Mondavi Alternatives

Mondavi Alternatives

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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.

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With property in Australia costing 30-60% of similar stateside acreage and Chilean labor costing one-sixth of comparable Californian workers, the markets are set for a company willing to invest in overseas acquisition and production. At the same time, the popular-premium and super-premium segments have been amenable to foreign offerings. A similarly priced, more loudly branded foreign counterpart to the conservative Woodbridge could be produced with significantly lower costs, offered to an emerging new market of buyers and yield significant profits.
It’s interesting to note that while Mondavi has preferred to partner with rather than acquire foreign wineries, the big engine in their revenue machine (Woodbridge) resulted from a domestic winery acquisition that lead to a successfully created internal brand. Repeating such a strategy while taking advantage of the global pricing in the industry could reap serious dividends. Furthermore, by reaching out into different markets after acquisition, Mondavi could further their percentage of international sales, which at 9% is the lowest of all the major competitors.

Alternative #2: Pursue differentiation through a direct retail strategy in California

Through the 1990s, Howard Schultz had managed to educate an intimidated marketplace about a product, create a need for high-end products, and reshape expectations within a segment of the beverage industry. By taking Starbucks from a bean shop to a customer experience, he had created a brand association that significantly impacted the marketplace: for many Americans, the first and last word on fine coffee was Starbucks. Raising the standard for education and experience, Schultz and company soon created a market where people were more than willing to pay high dollar for premium product so long as it was packaged well, sold by knowledgeable retail staff, and focused on customer satisfaction and the creation of an excellent customer environment. While the average American consumer may not know the difference between Ethiopian Sidamo and Hawaiian Kona, they know that they could go to Starbucks and find out if they needed to buy a pound of coffee for their home or as a gift.
For thirty five years, Robert Mondavi and his sons have created one of the finest and most innovative winemaking firms. They have incorporated old world techniques along with technological advances to win awards and generate revenue. But fueling Robert’s business is a passion for wine, education and the creation of a culture. He has set out to educate American consumers, opened his winery to tourists, and hosted concerts and art exhibits at his vineyard. To Robert Mondavi, there was significant cross-pollination between fine wine, food, art, and music, and he wanted to amplify this nexus: “Wine is more than a drink. It’s a culture.”
While the three-tier system of distribution effectively prohibited inter-state direct sales of wine, direct selling of wine is possible within the home state of a winery. No state possesses a consumer base quite like California’s. With a number of large markets all connected by a major state highway, (PCH-1) and a significant proportion of the populace who still cannot differentiate regions or varietals, there exists a terrific marketing opportunity. While there are countless independent wine stores, access is still limited and controlled by the distributors. With the creation of company owned retail outlets, RMW could educate customers, bypass a middleman, have their product readily available, and create a new kind of demand for their brand.
A series of Mondavi branded wine shops, modeled after the successful Nicolas stores in France, and placed in high end malls and shopping areas (such as South Coast in Orange County, or Rodeo Drive in Beverly Hills) would be readily accessible to consumers already in the mindset of browsing for products and spending money. All Mondavi product offerings would be available to target and research different patterns of consumption and tastes. While Mondavi’s Golden Vine Winery at the Disney California Adventure Theme Park celebrated the company history’s and provided an opportunity to educate consumers, its fine food and wine shop didn’t reach the right demographic. A series of well located, customer focused retail stores could serve to educate consumers, further market research amongst the segmented offerings, and achieve Michael Mondavi’s goal of “removing wine’s mystery, while still maintaining the magic”, much as Starbucks has done for coffee and Godiva has done for chocolate. Furthermore, if successful, it could reduce the power of distributors within the three-tier system and create demand for inter-state marketing as high–end shoppers in Phoenix, Dallas, and elsewhere begin to ask out loud why there isn’t a nice, fancy and convenient Mondavi store in their Galleria.

PROPOSED SOLUTION: Stratify the brands and dramatically revise Sales and Marketing growth across all segments

As previously stated, Woodbridge exists in a bit of a limbo. Sometimes it has been branded with the Mondavi name, as it was introduced. At other times, the name is taken off, to address a concern that Woodbridge’s popular premium status would pull the Mondavi reputation down. A parallel tension exists between Robert’s sons who have taken over the company. Michael Mondavi, who had been CEO, succeeded his father as chairman and worked closely at assessing the industry with Greg Evans, the Harvard MBA and 20-year veteran of the company. He is very aware that Woodbridge was 76% of their case count, and 80% of its sales were through supermarkets and mass merchandisers. His brother Tim Mondavi is an introspective vintner who aspires to create the greatest wines, and is a strong believer in the interaction between grape growing and winemaking to create a final product he described as “liquid art”. For premium wines, Mondavi used company vineyards to control quality; for example, the RMW label used 63% from their own sources.
At the same time, a division exists within the sales and marketing components of the company. A single sales force exists to support the entire company portfolio, which frustrates some distributors. Since they sell through different channels, wholesalers feel that a single salesperson shouldn’t support an entire product line. For marketing purposes, Mondavi has traditionally gone top-down, focusing on opinion leaders and focusing on influential magazines like Wine Spectator. Only recently have they tried to use radio or television to promote their mass market friendly popular premium and super premium offerings.
While we acknowledge and agree with Mondavi’s recent restructuring into three distinct business units (RMW/Coastal, Woodbridge, Joint Ventures/Small Wineries), we believe the company needs to go further.
• We would recommend that the sales departments become organized under each of these three units, with further efforts to differentiate and grow each of the brands.
• Removal of the Mondavi name from the Woodbridge labels. While useful and necessary when the product was introduced, Woodbridge is capable of standing on its own name, and the Mondavi brand should remain exclusively in the ultra- and luxury- premium segments.
• Further autonomy and independence amongst the three segments to resolve tensions. Tim Mondavi should remain focused on high-end, artisan offerings; he does not want to have to address concerns about Woodbridge. As chairman, Michael Mondavi should not have to balance concerns about one segment against the others.
• The sales forces should be dedicated and trained to their specialized unit, so that a Woodbridge salesperson is dedicated to placing product into their desired arenas (mass markets) while an RMW/Coastal rep develops further skills at theirs.
• Recruitment of successful salespeople from competitors such as E&J Gallo, to improve knowledge base and formulate best practices within Mondavi.
• Marketing should also be divided amongst the three segments, with RMW pursuing high-end prestige marketing (cultural event sponsorship, niche opinion shaping) while other units use different strategies toward their target markets (such as product placement in TV shows) for the popular premium offerings

Such “brand stratification” would eliminate internal and external confusion regarding their offerings, positioning and culture. It would resolve tensions amongst the principal players within the company, and encourage independent growth for each unit on their own terms and schedule. It also would address the concerns of the distributors whose growing power and consolidation must be taken into account. Last but not least, it would allow each section to focus on their market segments and resolve these seemingly divergent goals, as stated by the former and current chairmen.

“People who enjoy food, art, music, also enjoy fine wines, and they enjoy them more together…wine is more than a drink. It’s a culture.” – Robert Mondavi

“In the old country, wine was a blue collar beverage, not an elitist, white collar drink. Our goal is to grow the customer base by removing wine’s mystery, while still maintaining the magic.” – Michael Mondavi
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