The Wine Industry experienced great evolution during past decades. This Study shows how right strategies by Robert Mondavi, son of a poor Italian immigrant, could make his company successful for 35 years and how the market forces threatened his company in the beginning of new millennium.
According to the case, size of global wine industry ranged from$130 billion to $180 billion in retail sales. Table wine market, which has an overwhelming share of the market is divided into 5 segments: jug or commodity, popular premium, super premium, ultra and luxury. There are over 1 million producers worldwide. Europe is observed as “Old World “ and countries like Australia, Chile, South Africa, and the US are considered as” New World”. 75% of production and consumption take place in Europe which is a fragmented market. The New world increased its share of global market in past two decades. Overall growth of market is 1-2% per year since 1994 but demand for premium wines to grow 8%-10% per year for future.
Suppliers are vineyard that grow and harvest grapes. Wineries in Europe grew almost all of their own grapes while California wineries outsourced 70%-85% of their fruits. However, American Wineries had begun to acquire more land in late 1990 to secure more premium grapes for growing market segment. Buyers are wholesalers who distribute the products to retails outlets, Retailers are supermarkets, wholesale price club, mass merchandisers, liquor stores , restaurants, hotels and pubs. Recently a lot of consolidation happened in the level of distribution and retail. Substitutes products like beer and spirits are growing their share in market. Their prices are relatively cheaper. New entrants are global alcoholic beverage companies that are acquiring wineries to complement their beer and/or distilled spirits businesses, wineries who are making premium wines and large volume producing moving aggressively into the premium wince business.
5 Porter Analyses:
Analyses of 5 forces during the success time ( Robert was in Charge) shows that RM was in a good situation in terms of rivalry in industry and threats by buyers and suppliers. because of being in a growing market like USA with the least competition and threats. They could minimize threats of suppliers especially for their high quality wines by acquiring prestigious high quality vineyards in California. There was high power by substitutes and new entrants, however they could reduce their forces by differentiation their product as luxury elements for luxury occasions. New technology they used in production beside to the marketing by education give them new image and value to be far from competition with new entrants and substitute.
5 Forces during the era of success is shown in below exhibit:
For the period of case study – year 2001- we recognize 5 forces changes in Winery industry specially in US market which is domestic market for RM. Rivalry increased in the industry due to consolidation of small companies and presence of large companies with low cost manufacturing. Threats by suppliers and buyers increased again due to consolidation. RM stayed more in the strategy of JV which weakened his position comparing to his rival who choose take over strategy. Although situation for new entrants is difficult due to higher investment requirements, but big companies are entering to US market with full force. Force of substitutes is increasing. They offer easier and for every occasion product.
Porter’s 5 Forces Analysis for the era that Mondavi is in trouble, is shown in below Exhibit:
From above diagram we understand that environment has changed for Mondavi. As a family operated company they preferred to stay in their homeland market continue with the same strategies which brought them huge success. Market forces changed, new power full entrants came, supply of good quality grapes with low price was not easy as before and consolidations in winery industry and distribution industry made the situation tougher and tougher.
For VRIO I choose two smart and innovative moves and tested them in the era of success and trouble. The first move which was a successful initiative by RM and helped them to differentiate themselves in the market was “Using New Innovative Technology in Fermentation and Aging win. As shown in below exhibit it passed all tests for Value, Rarity, Inimitable and Operable.
Since 1990 that Michael took was in charge, the dynamics start changing. Many other companies started using similar technology in production. Their technology was no longer exclusive and unique. As you see in the below exhibit it did not passed VRIO. It clearly shows that Michael should have looking for other smart move.
Marketing by Educating Consumers is the second move that I tested by VRIO . Robert targeted opinion leaders within wine drinkers to enhance their knowledge and appreciation of Mondavi’s wine. This strategy worked well to differentiate Mondavi products within the wine drinkers. It made an image as a high quality wine. However, this strategy did not last successful since it positioned wine as a luxury drink for special events. Other substitute specially brewery made opposite approach and positioned beer as a product for general occasions with high publicity. Below is exhibits for VRIO tests for Robert and Michael era.
Blue Ocean Strategies
As shown in below exhibit Robert Mondavi had created blues ocean for his company during 35 years. Value Chain of Mondavi ( blue line) was different from other industry. This is why they were operating with less competition. They had different type of wines with different taste, intensive marketing with message about their aging quality and vineyard prestige.
Time passed and their Blue ocean changed to Red Ocean. Many companies copied their model and entered to the US market. In Below exhibit it is shown red line is close to blue line. In such high competitive situation, companies should look for new value chain and go into new market segment.
We define new market segment by new value that we deliver to our customers. The green line in above exhibit is an example of new value chain strategy that could work for Mondavi.
By ERRC the company will have no complexity, just few types of wines to cover most important segments of consumers, without highlighting for aging
quality and vineyard prestige. From the other side we create a simple taste that most of normal population like it. We make it easier to select (simple name) and easier to drinking. To deliver our message about the advantages and value of our products we set a premium price and use above the line marketing.
Green line strategy is a blue ocean for now. However in future some companies will start copying it and change it to red ocean. In my opinion even though we choose strategy which pass VRIO, still there is chance of imitation by others.
Few Ideas for CEO
1- Considering 5 Porters forces I would suggest CEO to expand his market to emerging markets in where he has less supply and buyer forces. Countries like South America have such a features. Taking over companies in those countries will give them competitive advantage in the said growing markets.
2- Considering VRIO I would suggest a movement which is valuable, rare, inimitable and operable. After Some acquisition in South America, a good movement is joint venture with a reputable beer or Distilled Spirits producer to complete. This will position company in top 10 in industry, not all company can do I due to their size and it is quit possible to it.
3- Considering Blue Ocean strategies as mentioned in ERRC, I would suggest re evaluate the value chain of the company. They can erase wine complexity, aging quality and vinery prestige. They should reduce price, marketing and wine range. Raise ease of drinking as well as ease of selection. The last not but least is creating new taste which is simple and appreciate by most of population.