Mondavi Case Study

Mondavi is a winery worth $600 million located in Napa valley California. It has stake in 16 different brands through various types of ownership and partnership businesses. Its focus is in premium wine, and although the company has partook in different types of acquisitions and mergers, it is now (in 2002 when this case was written) has decided to grow organically, rather than through acquisitions, and position as a US luxury premium winery. This strategy is hoped to counteract the negative decline in sales and growth in competition that Mondavi experienced at end of Q2 FY2002 brought on by economic decline and increasing competition.

At this time, Mondavi was ranked #8 in the US and #13 globally in market share percentage. They have strong presence in the premium wine category. The case states that premium wine sales have grown 8-10%. Additionally, as stated on page 2 of the Case "Robert Mondavi and The Wine Industry" by Michael A. Roberto, "since 1994…demand increased for premium wines, while consumption of inexpensive, lower-quality wine had failed. Industry analysts expected the demand for premium wines to grow at 8010% per annum for the foreseeable future." This means that not only is this category increasing in demand among consumers, but also that consumers are and expected to continue to be, willing to pay higher prices for wines of better quality. However, there are industry and market threats that must be considered, such as the economic decline of the US and larger competition growth in the wine industry.

Key issues for Mondavi at this point in time (end of Q2 FY2002) is competition of rival firms of premium wine, large-volume producers entering the premium wine category, and global alcoholic beverage companies who were entering the category through acquisitions. These multiple types of beverage companies are entering the premium wine category because the market opportunity and consumer behavior towards purchases of higher quality wines. For Mondavi, this trend could be the answer to their sales decline problems. Exhibit 2 shows that Mondavi's local Napa brands decreased in sales volumes during 2002 first 2 quarters, as well as in net revenue. However, its imports (which are priced higher) grew 10 case sales and 7.8% in net revenue.

At the same time, producing premium wine independently includes multiple costs; such as land purchasing, development, crushing, barrels, and bottling. These costs are important factors to consider when deciding how to grow the Mondavi brand portfolio.

In detail, the cost of growing grapes includes land purchasing of $100,000 in Napa per acre. Mondavi owned 9,7000 acres of land in California. Additional costs are land development into vineyards, which were about $33,000, and $75 per day per worker. Post land development costs include $15,000 tanks (for 25,000 liters of wine, for 20 years)~$1.00 for bottling, and 2-3% of sales for marketing.

Exhibit