Robert Mondavi and the Wine Industry

Robert Mondavi and the Wine Industry

Theodore Campbell

Robert Mondavi has been making wine since 1943, and it all began when he convinced his parents to purchase a winery for $75k.  In 1966, Mondavi set forth on his own, and opened a winery on the To Kalon vineyard in Oakville, California.   By the early 1970s Robert Mondavi Winery became one of America’s most innovative, high quality winemakers.  

Currently the global wine industry is split up between the “Old World” and the “New World”.  In contrast to the “New World”, the “Old World” market is highly fragmented.  Small family owned vineyards produced most of the wine in Europe.  There are hundreds of thousands of wineries in Europe, and not one dominates the market.  On the other hand, in the “New World”, which consists of U.S., Australia, Chile, and South Africa, the top firms dominate the market share.  For example, four firms accounted for 75% of the Australian market, and the top 20 firms in the U.S. control 75% of the wine industry in their respective country.  

The global wine industry structure is changing and consolidation in the industry has accelerated.  One reason behind consolidation is the goal to maximize profits.  Many of the large wineries are buying up other wineries, and by doing so are able to enter into new markets and increase their efficiencies by being closer to the customer.  The second reason behind the increased number of acquisitions of wineries is because the other segments of the alcohol industry are entering the market.  As the market for example Beer, begins to mature, wine gives those companies another way to increase revenues and generate profits.  As large companies of other segments enter the market it causes great challenges for other wineries like Robert Mondavi.  They bring established relationships with them and are able to leverage their strengths to accelerate the success of their wine products.

Owning an ultra-premium winery on a 100 acre vineyard in Napa Valley can be ultra-lucrative but you have to be able to wait many years to reap the benefits of your efforts.  Referencing Exhibit 10 in the article you can see all of the costs associated with the 100 acre.  In order to cover the capital costs to and turn Revenue into Net Income, it will take many bottles of wine and many years before that will occur.

Key Capital Costs for 100-Acre Napa Valley Ultra-Premium Vineyard

Land: $10,000,000

Vineyard Development: $2,500,000

Costs associated with vines: $1,000,000

Crushing equipment cost $250,000,000

Cost of Oak Barrels $805,000,000

Total Capital Costs can be close to $20,000,000

Robert Mondavi’s advantages over a small winery consist of technology and innovations.  With this advantage he is able to produce more wine faster and more efficiently than a smaller winery in the industry.  A disadvantage Robert Mondavi would have is quality control.   It is much harder to enforce quality controls over a larger firm than it is of a smaller company.   The smaller winery will have the ability to closely monitor quality to ensure their product is being produced at the quality they are aiming for.