Robert Mondavi Case

Robert Mondavi is facing several threats in 2002, the most important of which is increasing competition in the popular premium segment. The company in 2001 derived 57% of its revenue from the Woodbridge brand and pricing pressure is being applied by Gallo, Fosters and jug producers. Additional pricing pressure is coming from the Australian wines infiltrating the US and UK markets, growing their sales in the US at the rate of 30% per year. Additional challenges include customer dissatisfaction with the current sales representation.

The company also has opportunities. Its Robert Mondavi Winery name is held in high esteem and wines of this label command premium prices. The company has consistent financial performance over the preceding four years with growing sales and income. The company has developed advanced production methods that give its wines consistent quality and modest costs of production.

Business Environment / Attractiveness of the Wine Industry
Among producers in the size range of Mondavi, the wine industry has many companies, which generate net income of about 10% of sales. This would compare to such mainstream US industries as real estate leasing, food manufacturing and agriculture. The barriers to basic entry in the industry are very small. However, the building of a recognized brand name which allows pricing control is a time consuming process, sometimes representing generations of work. The industry is experiencing consolidation, which is giving increasing economies of scale to the larges producers and conglomerates. The industry is attractive for existing companies having a respected brand, but may be unattractive to a new entrant attempting to get established.

Geographic Markets
In comparing markets in which to do business a few major segments can be identified.
Consumers in the continental European market have exposure to a great range of wines, but their domestic consumption is primarily lower priced wines in the $5 category. For a US company attempting to sell into these markets this would present a difficult challenge. In addition, especially in France, there is a strong resistance to outside producers entering their market characterized by a complex series of laws governing how wines can be labeled and sold. The combination of these factors makes the European market a less attractive place to do business than the US. For Robert Mondavi, the North American market represents 93% of current sales and, while profitable, is coming under increasing price pressure. The best opportunities for growth for the company may lie in countries outside these traditional two markets.

Recommendations
The core strengths and capabilities of Robert Mondavi lie in the production of ultra-premium and luxury wines. As the firm extend its brand down to the super and popular categories it faces much heavier competition from the jug producers and spirits manufacturers that are moving up scale. The firm would benefit from a strategic shift back to its roots in the higher priced segments. The value of its brand name is still very high and the RMV label still commands very high prices per bottle. The Woodbridge line should be maintained as long as it is profitable in the popular premium price range, but with preparations to migrate the brand to the super premium range as competition increases in the lower price ranges.

The firm would likely benefit from dividing the sales force into two groups with the RMV, Coastal and over $100 lines represented by the most experienced sales people and the remaining lines represented by the more junior members. In this way the more experienced sales team is focused on product education about the luxury brands and making inroads into larger on premise and retail accounts. The more junior team members can focus on events, promotions, shelf space and point of sale issues.

Finally, the company might be wise to begin development of more uncontested markets. Although current wine consumption is very low in Japan and Asian Pacific countries, these markets represent solid future potential for luxury brands. People in Japan expect to spend a high percentage of their income on food and beverages (both on and off premise). In China incomes are rapidly increasing and luxury brands such as Godiva are setting up shop and introducing the culture to tastes previously not experienced in that country. The Chinese culture is very brand aware and early establishment could make it difficult for competitors to enter in later years. In the UK, although Australian wines capture mid-priced segments, there is opportunity for the higher end wines as its consumers shift to higher quality wines. In each of these geographies it would be worth conducting a test market project to discover what potential may exist.