Robert Mondavi and

the Wine Industry

Seminar Group 16 25
th
Aug 2011
Project Group 1:
Lin Der Koon Andrew
Cham Wan Ting
Zeng Fansheng Reynold
Thomas Strand
Wong Chun Chong Sherman
1
LIN DLk kCCN
2
Robert Mondavi Corporation
W stablished since 1966 by Robert Mondavi
W Production mainly in Napa Valley, California
But with joint ventures in taly and Chile
W Focuses mainly on the popular premium market
Offers premium products at high prices
Has a large brand portfolio of over 16 brands
W Main market in the US
Over 90% of their wine sold there
3
Robert Mondavi Corporation
W LsLabllshed slnce 1966
by 8oberL Mondavl
W roducLlon malnly ln
napa valley Callfornla
!olnL venLures ln lLaly
and Chlle
W LsLabllshed slnce 1966
by 8oberL Mondavl
W roducLlon malnly ln
napa valley Callfornla
!olnL venLures ln lLaly
and Chlle
4
Robert Mondavi Corporation
W ocuses malnly on Lhe
popular premlum
markeL
Cffers premlum producLs
aL hlgh prlces
Pas a large brand
porLfollo of over 16
brands
W Maln markeL ln Lhe uS
Cver 90 of Lhelr wlne
sold Lhere
3
new World vs Cld World
New Wor|d
W Lverybody else
W unlLed SLaLes ArgenLlna
AusLralla SouLh Afrlca Chlle
W roduces and consumes abouL
30 of Lhe global supply of
wlne
Plgh growLh ln consumpLlon
roduces malnly premlum
wlnes
W MosL wlnerles and consumers
are new
C|d Wor|d
W Luropean counLrles
W rance lLaly Spaln
W roduces and consumes
abouL 70 of Lhe global
supply of wlne
Slow growLh ln consumpLlon
roduces malnly [ug wlnes
W Long esLabllshed wlnerles
and wlne drlnklng culLure
6
7
new world Wlne consumpLlon by 126 whlle
Cld world only by 66
109
116
48
54
174
188
0
20
40
60
80
100
120
140
160
180
200
1994 1999
WorId Wine Consumption
Rest of the World
New World Total
Old World Total
Mil of HLs
xblblt 7
9LS1LL GG IkAMLWCkk
LnvlronmenLal Analysls
8
SoclalCulLural
New Wor|d
W Wlne drlnklng as a llfesLyle
Lower consumpLlon buL
malnly premlum wlnes
$720 avg prlce
W 8lslng lnLeresL ln wlnes
C|d Wor|d
W Wlne drlnklng as a parL of
everyday llfe
Plgher consumpLlon wlne
buL malnly [ug wlnes
$480 avg prlce
W uecllnlng lnLeresL ln wlnes
9
lncrease ln demand for remlum (new World) wlnes
whlle decrease ln demand for !ug (Cld World) wlnes
@echnologlcal
New Wor|d
W Plgh markeL concenLraLlon
@op 10 2438
W Large companles wlLh large
budgeLs for lnnovaLlon
W Largely premlum producL
W Plgh lnvesLmenL ln 8u
C|d Wor|d
W Low markeL concenLraLlon
@op 10 48
W Small producers wlLh low
budgeLs for lnnovaLlon
W Largely commodlLles
W Low lnvesLmenL ln 8u
10
or new enLranLs hard Lo maLch caplLal requlremenLs for
new World compared Lo Cld World
Legal
C|d Wor|d
Anarchlc legal resLrlcLlons
W CannoL blend wlnes
W name wlnes by reglon and noL grape varleLy
Confuses new wlne drlnkers
Subsldles for small producers and noL large ones
New Wor|d
Mlnlmal legal hassles
11
Makes Lhe new World more aLLracLlve Lo a large wlne producer
Legal con'L
New Wor|d
uSA
W Legal requlremenL Lo separaLe producers wholesalers
and reLallers
W Plgh markeL concenLraLlon of wholesalers
W Cnly 3 ma[or wholesalers ln Lhe uSA
12
8esulLs ln slgnlflcanL buyer's power
Competitors
Iocused Compet|tors
endall!ackson
@rlnchero LsLaLes
SouLhcorp
13
Large Vo|ume Compet|tors
L! Callo
ConsLellaLlon 8rands
8eer and D|st|||ed Sp|r|ts 9roducers
osLer's Croups
ulageo
8rownorman
Allled uomecq
WMosLly small ln slze
Wremlum producers
WLarge slze
W!ug wlnes
Wulverslfylng lnLo premlum markeL
W8y acqulslLlons
WLarge slze
WCLher alcohollc beverages
Wulverslfylng lnLo premlum markeL
W8y acqulslLlons
9Ck1Lk'S S ICkCLS
lndusLrlal Analysls
14
lndusLry
W Cld world vs new world
PollsLlc look aL boLh
secLors
8elevanL Lo malnLaln a
global ouLlook
13
CHAM WAN TING
16
lnLenslLy of 8lvalry
New Wor|d
W MlxLure of compeLlLors
W Plghly dlfferenLlaLed
brand and producL
W 8apld growLh ln
consumpLlon
C|d Wor|d
W numerous small nlche
wlnerles of maLchlng slzes
W SLrlcL regulaLlons
W Mlnlmal brandlng
W @aperlng growLh ln
consumpLlon
17
Low
Plgh
ModeraLe
new
World
Cld
World
8argalnlng ower of Suppllers
18
Low
Plgh
ModeraLe
New Wor|d
W lncllned Lowards ouLsourclng
W Speclal skllls and ls hlghly
caplLal lnLenslve
W Low LhreaL of suppllers
lnLegraLlng forward
W key buyers of vlneyards'
producLs
C|d Wor|d
W roduced Lhelr own grapes
W Selfrellance breeds
lndependence
W Speclal skllls and ls hlghly
caplLal lnLenslve
W Low LhreaL of suppllers
lnLegraLlng forward
new
World
Cld
World
8argalnlng ower of 8uyers
19
Low
Plgh
ModeraLe
New Wor|d
W Plgh markeL concenLraLlon
of wholesalers
W uS LhreeLlered regulaLory
dlsLrlbuLlon sysLem
W ulfferenLlaLed producLs
W Plgh swlLchlng cosLs for
wholesalers
C|d Wor|d
W Plgh markeL concenLraLlon for
dlsLrlbuLors and reLallers
W @hreaL of buyers lnLegraLlng
backward
new
World
Cld
World
@hreaL of new LnLranLs
20
Low
Plgh
ModeraLe
New Wor|d
W Lconomles of scale enabled
by process lnnovaLlons
W Lxperlence ls lmporLanL
W Puge caplLal lnvesLmenLs ln
purchaslng sLaLeofLhearL
equlpmenL
W Loose regulaLlons on
wlnemaklng
C|d Wor|d
W Small flrms lack economles of
scale
W Lxperlence ls lmporLanL
W SLrlcL regulaLlons on
wlnemaklng
new
World
Cld
World
@hreaL of SubsLlLuLe roducLs
New Wor|d C|d Wor|d face s|m||ar threat
W uecllnlng consumpLlon of beer and splrlLs
W Weak subsLlLuLes
21
Low
Plgh
ModeraLe
new
World
Cld
World
k|va|ry
n|gh
@hreaL of
entrants
Moderate
8argalnlng
ower of
8uyers
n|gh
@hreaL of
Subst|tute
Low
8argalnlng
ower of
Supp||ers
M|n|ma|
22
orLer's 3 orces
C|d Wor|d
New Wor|d
k|va|ry
Moderate
@hreaL of
entrants
Moderate
8argalnlng
ower of
8uyers
Moderate
@hreaL of
Subst|tute
roducLs
Low
8argalnlng
ower of
Supp||ers
Moderate
Moderate attract|veness No attract|veness
WnA1 AkL 1nL kL DIIILkLNCLS IN
MAkkL1 S1kUC1UkL 8L1WLLN 1nL
"CLD WCkLD" AND 1nL "NLW WCkLD"
CI WINL 9kCDUCLkS? WnICn WCkLD
IS MCkL A11kAC1IVL ICk WINL
9kCDUCLkS?
;uesLlon 1
23
Low
budgeL
for 8u
Largely
commod
lLles
Anarch|c
legal
resLrlcLlons
M|n|ma|
legal
hassles
arL of
everyday
llfe
uecllnlng
lnLeresL
24
arL of
llfesLyle
8lslng
lnLeresL ln
wlnes
lnvesLs
heavlly ln
8u
lnnovaLlon
ln producL
process
1echno|og|ca| Dr|vers
lnhouse
producLlon
low LhreaL of
backwards
lnLegraLlon
Absence of
economles of
scale SLrlcL
regulaLlons
Land
acqulslLlon
Plgh markeL
concenLraLlon
@hreaL of
backwards
lnLegraLlon
@aperlng
growLh
Mlnlmal
brandlng SLrlcL
regulaLlons
Small equally
slzed flrms
Lconomles of
scale Loose
regulaLlons
Plgh caplLal
lnvesLmenLs
8apld growLh
Well
dlfferenLlaLed
producLs
MlxLure of blg
and small
flrms
roducLlon
ouLsourced
low LhreaL of
backwards
lnLegraLlon
Plgh markeL
concenLraLlon
3Llered
regulaLory
sysLem Plgh
swlLchlng
cosLs for
dlsLrlbuLors
Supp||ers
Wuecllnlng
consumpLlon
of beer and
splrlLs
WWeak
subsLlLuLes
Wuecllnlng
consumpLlon
of beer and
splrlLs
WWeak
subsLlLuLes
Subst|tutes
kL DIIILkLNCLS
8L1WLLN CLD WCkLD
AND NLW WCkLD IN
MAkkL1 S1kUC1UkL
AND kLLA1IVL
A11kAC1IVLNLSS
kegu|atory Dr|vers
New Lntrants
Incumbent k|va|ry
8uyers
Soc|ocu|tura| Dr|vers
New Wor|d w|ne |ndustry |s more attract|ve
key ulfferences
New Wor|d
W naLure of consumers
Smaller markeL
asL growLh
refer premlum wlnes
W Plgh rlvalry
Plgh markeL concenLraLlon
W Lase of enLry
Lower legal regulaLlons
Plgher caplLal requlremenLs
W Plgher economles of scale
C|d Wor|d
W naLure of consumers
Larger markeL
Slow growLh
refer cheaper wlnes
W Lower rlvalry
Low markeL concenLraLlon
W Lase of enLry
Plgher legal regulaLlons
Lower caplLal requlremenLs
W Lower economles of scale
23
Wn DC DIIILkLNCLS LkIS1 IN 1nL
MAkkL1 ICkCLS 8L1WLLN 1nL "CLD
WCkLD" AND 1nL "NLW WCkLD"?
;uesLlon 2
26
ifferences
W Longer history
Mature industry in Old World
W ReguIations
ncentives in place for Old World producers to
remain small
W Growing demand for premium wines
ncreased competition in New World
W Conservative attitude of OId WorId
Resistant towards novel ways of winemaking
27
LNG IANSnLNG kLNCLD
28
8ASLD CN 1nL CASL'S DISCUSSICN CI
1nL WINL INDUS1k WnA1 AkL 1nL
kL 1nkLA1S IACING kC8Lk1
MCNDAVI IN 2001?
;uesLlon 3
THRATS
W Further falter of US economy
W Competitors' actions and strategies
W Obstacles faced in distribution
urther faIter of US economy
Peavy
dependence on
uS markeL
Consumer's
demand and
spendlng power
Low/no reLurns
from
lnvesLmenLs
SLraln on caplLal
and resources
urLher decllne
of uS economy
903 sales
W Change |n customers'
preference
W Severa| ma[or
|nvestments |n Ca||forn|a
W Cap|ta| |ntens|ve bus|ness
S&P500 Index
Source:
http://finance.yahoo.com/echarts?s=%5GSPC+nteractive#symbol=^gspc;range=19981201,20030210;compare=
;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=
Competitors' actions and strategies
1. Major impactful acquisitions
2. Strategic developments
3. Greater emphasis on marketing/advertising
1. Major impactfuI acquisitions
ample
W Constellation Brands
- Leading player in jug wine segment
- Prior to 2001, acquired a number of premium wine companies
- Acquired BRL Hardy and Matthew Clark (marketing & distribution)
- Four separate sales forces for its different product lines
Possible consequences
W f acquisitions prove successful, further reduction of Mondavi's
market share.
W Hard to compete in terms of size and resources
W Possible acquisition of Mondavi by competitors
. Strategic deveIopments
ample
W Southcorp
- n 2001, vision of "becoming the leading global branded premium
wine company
- World's largest premium wine producer after acquisitions in 2001
- Produced 2 of the top 5 imported wine brands in US
mplications
W Southcorp has the resources and capabilities to be a strong key
player in premium wine market
W Aggressive and strong competitor of Mondavi
. Aggressive marketing/advertising
W Greater marketing efforts via national radio and TV
W Aim to reach out to as many potential wine drinkers
as possible
ample
W &J Gallo
- Sales and marketing powerhouse
- Successful national advertising campaign in appealing to "hip,
young and fun crowd
mplications
W Will Mondavi's advertising campaigns (2001: US$20 million) and
investment in Golden Vine Winery (US$11 million) triumph or lose
out to that of rivals?
ObstacIes faced in distribution
CbsLacles ln
dlsLrlbuLlon
process
SLrlcL uS
laws
regulaLlons
ulspleased
dlsLrlbuLors

wholesalers
@hreeLlered
sysLem of
dlsLrlbuLlon
8esLrlcLlons on
dlrecL
dlsLrlbuLlon
Slngle sales
force supporLlng
all brands
SWOT ANALSIS
Strengths
Weaknesses
Cpportun|t|es
1hreats
W Wines well-known for
quality
W Strong brand name
W Unique selling point
- Oak barrel ageing
W Good long-term
relationships with suppliers
W Strong succession
W tensive marketing
programs
W Heavily dependent on
US market
W Single sales force
supporting all brands
urLher overseas developmenLs Lo
reduce cosLs
AusLralla (cheaper land)
Chlle (lower labour cosLs)
lncrease exporLs
Lg Lurope Canada Asla
AusLralla
LxhlblL 14 LxporLs 84
W Further falter of US
economy
W Competitors' actions
and strategies
W Obstacles faced in
distribution
Strengths
W Wines well-known for quality
W Strong brand name
W Unique selling point
- Oak barrel ageing
W Good long-term relationships with suppliers
W Strong succession
W tensive marketing programs
Weaknesses
W Heavily dependent on US market
W Single sales force supporting all brands
Opportunities
W Further overseas developments to reduce costs
- Australia (cheaper land)
- Chile (lower labour costs)
W ncrease eports
- g. urope, Canada, Asia, Australia
- hibit 14: ports 8.4%
SWOT ANALSIS
Strengths
Weaknesses
Cpportun|t|es
1hreats
SupporLs a dlverslflcaLlon
sLraLegy
SupporLs an aggresslve
growLh sLraLegy
SupporLs a Lurnaround
sLraLegy
SupporLs a defenslve sLraLegy
1nCMAS S1kAND
43
AIternative Strategies
W Crganlc CrowLh
W Ceographlcal ulverslflcaLlon
Organic Growth - efinition
What oes Organic Growth Mean?
W The growth rate that a company can achieve by
increasing output and enhancing sales. This ecludes
any profits or growth acquired from takeovers,
acquisitions or mergers
xpIaining Organic Growth
W Organic growth represents the true growth for the
core of the company.
W Organic growth also identifies whether managers
have used their skills to improve the business.
Source hLLp//wwwlnvesLopedlacom/Lerms/o/organlcgrowLhasp#axzz1vlbC4uC6
Pros of Organic growth
Brand
W Sufficient portfolio of high-quality wine; build up eisting
brands of premiums wines
W Better internal control of the products
TechnoIogy
W Focus on innovation new wine making techniques and
new types of wines
W mproving eisting technology
Pros of Organic growth, con't
istribution
W ncreasing sales force to effectively market the
eisting products
W Good knowledge about the entire line of product
W Able to more effectively reach the targeted segment
Cons of Organic growth
CuIturaI ifferences
W Low foreign presence brand unknown overseas. Firm
will have to rely on eports sales to gain shares of
overseas market
Mondavi derived 8% of its revenue from eports
High initiaI outIay
W Purchasing new equipment
Cons of Organic growth
Growth
W Longer time to grow compared to merger and
acquisition especially the wine industry is at its
matured phase
W Slower to improve firm's core
resources/capabilities compare to
acquisition/merger with other firms
Organic Growth - Mondavi
W Produced wine for many years
Strong brand name
W Unique selling point
- Oak barrel ageing
W Wines well-known for quality
How To Increase Organic Growth
W ncrease output & Reinforce sales through
ncrease salespersonell
ncrease marketing push for more guided winery
visits
ncrease R&D
W Specialize in fewer products
16 different product brands today .g. Cut down
to top 10 products
To focus on stronger products e.g. Woodbridge
Ranked 8th in U.S leading market share in 1998
WCNG CnUN CnCNG SnLkMAN
32
GeographicaI iversification
No of 9r|mary 9roducers Market Share of 1op 10
W|ne 8rands
unlLed SLaLes 4300 376
AusLralla 3000 243
SouLh Afrlca 4634 247
Cermany 68300 8
lLaly 273000 6
rance 232900 43
xblblt 5 Motket cooceottotloo lo 5electeJ cooottles 1998
Pros of GeographicaI iversification
Brand
W ntering untapped market increase brand
awareness Building a stronger brand
W Creating brand "anchoring effect and loyal
customers
Lower cost of productions
W Cheaper labour and production costs e.g. cheaper
land costs
Growth - Reduction on US dependency
W "Not putting aII eggs in a basket"
Cons of GeographicaI iversification
High initiaI outIay
W Transferring/ purchasing equipment
CuIturaI ifferences
W Wine culture not strong in the Asia regions yet
W Difference in buying power
Summary of the Strategies
Crgan|c Growth Geograph|ca|
D|vers|f|cat|on
8rand , ,
@echnology ,
roducLlon CosLs k ,
Growth k ,
ulsLrlbuLlon ,
CulLural ulfferences k k
lnlLlal CuLlay k k
Compounded AnnuaI Growth
W CAGR was 27.9% Healthy growth despite competitors
W Number of States with reported wineries has increased from 34 in
1975 to 47 in 1997 Likely cause of dip in net income
W Growing income improves sustainability for geographical
diversification
37
7
12
24
38
30
34
41
48
y = 6-209e
0.2451
-
10
20
30
40
50
60
70
1994 1996 1998 2000 2002

o
I
I
a
r
s

i
n

T
h
o
u
s
a
n
d
s
Net Income
Net ncome
pon. (Net ncome)
Source bttp//wwwwloeecooomlcsotq/wotkloqpopets/AAw_wl22pJf
Steps to GeographicaI
iversification
1. pand to regions like urope or China
2. a) Acquiring companies of similar size which
produces luury premium wines; or
b) Acquiring land and labour to start own
productions
3. nvest in more marketing and advertising
GeographicaI iversification
PSTL GG RAMWOR
nvironmental Analysis
GeographicaI iversification - urope
9ros Cons
ollLlcal no lnLernal confllcLs
Lconomlc All over rlch enough" lnanclal crlsls
SocloculLural W AccepLed Lo drlnk
alcohol ln all socleLles
W Alcohol parL of everyday
llfe
WMaLure markeL
Wuecllnlng demand
LnvlronmenLal Cood cllmaLe
W SLable weaLher
condlLlons
Lega| Str|ct |aws of product|on
Clobal Plgh consumer demands
GeographicaI iversification - China
9ros Cons
Lconomlc Cllmblng economy
Cheap roducLlon cosLs
W Lg nlke
SocloculLural SLrong WesLern lnfluence
W Seen as luxury Lo flaunL Lhelr
wealLh
W Puge populaLlon slze (unLapped
markeL)
LnvlronmenLal Cood cllmaLe
W SLable weaLher condlLlons
@echnology Lack of advance Lechnology
W ueveloplng CosLs
CovernmenL underdeveloped legal
sLrucLure
Clobal lncrease ln Wlne ConsumpLlon
332 lncrease from 1994 Lo 1999
62
63
W New world Wine consumption by 12.6% while Old
world only by 6.6%
109
116
48
54
174
188
0
20
40
60
80
100
120
140
160
180
200
1994 1999
WorId Wine Consumption
Rest of the World
New World Total
Old World Total
Mil of HLs
64
Market Iorces NewWor|d C|d Wor|d
Intens|ty of
r|va|ry
Moderate 8apld growLh Well
dlfferenLlaLed producLs MlxLure of
blg and small flrms
n|gh @aperlng growLh Mlnlmal
brandlng SLrlcL regulaLlons
Small flrms of equal slzes
8arga|n|ng
power of
supp||ers
Moderate roducLlon ouLsourced
8uslness ls crlLlcal Lo suppllers Low
LhreaL of backwards lnLegraLlon
M|n|ma|]Absent lnhouse
producLlon Low LhreaL of
backwards lnLegraLlon
8arga|n|ng
power of buyers
Moderate Plgh markeL
concenLraLlon 3Llered regulaLory
sysLem Plgh swlLchlng cosLs for
dlsLrlbuLors
n|gh Plgh markeL
concenLraLlon @hreaL of
backwards lnLegraLlon
1hreat of new
entrants
Moderate Lconomles of scale
presenL CosL advanLages Loose
regulaLlons Plgh caplLal
lnvesLmenLs
Moderate Lacklng ln cosL
advanLages SLrlcL regulaLlons
Land acqulslLlon
1hreat of
subst|tutes
Low uecllnlng consumpLlon of
beer and splrlLs Weak subsLlLuLes
Low uecllnlng consumpLlon of
beer and splrlLs Weak
subsLlLuLes
Attract|veness Moderate|y Attract|ve Not Attract|ve
W Asia Spirit by 30.6% since 1990
W ntire urope by total of 24.5% since 1990
63
166
149 156
09
197 19
86
0 14
02
271
2S1
981
106
18
1971
2067
2122
0
500
1000
1500
2000
1990 1995 1999
Spirit Consumption
Asia
Rest of urope
Latin America
uropean Union
North America
Africa
Ocenia
66
United States
6%
AustraIia
%
South Africa
%
Germany
8%
taly
6%
France
4%
Market Share of Top 10 Wine Brands
OId
WorId
18%
New
WorId
8%
W Despite the strong entry of competitors, they
managed to increase their market share by 1%
67
4%
9%
7%
5%
7%
5%
4%
4%
3%
4%
2%
3%
4%
3%
1%
%
1%
2%
2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
1990 1998
Vendange
Beringers
Woodbridge
nglenook
Sutter Home
Almaden
&J Gallo Vineyards
Gallo Livingston
Carlo Rossi
Franzia
GALLO
CONSTLLATION
Robert Mondavi
Top 10 Market Share of Leading Brands in US