Raising the Bottle Can an Australian wine brand known for its $8 bottles get wine lovers to pay $80 a pop?
To many American oenophiles, Jacob's Creek is synonymous with bargain wines-the kind drunk only where politeness demands it (and sometimes not even then). The Australian brand may produce flavorful reds and whites that offer excellent value, but traditionally the wines haven't held much appeal for people accustomed to first-growth Bordeaux and grand cru burgundies. Nor has Jacob's Creek catered to them.
In the Bottle
The company has big ambitions to change that. It just introduced the 2001 Johann Shiraz Cabernet to the U.S. market at a suggested retail price of $79. It's a price point that will pit Jacob's Creek against highly regarded wines from France's Rhone and California's Napa valleys. Think of it as the vinous equivalent of Honda taking on Porsche.
The company is moving into the ultra-luxury category because American wine drinkers are moving upmarket in their tastes. But that doesn't necessarily mean that the Johann is going to be an easy sell.
Jacob's Creek, which since 1989 has been owned by French beverage-conglomerate Pernod Ricard, is one of Australia's best-known wine brands and has long enjoyed a formidable presence overseas-not least in the U.S., where it has forged a strong identity as a reliable source of lower-priced ($10 and under) cabernets, chardonnays, and shirazes. Last year, the company sold 1.1 million cases in the United States, its best performance to date.
In 2005, Jacob's Creek moved into the luxury end of the American market, introducing two critically acclaimed wines from its Heritage Range, the Steingarten Riesling ($28) and the Centenary Hill Shiraz ($35). The company brought in only 500 cases of each wine, maintaining its focus on entry-level bottlings. Now, says Stephen Brauer, vice president and general manager of Pernod Ricard U.S.A. Wines, the company has decided that the premium and luxury categories are where the growth lies in the U.S. and is adjusting its strategy accordingly.
"People are becoming more confident in their wine knowledge, and as they do, they trade up," says Brauer. "Ten years ago, they were drinking white zinfandel; today, it is chardonnay and pinot noir."
According to Jon Fredrikson, a wine-market analyst in northern California, Americans are indeed digging deeper into their wallets for wine. In 2000, he says, bottles priced $7 and above accounted for 27 percent of total sales of California wines and 59 percent of revenues; last year, the $7-and-up category contributed 39 percent of sales volume and 69 percent of revenues. "You see a lot of new buyers, particularly young adults, and a lot of them have the income and are willing to pay the freight and spend $25 on everyday wines," Fredrikson says.
The decision by Jacob's Creek to put more emphasis on bigger-ticket wines may also reflect the turmoil gripping the Australian wine industry. Several years ago, a glut of unsold grapes and wine sent prices tumbling and pushed some producers into bankruptcy. More recently, severe drought has plunged several major wine-producing areas into crisis. Of greater long-term concern, though, is Australia's growing image as a supplier of cheap wines.
In a blunt speech in London in January, Paul Henry, a general manager of Wine Australia, the governmental agency that promotes the sector, said that the industry had made "serious commercial mistakes" in attempting to compete on price and volume. The focus on bargain wines was a game that couldn't be won against low-cost producers in Chile, Argentina, and other countries, he said, and salvation lay at the premium end of the market.
But premium is one thing; $79 a bottle is something else-particularly when a producer has made its mark with inexpensive wines. Fredrikson points to the experience of E&J Gallo Winery, California's largest. Once known for its jug wines, Gallo has successfully moved into higher categories, but Fredrikson believes that its highest-end wines, which sell in the $80 range, are still tough to move. "I suspect a lot of them are drunk in Modesto restaurants," he jokes, referencing the town where Gallo is based.
Brauer is confident that the Johann will be able to find a place in the market. "We have a long heritage of making serious wines," he says, and the limited-production Johann (1,800 cases in 2001), with grapes from premium vineyards in the Barossa Valley (shiraz) and Coonawarra (cabernet), is "the real deal."
The plan is to hand-sell the Johann, holding tastings for high-end retailers and top sommeliers to get them excited about the wine. But the timing may not be ideal.
According to Fredrikson, shiraz sales in the U.S. have flattened out as wine drinkers have gravitated to pinot noir and that old standby, cabernet. Even top-of-the-line Australian shirazes, which enjoyed robust demand a few years ago-thanks mainly to effusive praise and high scores from Robert Parker-have suffered. (True, the Johann contains cabernet, but it's 64 percent shiraz.)
"They were selling themselves before, and that's no longer the case," says Chuck Hayward of San Francisco's Jug Shop, one of the country's leading purveyors of Australian wines. Jacob's Creek has some hurdles to overcome with the Johann, but Hayward says that the wine will find a place in the market-if the quality is in the bottle.
"It's all about the story that you have to tell," he says. "Jacob's Creek knows how to make great wine, and at that price point, you have to have a world-class wine."Visit Portfolio.com for the latest business news and opinion, executive profiles and careers. Portfolio.com© 2007 Condé Nast Inc. All rights reserved.