Robert Mondavi and The Wine Industry Case Study By Elizabeth Kulin Mondavi is a winery worth $600 million

located in Napa valley California. It has stake in 16 different brands through various types of ownership and partnership businesses. Its focus is in premium wine, and although the company has partook in different types of acquisitions and mergers, it is now (in 2002 when this case was written) has decided to grow organically, rather than through acquisitions, and position as a US luxury premium winery. This strategy is hoped to counteract the negative decline in sales and growth in competition that Mondavi experienced at end of Q2 FY2002 brought on by economic decline and increasing competition. At this time, Mondavi was ranked #8 in the US and #13 globally in market share percentage. They have strong presence in the premium wine category. The case states that premium wine sales have grown 8-10%. Additionally, as stated on page 2 of the Case “Robert Mondavi and The Wine Industry” by Michael A. Roberto, “since 1994…demand increased for premium wines, while consumption of inexpensive, lower-quality wine had failed. Industry analysts expected the demand for premium wines to grow at 8010% per annum for the foreseeable future.” This means that not only is this category increasing in demand among consumers, but also that consumers are and expected to continue to be, willing to pay higher prices for wines of better quality. However, there are industry and market threats that must be considered, such as the economic decline of the US and larger competition growth in the wine industry. Key issues for Mondavi at this point in time (end of Q2 FY2002) is competition of rival firms of premium wine, large-volume producers entering the premium wine category, and global alcoholic beverage companies who were entering the category through acquisitions. These multiple types of beverage companies are entering the premium wine category because the market opportunity and consumer behavior towards purchases of higher quality wines. For Mondavi, this trend could be the answer to their sales decline problems. Exhibit 2 shows that Mondavi’s local Napa brands decreased in sales volumes during 2002 first 2 quarters, as well as in net revenue. However, its imports (which are priced higher) grew 10 case sales and 7.8% in net revenue. At the same time, producing premium wine independently includes multiple costs; such as land purchasing, development, crushing, barrels, and bottling. These costs are important factors to consider when deciding how to grow the Mondavi brand portfolio. In detail, the cost of growing grapes includes land purchasing of $100,000 in Napa per acre. Mondavi owned 9,7000 acres of land in California. Additional costs are land development into vineyards, which were about $33,000, and $75 per day per worker. Post land development costs include $15,000 tanks (for 25,000 liters of wine, for 20 years)~$1.00 for bottling, and

556 less in Q2 FY2002 than by Q2 FY 2001 (or 11. barrels.40 gross profit per bottle (assuming gross profit quoted in exhibit 9 is omitted of land purchasing cost). Finally. 2002 may be a loss in sales for the company. OR. by Q2 FY2002 the company is already 9. Mondavi has two choices: Focus on expanding the sales of wine from grapes gown in their vineyards.00. at $1. or (4. If Mondavi were to acquire grapes. Although the initial cost of international joint ventures and buying grapes would need to be analyzed and contrasted with the cost and revenue potential difference from internal growing. they may be able to produce wine at lower costs.133/12) 344 cases. Mondavi could increase profits for 2002. and sales force per harvest). Additionally. Average superpremium wine retail price is $12.406.000 liters of juice. that equals $1158 in revenue per ton or $658 in gross profit per ton (at premium gross profit average). profit would also increase.2-3% of sales for marketing. or 3.8% negative in 2002 from 2001. Buy grapes: Cost = $500 per ton of grapes (average California price for grapes p. if Mondavi can increase revenue.40 per bottle in gross profit EBIT (post EBIT.100. If the company can keep costs down. if they acquired imported grapes (if the cost justified the potential revenue and profit). and some production costs (or only be responsible for 50% if within a JV) but be rewarded with higher gross profits and margins per bottle sold. Mondavi could avoid land purchases. Produces 620. so is competition . Winery makes $1.000/750) 4. At the same time. By decreasing cost and increasing revenue. net profit = $. they could leverage from the import sales growth they have been experiencing. Mondavi would have to harvest each acre at least 18 times to pay off just the cost of purchasing the land (not including all additional production costs such as development.000mls. bottling. Focus on selling wine from new acquirements of grapes.786 per acre.40 per bottle in gross profit of premium wine. development.133 bottles of wine. exhibit 1 shows that COGS are 15. Exhibit 3 shows 2001 Mondavi sales up 18% from 2000. Therefore. or 827 bottles. crushing. that equals $5.100. Furthermore average pricing per bottle of import wine is set almost 80% higher than premium wines average prices (exhibit 13) and additionally. Therefore. However. which means that each acre produces (3. 1 bottle has 750mls. but as exhibit 2 shows.00)*100]. 21)). Mondavi has seen a consumer interest in this wine category and therefore could jump on this market opportunity.9%).100 liters of juice. although industry forecasts that premium wine will grow among the consumer interest. they may be able to offset the negative effect from the declined sales revenue. each acre can produce ~3.47) or 23% gross profit margin [1-(4. At $1. by buying or partnering with international vineyards. per harvest. therefore. Cost and Profit analysis: Land purchasing cost: 620 liters of juice per ton of grapes and ~5 tons of grapes per acre is produced (620*5).

and gather feedback from the . While competitors spent money pursuing acquisition strategies. New World wine producers invested heavily in technology to create a consistency of quality in their wines and to reduce operating costs. and the European market remained highly spread apart by region. Despite these types of consolidations Mondavi remained an independent company relying on the U. while Europe still consumed a great deal of table wine. and luxury wines. Executive Summary Since 1966 Robert Mondavi has been creating innovative wines and today is one of the world’s finest brands valued at $600 million. popular premium. A shift toward high quality premium wines is occurring in many wine producing countries such as the United Kingdom. Mondavi and general wine sales have slowed forcing the global wine industry to consolidate.S. each specific to a different market segment. market for sales. wine producers extended the brand to an entire line of products.S. and lastly alcoholic beverage firms diversifying into the premium wine market. They provide key information on marketing and promotional campaigns.. wine industry. In the United States. and also employees nearly 200 sales representatives to market the company’s brands to independent distributors and large retail outlets. Mondavi chose to focus on the organic growth of its popular premier brands. ultra. After developing a recognizable name.S. and potentially (depending on the strategic situation of buying grape sources) lower cost for Mondavi to produce. In terms of distribution Mondavi sells its wines through more than 100 independent beverage distributors in the U. jug wine sales had declined approximately 3% per year over the last 10 years. super premium. Industry consolidations began to occur to New World producers by premium wineries purchasing or merging with rivals.and market sharing. while 20 firms controlled 75% of the U. There is an obvious market trend among Mondavi wine consumers for their import brands. Due to the recent economic downturn. while premium wines increased 8% to10% annually. Currently 4 firms account for 75% of wine sales in Australia. which are higher priced. jug wine producers’ acquiring premium wineries in order to keep pace with changing consumer tastes. Today the global wine industry reports retail sales ranging from $130 to $180 billion in the classifications of: jug or commodity.

market for sales. Typically the sales team would focus on promotions. In terms of distribution Mondavi sells its wines through more than 100 independent beverage distributors in the U.wholesale market. Rather than marketing to the channel. SWOT Analysis Strengths Mondavi chose to focus on the organic growth of its popular premier brands. Mondavi should reallocate money for signage to marketing directly to the consumer through television. Letting distributors educate retailers on brand information was not successful because of time constraints. By offering sales incentives. demand forecasting. Potential solutions for dealing with distributors would to be scale back from the 100 current distributors to a more manageable number of important distributors. Also Mondavi would not have to rely on the retailers influence over the consumers. Currently the company’s largest wholesaler Southern Wine and Spirits.S. Weakness Relied on the U. The main problem that Mondavi was experiencing involved the sales force not being able to market Mondavi’s complete product line effectively because the time needed for educating retailers about Mondavi’s ultrapremium and luxury wines was too little. . Mondavi may be more successful by hiring a third party experiential marketing organization to communicate directly with consumers.  Nearly 200 sales representatives market the company’s brands to independent distributors and large retail outlets. accounts for 29% of the firm’s sales. They provide key information on marketing and promotional campaigns. and shelf management for popular products. billboards and the internet. Customers would remember Mondavi representatives and have a long term connection with the brand. and gather feedback from the wholesale market. competitive pricing. By having representatives create individual customer experiences. Retailer’s education should be reduced to printed material sent to every store to be reviewed at their discretion. Rather than teaching brand knowledge to staff.S. while 15 distributors represent approximately two-thirds of Mondavi’s sales. distributors will also be motivated to sell Mondavi products over the other products they are responsible for. Mondavi will likely move much more product and by pass educating retailers who are bombarded with information from many different brands. Lastly having distributors educate retailers on brand information was not successful because of time constraints. Limiting distributors will reduce costs and offer expansion for successful distributors to take over regions of underperforming competitors.

. Retailer’s education should be reduced to printed material sent to every store to be reviewed at their discretion. Mondavi and general wine sales have slowed forcing the global wine industry to consolidate. Threats Due to the recent economic downturn. billboards and the internet. jug wine producers’ acquiring premium wineries in order to keep pace with changing consumer tastes. Mondavi should reallocate money for signage to marketing directly to the consumer through television. and lastly alcoholic beverage firms diversifying into the premium wine market.Opportunities Rather than marketing to the channel. Industry consolidations began to occur to New World producers by premium wineries purchasing or merging with rivals. Limiting distributors will reduce costs and offer expansion for successful distributors to take over regions of underperforming competitors. This will further maximize the profit. Rather than teaching brand knowledge to staff. Mondavi may be more successful by hiring a third party experiential marketing organization to communicate directly with consumers.

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer: Get 4 months of Scribd and The New York Times for just $1.87 per week!

Master Your Semester with a Special Offer from Scribd & The New York Times