Mondavi Alternatives

Alternative #1: Utilize the practice of arbitrage in the global marketplace to further compete in the growing market segments

It’s easy to understand why Mondavi is primarily involved in the domestic market, with a small number of select partnerships and limited involvement with other wineries in different foreign markets. The company has always considered itself a family operation with an emphasis on high-end quality, and looked to work with similarly voiced companies that operated with similar motives. The partnerships are almost all in the ultra-premium and luxury premium segments, such as the highly prestigious Opus One offering, the minority interest in the Italy’s Ornellaia, and the Frescobaldi partnership that produced three more high-end wines in Montalcino, Italy. Amongst all their partnerships, only the Chilean joint venture produced any offering for the growing popular premium segment, with a Caliterra brand that sold 25% of their product in the United States.

Compared to the industry as a whole, Mondavi is not responding to the changing marketplace and demands. While there has been some growth in the ultra and luxury premium market segments, the explosion in the last 15 years had been in the popular premium ($3-7 per bottle) and super-premium ($7-14) sector. Mondavi’s own Woodbridge offering is responsible for 76% of its case volume and 57% of its revenue as of 2001, but seemingly exists in isolation amidst all the high-end offerings from the company. Competitors that have established themselves in jug wine, beer, and other spirits are taking advantage of their sales volume and migrating upward. While E&J Gallo, Constellation, and the beer producers may not have the reputation for quality and craft that RMW possesses, their substantial financial weight has allowed them to develop or purchase brands that could compete in the higher altitudes and price segments. Meanwhile, competitors with similar histories in premium winemaking are taking advantage of lower production costs to horizontally integrate, acquire land, and build new wineries in different countries, as Kendall Jackson has done with the Villa Arceno (Italy) and Yangarra Park (Australia) wines.

Michael Mondavi explained the difference between RMW’s and Kendall Jackson’s styles by stating “Our philosophy is to work with local partners. Jess’s is to go into the country, buy the land...we’re not smart enough to do what Jess is doing”. (It’s startling to imagine what to think if we’d seen a similar comment from a typewriter company CEO during the 1970s as IBM and HP looked at developing PCs!) It may have be time to rethink that philosophy of local adaptation.