Mondavi Wines Competitive Threats

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Mondavi: What threats in the business environment does Mondavi face and how is it addressing them? High quality premium wines produced by France, Italy, Spain, Chile and Argentina. In the past years, Demand increased for premium wines, while consumption of inexpensive, lower quality wine had fallen. As a result of changes in consumption patterns, Europe had created a great deal of excess capacity, while wineries of the new world (South America) continued to increase vineyard acreage in response to strong demand for high quality wines. The size of the global wine industry was estimated by 155 billion dollars (approximately), where Europe and South America dominated global consumption of wine with a market share of 70%. Mondavi addresses this issue by leading the production of premium table wines in the US instead. This market participated with 11% of total world consumption representing 17 billion dollars. Analysts expected demand for premium wines to grow at 8% to 10% per annum. Thus, Mondavi focused 90% of its sales in the US through 15 top retailers and 10% to the rest of the world through exporters. Leverage Risks and Capital requirements The premium wine industry is a capital intensive business. Historically, Tim Mondavi and his team had financed its operations and capital spending principally through borrowings, as well as through internally generated funds. They owned vineyards in California, and the joint ventures controlled land in California, US and Italy, which produced 7% of the company’s total grape supply. The company purchased the rest of its grape supply from 360 independent growers through long term legal agreements. Because in the last years property value had risen and competitors had spent large amounts of money pursuing aggressive acquisition strategies, they could not face further growth with the same strategy due to the increasing high cost of capital. On the other hand, they could not outsource more grape from...
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