The story of Casella Wines, the family business that became Australia’s largest wine exporter, is the story of how one of four children decided to go for it.
What do you do when one of your kids says he wants to borrow a lot of money and dramatically expand the business? The business world is littered with the corpses of family companies that the second or third generation tried to grow too fast while keeping 100 per cent family ownership.
The risks and pressures are enormous and just because someone is born into business doesn’t mean they’re good at it.
But you give your blessing of course. The alternative is that your children wander off to work for someone else, and what’s to lose anyway – it’s their business soon enough.
Twenty years ago John Casella took over what was then a small family vineyard and winery. He was 32, and his then 70-year-old father had had bypass surgery and was forced to slow down.
John wasn’t satisfied with crushing 200 tonnes of grapes and running a small bulk winery – he dreamed of much bigger things that, and decided to go for it.
Filippo and Maria had emigrated to Australia from Sicily in 1950s and settled in Griffiths, NSW, where they eventually bought 50 acres and planted grapes, peaches and prunes as well as four children.
You can only imagine what Filippo and Maria thought when John came home in 1991 and asked for their personal guarantees to help finance a 2000 tonne grape crusher and some enormous new fermentation vats. Where will the grapes come from? Who was going to buy the wine? The bank would surely end up owning the lot.
But John could see there was a growing shortage of grapes. Australians had suddenly developed a taste for wine and new labels like Bob Oatley’s Rosemount Wines and Len Evans’ Rothbury Estates were struggling to keep up with demand.
John used trade credit, second hand equipment, personal bank guarantees to cobble together a winery that had scale. Then in 1995 he got the first of his many breaks: the Arrowfield Winery in the Hunter Valley burnt down and he says he managed to pick up all of their contracts, including Rosemount and Rothbury.
From then on, John Casella’s investment was safe and they weren’t going broke. Next step: develop their own label.
He started with Cottlers Bridge for the domestic market, which was a modest seller against the big labels, and Carramar Estate for export to the United States, which was also developing a taste for wine. He did a deal with a small distributor named Bill Deutsch who was bringing Beaujolais in from France and was looking for an Australian supplier.
Carramar was a disaster. Every second bottle was corked. The wine itself was a soft fruity shiraz oaked with mini-staves rather than in barrels, giving it a distinctive taste, but cork problems threatened to bring down the whole business. He had to act quickly.
The answer was plastic corks plus a label he had bought off the shelf in South Australia for $15,000 called Yellow Tail. The rest of the industry laughed at him: plastic corks and artificial oak? It’ll never work.
In fact Bill Deutsch was quickly on the phone demanding more cases – the wine was walking off the shelves in the US and he couldn’t keep up. John had to virtually focus his entire operation on making Yellow Tail shiraz and shipping it to California.
Working capital was a real problem but he was determined to keep 100 per cent of the business in the family and leant heavily on his bank, NAB, to support the rapid expansion, which they did, thanks to the order flow from Bill Deutsch.
John says he never let the American distributor down even though the operation in Griffith was stretched to breaking point many times.
It was a situation that family businesses dream about: you expand the operation with trade credit and bank finance but still can’t keep with the demand for your product. The business boomed and now sells 8.5 million cases of Yellow Tail into the US and turns over $370 million, although it would be more if the Australian dollar weren’t where it is.
Profit is $20 million and ownership is shared equally between the three brothers still in the business – John, Joe and Marcello (their sister Rosa left in the 1970s). The cash is all ploughed back into continuing to the business, which now involves moving into beer, with Coca Cola Amatil.
Already Casella is the second biggest independent beer producer in the country, after the Cooper family in South Australia, and once CC Amatil comes out of a non-compete on December 16th next year, their joint venture will mount a major attack on CUB’s and Lion Nathan’s market share. Initial capacity will be enough for 15 per cent of the local market.
Later today John, Joe and Marcello will sit down to discuss the future of their business, including exporting the beer along with the wine, or even more likely – making beer in the United States.
John says the good thing about beer is that it’s 96 per cent water and glass and the hops can be brought from anywhere. With wine, the grapes have to be grown locally – he could never make Yellow Tail in California. The joint venture with CC Amatil is recognition that the family can’t do it alone this time.
As for the next generation, John, Joe and Marcello reckon that if you expect your children to follow you into the business, they won’t, but if you don’t expect it they’ll be pushing you aside. Between them they have seven children and the business is on a path to grow as quickly in beer as it did in wine over the past decade.
They have had plenty of offers over the years, but have never been tempted to sell. And that’s really the hallmark of a successful family business: finding ways to grow while keeping the business in the family.
Every week Alan will be writing about an Australian family business success story. If you know of a family business that deserves recognition, email firstname.lastname@example.org
Follow @AlanKohler on Twitter