Robert Mondavi and the Wine

Robert Mondavi and the Wine Industry

Since 1966, Robert Mondavi established itself as one of the leading wine producers of the Napa Valley. Founder Robert Mondavi recently relinquished his post as Chairman of the Baord, and was succeeded by his son Michael. Michael's brother Tim remains chief winemaker and Vice Chairman. The Mondavi family retains 50% of the company's shares and the majority voting rights (Roberto p. 6). Known for their innovation and quality as well as their business acumen, Robert Mondavi has been a consistent industry leader in the production of premium wines. The Mondavi firm has been publicly traded since 1993. Since FY1994, Mondavi's earnings per share have grown at a compound annual growth rate of 28% (Roberto p. 1). Mondavi's firm market value totals about $600 million.

However, Robert Mondavi faces still competition from three main sources. Direct rival firms in California who produce premium wines such as Kendall-Jackson and Southcorp pose an immediate threat. Similarly, large-volume producers that focus on low-end jugs like E&J Gallo have begun to tap the premium wine market, and global alcoholic beverage corporations like the Foster's Group are also getting in on the wine crazy by acquiring or consolidating with wineries around the world that make high-end products. CEO Greg Evans, a 20-year employee of Mondavi and the first non-family member to hold that position, helped the firm reassess its position in light of increased competition and market-related setbacks. As Mondavi has invested considerably over the years in expanding its product line and revamping its production facilities, the future plans of the firm do not include further acquisitions but rather an "organic growth of its premier brands," (Roberto p. 16).

Historically, founder Robert Mondavi dedicated himself to increasing wine awareness in the United States. Through concerted efforts at wine appreciation, Mondavi helped both deliver a message he personally believed in and stimulate sales of his products. Mondavi purchased his first vineyard in 1943 and would soon become one of the world's leading producers. The Woodbridge line, launched in the 1970s, would put Mondavi on the map. Its range of wines in the popular premium price category became fast best-sellers and helped Mondavi expand his product line of fine wines.

The global wine industry generally divides its products into five market segments. Jug or commodity wines are the cheapest and generally poorest quality, being produced from second and third pressings. Jug wine usually sells for less than $3 per bottle. Sales of commodity/jug wines have consistently declined at a rate of about 3% per year over the past decade, whereas overall sales of wine in the premium categories have grown between 8 and 10% per year (Roberto p. 2). In 2001, jug wines accounted for 38% of case sales but only 13% of total retail sales. Robert Mondavi ignores the commodity market segment, instead focusing on the range of premium wines. Wines in the popular premium segment sell for between $3 and $7 per bottle; super premiums sell for $7-$14 per bottle; ultra premium for $14-25 per bottle and luxury wines sell for $25 and up (Roberto p. 2). Markets vary between regions, too: in Europe the average price per bottle sold is $4.80 compared with $7.20 in the United States (Roberto p. 2).

Following the success of the Woodbridge line of popular premium wines in the 1980s, Mondavi partnered with Baron Phillipe de Rothschild, a leading French producer to create a line of ultra-premium wines. By 1998, their joint venture wines labeled Opus One were sold in 65 countries worldwide and the fifty-fifty partnership marked the first ever U.S.-French endeavor in the industry. In the 1990s Mondavi explored other joint venture options including one with the Italian vintner Luce della Vite. Their joint La Famiglia di Robert Mondavi uses Italian grape varietals grown in California to produce a line of high-end wines. More recently, Mondavi acquired Arrowood, marking the firm's first entry into Sonoma wines. Mondavi owns and leases a total of almost 10,000 acres of vineyard land in California. Their joint ventures in Italy, Chile, and California add another 1600 acres and account for about 7% of their total grape supplies (Roberto p. 7). Most of Mondavi's grapes are sourced internally, and many growers receive long-term contracts to ensure consistency and quality (Roberto p. 7). Currently the six California wineries that are operated by the Mondavi firm include the following. The Robert Mondavi Winery (RMW) offers their flagship wines, which are produced at the original to Kalon winery in Oakville, California. RMW wines are the firm's third-highest selling brand. A recent $28 million investment in the renovation of the to Kalon winery ensured an influx of new visitors for tours, tastings, and cultural events to stimulate awareness and interest in fine wines. Robert Mondavi also developed a line of competitively-priced wines in the super-premium category in response to consumer and retailer demands. The brand is called Robert Mondavi Coastal Private Selection, and is currently their second highest-selling brand. The firm's top-seller remains the Woodbridge line, a popular premium label started in 1979 and accounting for 76% of Mondavi's case volume and 57% of Mondavi total revenues as of FY2001. The Robert Mondavi name has been invoked both for the Coastal Private Selection and for the Woodbridge line to "enhance the image" of those brands (Roberto p. 8).

Mondavi also acquired several California brands including Byron, specializing in ultra-premium and luxury wines; Arrowood; and the La Famiglia di Robert Mondavi. Additionally, the Opus One brand is Mondavi's prestige line, which produces 30,000 cases per year and retailing at about $140 per bottle. Just as the Mondavi name enhances the image of the Woodbridge label, the Opus One joint venture has enhanced the overall prestige of Mondavi's name. Robert Mondavi has entered into four more joint ventures in the high-end price category since 2002 including three Italian vines and one luxury Chilean wine called Sena.