Robert Mondavi -- Case Study

Robert G. Mondavi, the son of poor Italian immigrants, began making wine in CaliforÐ'¬nia in 1943 when his family purchased the Charles Krug winery in Napa Valley where he served as a general manager. In 1966, at the age of 54, after a severe dispute over control of the family-owned winery, Robert Mondavi used his personal savings and loans from friends to start the flagship Robert Mondavi WinÐ'¬ery in Napa Valley with his eldest son, Michael Mondavi. Robert's vision was to create wines in California that could successfully compete with the greatest wines of the world. As a result, Robert Mondavi Winery became the first in California to produce and market premium wines that were expected to compete with premium wines from France, Spain, Italy, and Germany.

In order to achieve this objective Robert believed that he needed to build a Robert Mondavi brand in the premium wine market segment. This resulted in the initial proÐ'¬duction of a limited quantity of premium wines using the best grapes, which brought the highest prices in the market and had the highest profit margins per bottle. HowÐ'¬ever, he soon realized that this strategy, while establishing the brand, did not allow the company to generate enough cash flow to expand the business. In order to solve this problem Robert decided to produce less expensive wines that he could sell in higher volumes. He dedicated time and effort to finding the best vineyards in Napa Valley for the company's production of grapes. In addition, he signed long-term conÐ'¬tracts with growers in Napa Valley and worked closely with each grower to improve grape quality.

Robert Mondavi built a state-of-the-art winery that became a premium winemaking facility as well as conveying a unique sense of Mondavi wines to the visitors. Soon the new winery became a place where the best practices in the production of premium wines were developed, eventually establishing the standard in the wine industry. Robert Mondavi was the first winemaker who assembled experts with various backÐ'¬grounds in the fields of viticulture and winemaking to give advice on the new wines. He also developed new technology that allowed special handling of grapes and the cold fermentation of white wines. Furthermore, Mondavi's company created process innovations, such as steel fermentation tanks, vacuum corking of bottles, and aging of wines in new French oak barrels. Dedicated to growing vines naturally, Robert MonÐ'¬davi introduced a natural farming and conservation program that allowed enhanced grape quality, environmental protection, and worker health. Moreover, from the very beginning, the company promoted the presentation of wine as part of a sociable way of everyday living. Robert Mondavi Winery was one of the first wineries to present conÐ'¬certs, art exhibitions, and culinary programs. In his book, Robert Mondavi described his search for innovation:

From the outset, I wanted my winery to draw inspiration and methods from the traditional Old World chateaux of France and Italy, but I also wanted to become a model of state-of-the-art technology, a pioneer in research and a gathering place for the finest minds in our industry. I wanted our winery to be a haven of

creativity, innovation, excitement, and that unbelievable energy you find in a start-up venture when everyone is committed, heart and soul, to a common cause and a common quest.

In 1972 Mondavi's hard work and dedication to his venture were formally recogÐ'¬nized when the Los Angeles Times Vintners Tasting Event selected the 1969 Robert Mondavi Winery Cabernet Sauvignon as the top wine produced in California.

Despite Robert Mondavi's relentless efforts, things did not always go smoothly. A noticeable improvement in the quality and reputation of the Robert Mondavi wines during the 1970s did not spark the interest of reputable five-star restaurants and top wine shops across the country. So, for over a decade, Mondavi traveled throughout the country and abroad, promoting Napa Valley wines and the Robert Mondavi brand name. Often, while dining alone on business trips, Mondavi offered restaurant emÐ'¬ployees the opportunity to taste his wine. Slowly, Mondavi got his wines on the wine lists of the top five-star restaurants in the United States. By the end of the 1970s, restauÐ'¬rant owners, famous wine connoisseurs, and industry critics were eager to be introÐ'¬duced to Robert Mondavi products. Recognizing the increased popularity of his wines, Mondavi began slowly raising the prices of his wines to the price level of comparable French wines. Subsequently, the company expanded its capacity to produce 500,000 cases of premium wines annually.

About this time Robert Mondavi started building a portfolio of premium wine brands to satisfy the need of consumers in various price and quality segments of the domestic wine market. As a result, from the late 1970s until the 1980s Robert Mondavi diversified its portfolio through acquisition and further growth of the Woodbridge, Bryon, and Coastal brands of California wine. Most of these acquisitions were financed through long-term debt.

In the early 1990s Robert Mondavi faced financial difficulties as a result of the rapid expansion; the increased competition; and a phylloxera infestation of several of the company's vineyards, requiring them to be replanted. After contemplating the matter for several years, Robert Mondavi decided to raise enough capital to continue expanÐ'¬sion of his company while maintaining family control of the company. On June 10, 1993,