Robert Mondavi and the Wine Industry

Robert Mondavi and The Wine Industry

Brief History of the American Wine Industry:- Perception in the American Society

The total wine market in the United States for 1999 was $18.1 billion with an average growth rate

of 8.5% since 1994. However, there has never been a cultural disposition for Americans to drink

wine like has historically existed in Europe, despite being populated primarily by European

immigrants. The two main reasons for this are, 1) the vineyard and production infrastructure was

very small in the 19th century when the country was developing, and 2) the first alcoholic

beverages to be mass produced and readily available nationwide in the U.S. were beer and

whiskey. The low volume producers of wine were relegated to niche markets that were comprised

of ethnic enclaves or individuals who wanted to enjoy a beverage with their food. The key

differentiators between the drinks that were readily available, beer or whiskey, and wine became

cuisine and the money necessary to attain the harder to reach imported wine. As a result of this, in

the U.S. the consumption of wine became viewed as an elite drink, and was not embraced by the

public.

Wine is now consumed on a national scale, but the attributes that categorized wine as an elite

drink during the early days of the U.S. have carried forward into the present. According to the

Adams Wine Handbook 1998, women are slightly more likely to consume wine then men, with

the majority of drinkers being in the "Baby Boomer" generation. Indeed, 12 % of the American

population consumes more than 80% of the total wine produced in America.

Mondavi's Case: A macro-environmental analysis based of the Wine Industry.

 Barriers to Entry: The U.S. has one of the most "open markets" in the world, with low barriers to

entry for imported wines. The value of the imports out paced the value of exports while keeping a

relatively flat volume, the value per gallon has increased for imports from $15.36 in 1992 to

$17.14 in 1998. This trend clearly supports the theory that the import market is overwhelmingly

targeting the premium wine segments. The capital investment that is required to start a winery

depends on the scale of production. Very small wineries can start up with a minimal capital

investment and can purchase grapes from select suppliers.

 Bargaining power of Buyers: With the high number of producers and with the market dominated

by a few major wineries, competition in the U.S. wine market is high. Strategies implemented by

wineries to try to establish a competitive advantage can include targeting varietal segments,

strategic supplier and distribution partnerships, and differentiation based on image and price.

 Bargaining power of suppliers: Suppliers to the industry could be in the form of bottle

manufactures, label-printing services or grape production It is very common for competitors to

out bid each other for grapes from suppliers that have a reputation for high quality grapes.

Therefore, wineries choose to either purchase vineyards or assume the higher capital investment

and agricultural maintenance costs or try to attain long-term contracts with grape suppliers.

Vertical integration is what many successful companies like Gallo have pursued along with

horizontal integration or remains unbundled.

 Political/ Legal: In the U.S., there is a law mandating the implementation of a 3-tier distribution

system. The system is mandated by law because alcoholic beverages are a controlled substance

and as such the government implemented a controlled system for getting those products to the

markets. Wineries are capable of using a 2-tier distribution system, which allows wineries to sell

directly to the customers through gift shops located at the winery. Mailing lists and the internet

can only be used in a limited number of states because most states have made