Analysis on “Robert Mondavi and the Wine Industry”
Robert Mondavi and the Wine Industry
The following case study analysis the past success of Robert Mondavi (RM) as a Californian wine maker and the changes in the wine making industry that resulted in struggles, threat and – lastly – the takeover of the Mondavi Winery (MW) by Constellation Brands in 2003. In addition, it will provide some thoughts on strategic moves to enhance the future success of the MW. A. Analysis of Past Success
The key driver for the success of RM and his winery in the early phase (70s throughout 80s and beginning 90s) were RM’s passion for excellence, his vision to place California amongst the finest winery locations worldwide and his belief in his and California’s success. 1. Industry Structure; Five Forces
In the early phase, the industry structure allowed RM to control the profits in his favor without being squeezed by suppliers and buyers and without the threat of new entries and a manageable power of substitutes: RM operated as a wine producer with a narrowly focused value chain. There was no forward integration into the distribution of wine. This can be explained to a great deal by US regulations in place following the Prohibition. Many States dictated a split between production, wholesale and retail distribution and RM acted accordingly. a. Buyer Side: Wholesalers, Retailers, Consumers
Even the narrow focus left RM with enough space for profit as the buyer side did not exert a strong power: * RM had an innovative product: locally produced high quality wine. Initially in this segment it were Mondavi wines versus European wines. The lack of choice/an equivalent made it difficult for the distributors to dictate prices. * RM used a wide network of independent distributors (still 100 in 2000) and industry consolidation at wholesale and retail level was yet to come (see B.). b. Supplier Side: Grapes, Grapes, Grapes
50% - 70% of wine production costs fall on grapes and with premium wines it is their quality which counts. Yet the grape growers are not concentrated - RM had a wide spread net of grape suppliers (360). Also, grapes serve the wine industry and not much else. To the extent that single suppliers could have posed a threat (supply shortages of high premium Napa Valley grapes), RM managed to keep their power at bay even in the early phase: For the luxury segment, RM relied mostly on grapes from owned vineyards. Although overall only 7% of the grapes used came from own or controlled vineyards, the luxury label RM Winery used 63% of own grapes. Furthermore, 75% of all acquired grapes came from growers with whom RM had long-term contracts. This and the fact that RM helped the growers to implement new techniques and exerted strict quality controls strengthened the relations with the growers further. RM was thus not dependent on single suppliers, he could counteract supply shortages and could rely on a system of give and take to face only very limited supplier power. c. Substitutes: Wine, Beer and Other Alcoholic Beverages
In the wine market substitutes always play a strong role. A statistics on beverages in the US shows a fairly constant wine consumption between 1975 and 2004. Yet, substitutes did not present a considerable threat but in general serve more as a price regulator for the overall beverage market. RM educated his customers to develop a liking for high premium wines. He offered them an alternative to imported (difficult to understand) foreign wines. Furthermore, he positioned his wines as an expression for culture – in particular by combining wine experiences with those of concerts, fine arts and culinary sensations. This allowed RM to separate himself from substitutes such as jug (and – initially – popular premium) wines, as well as from beer and other alcoholic drinks. d. New Entries: Who Dares?
In the early phase very high barriers existed to enter the producer market for US produced...