Company Overview
Robert Mondavi Corporation is one the leading innovative producers and marketers of high quality brands of wines particularly premium table wines. The company was founded in 1943 and typically operates in the United States but operates in more than 90 countries of the world. Robert Mondavi Corporation is headquartered in Napa, California. Some of the core brands of the company include Robert Mondavi Private Selection, Woodbridge, and Robert Mondavi Winery. Other smaller wineries from the company are Arrowood in Sonoma and Santa Maria. The company is also involved in partnerships with other winemakers. For instance, Robert Mondavi Corporation produces Lucente, Luce, Ornellaia, and Danzante in connection with Frescobaldi of Tuscany, Montalcino in Italy, Opus One in partnership with the Baron Phillippe de Rothschild of Chateau Mouton Rothschild of Bordeaux, France; and Arboleda, Sena, and Caliterra wines that are produced in partnership with the Chadwick Eduard family in Chile. Robert Mondavi Corporation also collaborates with the Robert Oatley family and Southcorp Limited to provide Kirralla and Talomas.
Robert Mondavi Corporation faced three distinct groups of competitors in its operational activities. These were categorized as large volume producers that were aggressive in their premium wine ventures, rival firms that focused in the manufacture of premium wines, and international alcoholic beverage companies that were responsible for purchasing wineries to complement their beer and/or spirit operations. Focused competitors included firms such as Kendall-Jackson, Trinchero Estates, and Southcorp; Large-volume producers included E & J Gallo and Constellation Brands; and Beer and Distilled Spirits Producers included Foster’s Group, Diageo, Brown-Forman, and Allied Domecq.
Winemaking and Wineries
In the winemaking business, Robert Mondavi Corporation is committed to creating the finest wines in the industry and achieving this goal was driven by innovativeness and extensive experimentation of new techniques that were designed specifically for enhancing the quality of products from company. Similarly, soft and natural techniques have been employed into the process of growing grapes and as well in the winemaking process. This has seen the introduction of several environmentally winemaking processes and friendly farming practices over the years. A substantial percentage of grapes used in the creation of high-quality wines were obtained from the company’s vineyards and the rest of the grapes are obtained from other independent vineyards and growers.
Robert Mondavi Corporation operated six wineries that included Woodbridge, Robert Mondavi Winery, La Famiglia di Robert Mondavi, Byron, Arrowood, and Opus One (co-managed with Chateau Mouton Rothschild). Winemaking processes in these companies used modern technologies to enable high-quality fermentation and wine-aging processes, and as well the gentle handling of grapes. Facilities such as the state-of-the-art gravity flow system, oak fermentation tanks that were capable of enhancing the flavor and aroma of wine, and climate-controlled winery subterranean cellars were installed in wineries.
Distribution and Marketing
Wines from Robert Mondavi Corporation were distributed through a diversified network comprising of more than 100 wine and spirits distributors within the U.S., brokers, and importers. Examples of distributors that have generated a high percentage of revenue to the company include Southern Wine and Spirits, Costco, large wholesalers and retailers, mass merchandisers, supermarkets, liquor stores, and restaurants. Marketing initiatives have been hugely influential in improving the popularity of the company in that the company employed various marketing efforts in order not only improve the understanding and knowledge of Robert Mondavi Corporation wines but also to solicit the views and opinions of leaders and consumers.
Strategy Audit Tools
Using Porter 5 Forces to explain Robert Mondavi Corporation Past Success and Struggling
situation
The past success of Robert Mondavi Corporation in the wine industry can be attributed to the company’s ability to understand the level competition that prevailed in the market and as well the prevailing but untapped profit generating abilities. By understanding the competitive and related factors that shaped the wine industry in the time, Robert Mondavi was able to take profit-making opportunities while at the same time enhancing his company’s market share. As such, he was able to apply strategic positioning techniques that favored the development of the company. This can be examined using the Porter 5 Forces of industry competition.
The Threat of Entry
Practically, new entrants to any industry have been known to establish a new level of competition and the struggle for market share. As such, they are more likely to generate pressure to the level of prices, rates of investment, and costs of production. During the early growth stages of Robert Mondavi Corporation, there were few barriers to entry and, therefore, Robert Mondavi Corporation faced little retaliation from the already established wine manufacturers during the time. For instance, small families from their vineyards produced the majority of wines, and there was the lack of enhanced technology and/or automation costs to raise capital costs. It was also easy for small firms to strengthen through acquisitions thereby enhancing their development strategies. Other factors that facilitated the growth of Robert Mondavi Corporation included the low levels of supply-side economics, reduced demand-side benefits since the majority of wines were produced in small scales, low customer switching costs, low capital requirements ($100,000 was what Robert started with), and less restrictive government regulations.
At the time of this case, Robert Mondavi Corporation was struggling given that a lot had changed as compared to the formative years. Technological advancements have technically changed the nature of operations in the wine industry. Supply-side economics and demand side benefits have increased; consolidations have become expensive thereby increasing the threat of new entrants. Barriers to entry have increased making already established firms to diversify their operational activities.
The Power of Suppliers
Supplier power is very prominent in the determination of market share and profitability levels for any industry. Suppliers have the habit of ensuring that they attain high values by charging higher prices, minimizing the quality of products, or shifting costs to industry participants. During its earlier years of operation, Robert Mondavi Corporation ensured that it minimized the power of suppliers as possible. For instance, it purchased enormous chunks of land for grape vineyards. As such, majority of grape supplies were obtained from its own vineyards while the rest was obtained from independent farmers. Therefore, supplies had no appreciable control in the control of supplies. Similarly, Robert Mondavi Corporation had a diversified network comprising of more than 100 wine and spirits distributors within the U.S., brokers, and importers. These factors were particularly significant in the reduction of supplier power.
Power of Buyers
Customers have the capability of capturing the market value given their ability to drive down prices, demand better service quality, and reduce switching costs at the expense of the profitability levels within the industry. This can be explained from the buyer bargaining powers in the industry. In the formative years, there were reasonable buyer bargaining power as evidence from the lack of the minimum number of large volume buyers, low switching costs, the availability of undifferentiated products, and increasing demand. Robert Mondavi Corporation capitalized on these factors by concentrating in the creation of innovative and high-quality products that satisfied the market demands. This had significant effects on customers who were able to easily identify themselves with the company’s growths leading to faster growth of the company.
The Threat of Substitute Products
Substitute products in the wine industry entailed the availability of different wine brands that performed similar functions. Robert Mondavi Corporation was able to register success because the threat of substitute products was moderate thereby allowing the company’s products to be discovered by consumers. The high level of innovativeness and the high quality of wines from Robert Mondavi Corporation ensured that more clients shifted towards the consumption the company’s products thereby enhancing its growth potential and profitability levels.
Rivalry among existing competitors
The level of rivalry among existing competitors has a sense of influencing the levels of profitability and growth levels within the industry. Rivalry among competitors were moderately low given that Robert Mondavi Corporation managed to partner with local and international wineries thereby expanding its business development. The barriers to exit in the wine industry were high meaning that businesses held to every possible strategy in order to remain the business even if profits were low. There was low price competition because the price of wines mainly depended on the quality of wines produced and ultimately, switching costs for buyers were slightly reduced.
Using Resource Base Theory to Explain Past Success and the Struggling state of the company at the time of this case
It is emphatically crucial to understanding the forces and resources that are responsible for maintaining a sustained competitive advantage in order to evaluate the level of strategic management for firms. This entails relying on assumptions that strategic resources are heterogeneously distributed over the company and that these differences are more likely to become permanent over time. Robert Mondavi Corporation was capable of obtaining sustainable competitive advantage by implementation strategies that utilized its internal and external competitive advantage. These factors are analyzed below
VRIO
This represents four empirical indicators that determined the potential of resources at Robert Mondavi Corporation to generate and sustain its level of competitive advantage. The resources can be explained as being Valuable or having value, Rare, Inimitable, and Operable (VRIO). During the early years of operations, the resources of Robert Mondavi Corporation were valuable in the sense that the company was able to utilize the prevailing market opportunities and at the same time neutralized the prevalent market threats at the time. Furthermore, the company’s asset productivity was high while the cost of inventory was low. Rareness entailed the unique system of operation that had been employed by RMC to conduct its business operations. RMC used innovative techniques in the production of wine thereby enabling it to overcome the prevailing competition. By 1960s, it had grown to be among the leading and most recognized firms in California. Inimitable represented the imperfectly imitable nature of the company’s operating conditions thereby contributing to its value and uniqueness in the market. Finally yet importantly, Operable RMC resources meant that the resources of the company faced no strategically equivalent substitutes.
Competitive Advantage
Competitive imperfections are responsible for the existence differences in firm performance within the industry. During the earlier years of operation for RMC, the wine markets were perfectly competitive and, therefore, majority of firms operating in the industry earned a rate of return that was just large enough to cover their cost of capital. This factor might have been responsible for enabling RMC to increase its superior levels of performance and, therefore, it had immense competitive advantages.
However, by the year 2001, competitive imperfections in the wine market had undergone dramatic evolvement thereby causing implications of different natures leading to competitive imperfections. This might have been the basis for the deteriorating nature of RMC’s competitive advantage and thus the decline in its performance level.
Barriers to entry
These refer to the dominant resource incumbents that allow firms to enjoy a sustained competitive advantage in the market. RMC enjoyed different resource based incumbents during its formative years, and this included the high supply-side economies of scale that enabled the RMC to produce large volumes of wine at a lower cost, high demand-side effects that brought benefits of scale to the company, low capital requirements thereby enabling RMC to set up or acquire many wineries, unique access to independent distribution channels thereby increasing sales, and high incumbents in terms of firm size.
However, these factors had changed unfavorably by 2001 thereby affecting the company’s to maintain a sustained competitive advantage. For instance, supply-side economies of scale had significantly reduced, high capital requirements might have been responsible for making it difficult for the RMC to expand, and as well in the reduction of the other factors minimized the barriers to entry thereby jeopardizing the company’s position.
Using the Blue Ocean Strategy
This refers to a business strategy that entails the capture of uncontested market space, and in turn, a firm capable of making competition levels irrelevant. The resultant untapped and uncontested market represents those regions that influence unpretentious but profitable growth opportunities that any firm can venture. RMC ventured into the market space with a different strategy of manufacturing innovate high quality wines. This meant that the demand of these products was not created but rather fought. Since the various RMC brands were innovative, they managed to create and/or raise the market value thereby eliminating potential sources of competition.
Strategies for Success
RMC needs to identify ways that will enable it to enhance its competitive advantage through the creation of a new market space. These strategies should not only be able to enable it to beat the competition and compete in the existing market place but they should also be able to enable it exploit the existing market demand. This entails making value-cost trade-offs through the alignment the company’s entire system against the low cost and differentiation. Unfortunately, almost all firms in the wine industry are improving on such strategies and as such, RMC might not be able to fulfill its objectives of attaining a strong competitive advantage.
However, RMC has the alternative of evaluating its system and identify strategies that will enable it to create uncontested market place. In turn, it will be able to create a situation whereby competition will be irrelevant because the strategies could enable it to capture and create new demand for its wine products. Eventually, it will manage to disrupt the value-cost trade-off and align the company’s system to actions that will enable it to pursue differentiation and low cost. Available options for RMC include identifying ways of improving the wine aging quality, price reduction, devise above the line marketing strategies, enhance wine range and prestige, and include fun and adventure.
Strategic Recommendations
Based on the strategic audit of the Robert Mondavi Corporation, a few areas of concern can be employed by the new CEO to ensure that the company enjoys the level of success it used to enjoy before its level of performance dwindled. I will propose the following strategies for the new CEO;
Investing resources in research and development in order to understand the competitive and market related factors that determine the wine industry now.
Invest in new and emerging markets to increase revenue generating streams and diversify growth. Adoption of high technological equipment will not only improve the company’s capability for overcoming barriers Re-arrange tactical sequences; maintain focus on the picture ahead, and change the strategy into action and this can be realized through management restructuring.
Invest in in extensive agricultural farming to produce enough grapes for the wineries and as well to minimize the supply chain complexities Consider reviewing the prices of wines and if possible, reduce these prices to ensure an increased competitive advantage.
Reference
Mondavi Case; HBC case 9-302-102 Sep. 12, 2005
