Executive Decision Making & Strategic Analysis
Robert Mondavi and The Wine Industry,
HBS 9-302-102 (Case 1)
Student: Álvaro Toro
I. Executive Summary
On May 2001, Michael Mondavi took over the position of chairman of Robert Mondavi Company, as well Greg Evans assumed as CEO. They company was founded in 1966, and has became one of the world’s finest and most innovative winemakers, currently having sales for 480 millions, and firm’s market value about $ 600 million.
The executives estate that, as the competitors spent considerable amount of money pursuing aggressive acquisition strategies, they are doing well on the track of organic growth of its premier brands, as they note increasing pricing of wine properties, as well they believe in the high quality brands of their portfolio well positioned in the market, and because they have an excellent management.
In that scenario, the protagonists (Michael Mondavi and Greg Evans) should figure out how to strengthen the competitive position of the firm considering the increasing competiveness of the wine market, especially in the premium segment where they are focus on.
In this essay we will analyze the industry of premium wines in order to find how competitive it is, and to get some conclusions about the strategy that the executives of Mondavi have defined. For this analysis we will use the Porter’s Five Forces Analysis.
II. Industry analysis
In order to analyze the premium wine industry we will follow the guide of the Porter’s Five Force analysis: (1) Suppliers Power, (2) Buyers Power, (3) Barriers to entry, (4) Threat of substitutes, (5) Competitive Rivalry. This analysis will provide us a basis to understand if the strategy stated by the Mondavi’s executives is a consistent choice.
1. Suppliers Power
The main supplies for the wine industry are grapes, barrels, bottles, packaging, winemaking, automation systems and labor. Grapes are 50-70% of the costs of goods sold of a producer. Barrels, mainly made of oak, cost USD 250 to USD 600, and have a typical capacity of 225 liters, wich means about USD 1 or 2 per bottle. In case of super-premium wines, grapes and barrels are about 25% of the price per bottle.
Grapes. The quality of the grapes is a key factor for the quality and the unique characteristics of the wine production, thus many wineries are vertically integrated. On one hand we have wineries of France, which are full integrated, and on the other hand the wineries of California that outsourced 70-85% of their grapes. Usually, growers are small producers, therefore concentration of suppliers is small, and on the other hand, the grapes are highly differentiated, as their quality depends of ground, spacing, weather conditions, position related to sun, etc. That is why this supply is regulated though long term contracts, and usually wineries technically support growers. As the key knowledge is in the wineries, threat of forward integration is relatively low. This analysis shows that this force is relatively low to moderate.
Barrels. Premium wines are made mainly using oak barrels, which means a relatively high cost per bottle, and the quality is also important, which mans that this supply is important for the winemakers. But producers are not concentrated, the threat of forward integration is small, and this market is important for the suppliers, so we can infer that the force of them is relatively small.
Other supplies. Other supplies are for example bottles, which are not differentiated, are not concentrated and mean a low part of total costs. Therefore, other suppliers have small force.
The suppliers force. Considering the previous analysis, we infer that the suppliers force is moderate to low, as growers have moderate to low force to wineries, as they rest of suppliers have low force related to vineries.
2. Buyers Power
The buyers differ for each market, but in general terms we...
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