Since the late 1960’s, California wine-maker Robert Mondavi has been perceived by its stakeholders as one of the world’s most innovative and high-quality producers of fine wine. It is therefore not surprising that the company has endured great financial success; in fact, it has secured an impressive annual growth in earnings per share of ~28% over the last 8 years. Recently however, there have been many external forces that may serve to threaten the long-term profitability of the firm: sales have been decreasing over the last 6 months due to a staggering economy, Australian imports are on the rise, shrinking the size of the pie for domestic firms, and there has been an industry wide trend to consolidate; existing firms are merging and producers of beer and spirits, who already have strong brand recognition, are starting to produce their own wine labels. The question now becomes, what can Robert Mondavi do to ensure that it sustains its leading market position? To help answer this question we must have a good understanding of how the firm operates within its competitive environment.
First off, we must define the industry and market in which Mondavi operates. The range of Mondavi brands span from lower end premium, such as Woodbridge, to its luxury premium brands like the esteemed Opus One. Although each product line has its own marketing strategy, the target market encompasses all premium table wine consumers. By catering exclusively to this particular market segment, Mondavi has chosen not to compete directly with the makers of commodity/ jug, dessert or sparkling wine. According to Porter, a sustainable strategic position requires trade-offs, choosing what not to produce. As resources and capital are somewhat limited, Mondavi has chosen to focus solely on the production of quality table wine. As quoted by Robert Mondavi himself “The higher the quality of wine, the higher the image and the more the consumer is willing to pay for it”. Offering lower...
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