Robert Mondavi and the Wine Industry Case Analysis

Power of buyers: The soft drink industry sold to consumers through five principal channels: food stores,

Bonny Doon Vineyards, a successful winery business based in Santa Cruz, California, has grown from selling 5,000 cases of wine a year in 1981 to 200,000 cases a year in 1999. To keep growing and be more profitable, the business must choose amongst three possible strategic directions. The first strategy is to start importing wines from Europe into the United States. The second alternative is branching into a retail outlet for unusual wines of great value, accompanied by a high level of service. Lastly, the business’ D.E.W.N could be expanded to include wines not made by the company itself but by other wineries that follow the same values and philosophy.

In the United States, most states require three separate components in the supply chain: producers, distributors, and retailers. This three-tiered system insulates distributors, as beer producers are not permitted to sell beer directly to retailers or consumers.[5] The regulations in place augment the power of buyers. Furthermore, distributors’ purchase volume as a percent of the focal industry’s output is high. Conversely, the relative power of distributors is dependent on how reliant their revenues are on beer sales. Overall, due to the relatively larger number of distributors compared to beer manufacturers, the dominant position of the three largest brewers, as well as the brand loyalty created by the manufacturers through brand differentiation, the power of buyers is moderate.

The “three-tier system” for distribution does not favor small wineries. It places a different tax rate dependent on state, and the “Big Five” distributing companies hold 52% of the distributing market. Boutique distributors are not able to operate in all states, and are always at threat of being purchased by the major distributors.

Bonny Doon currently has an enviable position in the 1990’s Californian wine-producing industry. The company has successfully differentiated itself from its competition and achieved a first mover advantage in terms of selling “undervalued” wines. However, due to increased rivalry and a changing and increasingly challenging market,

Vincor International Inc. is in the business of selling premium wine to discerning wine drinkers. The company relies on its firm resources and capabilities from which it derives its distinctive competencies. These include the ability to produce market and distribute premium New World wines to a growing market of customers around the world. The total estimated world market is worth approximately $190 billion dollars (U.S.).

While bargaining power of buyers is ranked the least important of the five factors for Mondavi’s strategy, its importance should not be understated. One of the Wine is typically sold to wholesalers who then distribute to retail outlets. With the decreasing number of wholesalers and the consolidation of retailers, buyers negotiating power is increasing. It is difficult for companies like Mondavi to make consistent profits and maintain market share if they cannot keep products on retailers’ shelves.

This discrimination substantially limits the direct sale of wine to consumers, an otherwise booming and significant business.

Next priority is the online and mail-order purchasers as the low-cost of sales and high reorder rate created high profit were a great way of attracting global markets without spending large amounts of capital to expand. Wholesalers would come next as they contribute 30% of total sales and margins are not as high as retail sales.

The premium wine segment is quite concentrated with high barriers to entry making mergers and acquisitions a strong and prevalent growth strategy. With industry analysts forecasting the demand for premium wine to grow at 8% to 10% per year, many former non-rivals are now becoming a threat. Jug wine producers are entering the premium market and beer and spirit producers

The structure of the wine industry is quite different around the world. The barrier to entry is relatively higher in the New World than in the Old World. Referring to the market data on the level of concentration in 1998, people can see a few players dominate the markets in Australia and the U.S. while the level of concentration is quite low in Europe. Therefore, the rivalry in Old World is intense there.

However, there are numerous economies of scale. Large retailers own most of the market share and power this industry. As mentioned previously the 50 largest companies own 65% of the market share. The main reasons for this is that there are several economies of scale and absolute cost advantages for the larger firms. This is one of the reasons there have been numerous mergers and acquisitions in the past two decades, which have formed large conglomerates.

The United States wine industry is a 12 billion dollar industry and is composed of 7,000 wineries and around 1,800 different companies. The three major companies within the industry are Constellation brands, E&J Gallo, and The Wine Group Inc. The industry has made its way through the economic crisis at a better rate than some of the other U.S industries however in order for them to continue to see any type of growth it is important that they acknowledge their issues and find ways in which they can rectify them. The majority of the issues among the industry are problems that cannot be directly controlled by individual wine companies. Therefore it is imperative that wineries find away to use these issues to their

I would recommend U.K market because both in volume and value U.K is being importing higher than U.S. U.K has easy procedure to distribute nationwide than U.S. U.K has a perfect platform to excel in branding and building the image. U.S is lacking in distribution, numerous different markets and there are more domestic wine producers. Therefore, I would definitely recommend U.K. and in terms of distributor; I would recommend distributor who had worked in 1996 because Montgras gained 75% of sales through restaurants. Moreover, the fixed tax of £1 makes this a great market for reservas regardless of retail price. The expensive wines might be at least twice the quality lower end wine in terms of quality of the wine

Over the past decades, the wine industry has encountered a lot of changes. Wines are now very diverse and offer different kinds of tastes to the consumer. A wine will not be the same depending on the environment and the country it was produced. The perception of wine has evolved during the past few years and well-known bottles can be found all around the world due to the globalization. The majority of wine producers was originally located in Europe, in countries such as France, Italy or Spain. However, the world of wine known before is over. The emergence of new producers located in America, Oceania and Africa has changed the vision of the traditional wine industry. Those new players, called the New World wine producers, have put in place effective strategies to compete against ancient ones, known as the Old World wine producers. The change in wine consumption also impacted the mutation of the industry by creating new challenges.