increased the available customer base not by winning market share from existing wine drinkers but enticed non-customers to use their product – uncontested market space, creating new demand – from adjacent markets of beer, wine and cocktail consumers.

Focus on the target customer Yellow Tail focused on their target customers and designed the right product at the right price. So many wines from established regions told the consumer what they?should?like, but they just wanted to give them what they wanted. The palate-friendly, well-priced Aussie wine with eye catching packaging couldn’t have been more spot-on.

Address the choice paradox In the traditional wine market, brands differentiated their wine by grape varietals, aging, smoothness etc.?Yellow Tail stripped all this back and helped people in quicker decision-making. Make a customer’s life simpler: farm country wines from home grown fruit.

To execute this strategy, let’s look at four tactics Casella employed and I’ll be seeking to put into Rhys’ business model:

Branding Yellow Tail wanted to be synonymous with Australia. Their research revealed that the wallaby image instantaneously brought the Australian association to the consumers’ mind.?The yellow-footed rock wallaby tail is ringed brown and yellow, its paws are yellow. Casella took that as inspiration and derived the brand name and added double brackets -[yellow tail] – just to be different.

John Casella says We were looking up for a technical description of a wallaby in a textbook. In the margin, alongside the Latin derivation of the name, was the Australian version, in brackets. So, we added those square brackets -[yellow tail]. We decided to keep the brackets to set the wine apart from competing brands. We also used the lower-case lettering to underscore the wine’s lack of pretension. A brand that is down-to-earth and has a fun-loving attitude.

Product Yellow Tail’s first objective was not to compete with premium wines, so it created a wine that people would purchase because it tasted good and be an everyday drink, and without the traditional complicated purchasing assessment.

Yellow Tail’s product innovation strategy was to produce wine without tannin and acid to appeal to consumers who didn’t drink it. It developed an approachable soft and sweet easy-drinking wine that did not require years of experience to develop an appreciation for - that’s the main value proposition.

Packaging Yellow Tail packaging comes with no wine jargon, just simple text and vibrant colours. Consumers can read the name of the grape variety on a simple label featuring an orange Kangaroo on a black background:

For three generations, the Casella family has been making wine at their winery in the small town of Yenda in South Eastern Australia. It is here that [yellow tail] is created with a simple purpose in mind: to make a great wine that everyone can enjoy. [yellow tail] is everything a great wine should be. It’s approachable, fresh, flavoursome, and has a personality all of its own.

Marketing Yellow Tail did not employ promotional campaigns, mass media, or advertising. They focused on in-store promotions with shop employees as ambassadors, with wine-tasting events for consumers. Yellow Tail’s colourful packaging created an easily identifiable product identity that stood out from their competitors’ classic white labels, usually sorted by countries, alphabetical order.

As a result of this smart, coherent strategy and tactics, they sold 1 million bottles in the US in year one, far exceeding the predicted 25,000 sales.

Successful subsequent new product launches have followed the blue ocean strategy, including Jammy Red Roo and Yellow Tail Pure Bright, an entry in the lower calorie alcohol segment. The brand’s revenue has grown to $359m in 2021.

Rhys and I will spend more time at the farmhouse table quaffing his farm wines and thinking about replicating the Yellow Tail strategy. Apply this thinking to your own startup; don’t just focus on your product, think blue ocean, and create your own market space, making the competition irrelevant.