Mondavi

Robert Mondavi and the Wine Industry

1. The industry structure in the Old World is significantly different than the New World. First, the Old World has a very low concentration ratio, while the diversity of competitors is high. Along with other factors the Old Worlds industry rivalry is very high. In contrast the industry rivalry is relatively low because of the extremely high concentration ratio and the low diversity of competitors. The New World is made up of large publicly held firms in comparison to the small private owned vineyards in the Old World that historically have produced for their own consumption. Another difference is between the suppliers in both industries. The suppliers in the Old World are one in the same with the producers because most wine producers are able to purchase their own land for grape production because of the low cost of land and low cost of labor. The producers in the New World either have to spend large sums to purchase land and hire out expensive harvesters or they have outsourced their grapes from other farms. Most producers in the New World tend to rely on outsourcing their grapes giving their suppliers a lot of power because of the necessity of grapes for the end product. The threat of entry in the Old World is relatively high in comparison to extremely high capital requirements in the New world making threat of entry low. Finally, the main difference between the industries of the New World and the Old World is the wine producers mandated distribution system. The Old World has few restraints and tends to distribute their products to off premise retailers throughout Europe and even abroad. In comparison, many producers in the New World must distribute first to wholesalers who are also distributing other firm's products and then that wholesaler will distribute to on and off premise retailers. However, buyers in the Old World have equally high power as those in the New World because of the extensive amount of different producers in the Old World.

All of these comparable elements affect the industry attractiveness in different ways. However, I feel that when comparing both worlds, the industry attractiveness is almost the same. The industry attractiveness for wine production is moderate. The wine industry has been affected by the various governments throughout its history. They governments have regulated bottling and packaging as well as the distribution systems. The industry has also shifted with the amount of education offered to consumers about wine. This has led to some firms just reaping the benefits of those who are promoting general industry awareness. A main reason this industry would be attractive is because consumers must first try the product in order to determine if they like it or not. Consumers also tend to be brand loyal if they are satisfied with a certain type of wine and will go to great measures in order to repurchase. There are also many consumers who are uneducated about wine and mainly purchase on price. Price in the wine industry can be very effective in relaying perceived quality. The wine industry is attractive also if one firm owns their own vineyard because the life of the vineyard is extremely long and will be relatively constant for a producer.

2. Mondavi is in a great position currently and has large growth potential because of its resources, capabilities and competencies. Mondavi's tangible resources include 9,700 acres of vineyards in California and 1,600 acres abroad. Mondavi owns 6 separate vineyards that make up these acres. This allows for Mondavi to use large percentages of their own grapes in production. In addition to these resources of developed land for grape growing, the Mondavi Company went public in order to gain more financial capital that they can use for growth, promotion and expansion for the company. The human resources of the company are strong in the executive level. There have been some complaints with the sales force and their ability to correctly market the various different products at the same time. This is an area that Mondavi struggles with and may need serious improvement. Mondavi has amazing intangible resources. First, they have the technology and drive for innovation that has led them to be leaders in the industry. They developed the first cold fermentation, steel barrels and first used French wood barrels in California. They continue to make their company not only just a wine producing company but have also spent time to educate and attract their customers to the wine industry as a whole. Mondavi created an image of prestige, quality, and dedication to the consumers and to the arts. With tours, events, and contributions Mondavi created positive publicity within the wine community in the U.S.A. Because of these resources and others, Mondavi has been able to expand its company to producing not only luxury wines but also popular premium wines to reach many different segments within the wine consumers. Mondavi is known for its joint ventures with foreign companies so that it can produce Italian, French and Australian wine. The company has been able to successfully develop 16 brands that come from 6 different vineyards. Because of their size they have great economies of scale as well as scope. Their relationships with their distributors have given Mondavi power and control over them. They established long term contracts and deal with so many distributors so that the loss on one would not significantly hurt the company. Mondavi has also been able to export its products globally generating more sales. With is advertising and marketing capabilities, Mondavi has and will continue to create a strong image for the company in order to pursue potential wine drinking consumers throughout the country and abroad. Because of their high quality products, Mondavi has the ability to transfer that image to whatever products they wish. They also have the experience to know how to focus on their most profitable and successful products and when to cut off brand that are hurting the profitability of the company. The competitive advantage of Mondavi is a result its variety of products because of the joint ventures and its strong Robert Mondavi Wine lines.

The threats to Mondavi's competitive advantage come from other competitors in the various price/ quality categories within the country as well as some competitors abroad. One threat is from industry rivals who are beginning to focus on premium wines to compete with Robert Mondavi. These companies have either acquired joint ventures or the have purchased land in other countries in order to sell premium wines from the premium grapes grown in those countries. Examples of these firms include Kendall Jackson, Trinchero and Southcorp.

Mondavi's highest selling line, the Coastal Private Selection, was created to compete in the