Professional Documents
Culture Documents
No
Details
Page
1.
1-2
2-3
3.1.
7-8
8-9
2.
3.2.
Conclusion ...
Bibliography.
10
Appendix...
11-15
STRATEGIC MANAGEMENT
RMC has used backward integration strategy to increase control of grape suppliers. He has
successfully convinced many of Krugs top grape suppliers to sign long term contract with RMC
for approximately 75% of its purchases. (Professor Roberto, 2002)
He also worked closely with each grower to improve grape quality and the contract has
been structured where the compensation was tied to the grape quality & crop yields. This will
improve the stability of the price as most of the growers depend on RMC for sustenance, thus
giving them very little bargaining power over RMC. Mondavi also convinced Krugs top two
suppliers to take financial stake in his new winery. (Silverman, Gilinsky, Guy & Baack, 2001)
Since now they are the stakeholders & have long term contractual relationship with Mondavi, it
has reduced the likelihood that suppliers will increase price.
Furthermore, RMC has invested more than $50mil over the past 10 years to replant
vineyards after the phylloxera epidemic. For long-term plan, Mondavi also acquired additional
vineyards to increase its internal grape sourcing to 25% by 2005 so that it wont rely heavily on
independent growers. (Professor Roberto, 2002) As such, threat of supplier bargaining power is
low for RMC as they attempt to control the suppliers operations right from production to
distribution.
1.2
Sales of wine in U.S. are mainly controlled by three-tier distribution system. RMC sells
wines to their customers who are the wholesalers/distributors, who then provided wines to local
KANG HEAN LEE / MAL10067
STRATEGIC MANAGEMENT
retails businesses which accounted for 78% of total sales volume in U.S. Supermarkets alone have
contributed 52% of retails wine sales. (Silverman, Gilinsky, Guy & Baack, 2001)
However major changes had taken place in wholesale and retail wine business. Number of
alcoholic beverage distributors had decreased by 75% in early 1960s and substantial market share
are now controlled by top 5 distributors. (Exhibit 2) As a result, large distributors are enjoying
economies of scales and prefer to distribute only top selling wine brands since the product can be
replenished quickly. Bargaining power of distributors had increased since they have a lot of wine
brands to choose from.
Furthermore, five new world countries - Australia, Canada, Chile, New Zealand and U.S.
have signed trade agreement in 2001 to keep markets open and reduce trade barriers. (Castaldi,
Cholette, Hussain, 2006) With the globalization of wine industry, a lot of international wine
brands are eyeing for space on the store shelves of these few powerful supermarkets. As a result,
RMC faced increasing competition as they relied heavily on top distributors & retails chain for
domestic sales, which accounted for two-third of its revenue. (Professor Roberto, 2002) As such,
bargaining power of customers is high for RMC
1.3
STRATEGIC MANAGEMENT
As a result, the new competitors have dwindled capital resources of RMC, which ended in
public listing to obtain more capital to compete and take advantage of future opportunities
(Silverman, Gilinsky, Guy & Baack, 2001) As such, threat of new competitors is high for RMC
especially when the big companies treat mergers and acquisitions as attractive ways to grow.
1.4
Rivalry among competing firms is often the strongest of the five competitive forces
especially in U.S. wine industry, which was composed of approximately 1,500 wineries with the
top 10 accounting for 70% of U.S. production. (Silverman, Gilinsky, Guy & Baack, 2001)
RMC has experienced intense rivalry from few dominant & large volume producers like
E&J Gallo Winery and Canandaigua Wine which have controlled 40-50% of market share.
(Exhibit 3) Furthermore, E&J Gallo also enter the premium wine segment aggressively to
capitalize on changes in consumer demand toward premium wines. This will affect RMC which is
primarily competing for premium wine market.
Besides, large volume producer like E&J Gallo also gained economies of scale and have
been viewed as sales powerhouse by many industry observers. They adopted strategy of substantial
vertical integration by owning glass container manufacturer, bottle cork operation, a fleet of trucks
and network of distribution centres throughout the country. (Professor Roberto, 2002) This enabled
Gallo to enjoy a significant cost advantage. In this situation, rivalry is more likely.
Furthermore, most of the rivalries have focused on channels promotions strategy to
increase brand awareness and broaden its customer base in the premium market. They employed a
direct sales force, organize wine competitions, wine testing and education activities at their
vineyard to build publics awareness. To sustain the competitiveness, RMC has gone far with the
launched of its first radio & television advertising campaign nationwide. As such, rivalry among
competing firms is high for RMC in premium wine segment.
1.5
STRATEGIC MANAGEMENT
There are a lot of categories in non-alcoholic and alcoholic beverage such as beer and
distilled spirits. When considering substitute for wine, many people always think the wine
substitute is beer. Actually all these are more of a compliment than substitute as each product has
its own characteristic, can be differentiated and used to accompany different occasion.
However the threat of substitute products is still exist within the wine category. For
example, an incident happened in 1999 where all the distributors began to substitute competing
Chardonnay brand on retailers shelves after RMC experienced shortfall in supplying Woodbridge
Chardonnay brand. (Silverman, Gilinsky, Guy & Baack, 2001) Besides, there are a lot of wines
with similar price, taste & quality are readily available from local or multinational brands. The
wide selection of wines has confused the customers during the buying process and always have
trouble to remember which wines they bought and liked. (Castaldi, Cholette, Hussain, 2006) As
such, the brand loyalty of customers is low and switching to an alternative product is more likely
during the purchase process.
Although RMC has wine product in all premium categories and hold a competitive
advantage in economic of scales and price, the threat of substitute products is still possible as most
of the distributors only prefer to sell the wines which gained most awards and acclaim from wine
enthusiasts. In conclusion, threat of substitute products is consider moderate for RMC.
Based on Porters Five Forces, it can be concluded that only threat of suppliers are
favorable to RMC. Due to the high competitive and continuous threats from new entrances, it is
important for RMC to be more innovative in developing world-class wines in order to sustain its
domestic economic profits.
STRATEGIC MANAGEMENT
Key success factors (KSF) are limited number of characteristics that have a direct and serious
impact on the effectiveness and efficiency of an organization. Activities associated with KSF must
be performed at the highest possible level of excellence to achieve the intended overall objectives.
The key success factors of wine industry are described below:
2.1
U.S., a new world producing country in wine industry was composed of approximately
1,500 wineries. The most famous growing area is California, which are the top wine producer in
U.S. and fourth leading wine producer in the world behind the countries like France, Italy and
Spain. (Wine Institute, 2007) The uniqueness of California is the ideal climate, topography, and
soil condition which enable wineries to produce premium wines to compete with the premium
European brands. Furthermore, two Napa Valley wines have won gold medals at a 1976 blindtasting competition in Paris. As a result, California has attracted a lot of tourists and continuously
provides a constant source of customers to wineries.
2.2
Wine industry is a capital intensive industry and requires great winemaking techniques &
facilities to produce high quality wines. Californias wineries are predominantly family owned and
multi-generational which control all aspects of grape growing techniques. For example, based on
the study by Professor Roberto (2002), RMC operated six wineries in California and each of these
wineries employed modern technology to insure the gentle handling of grape and the high quality
of fermentation and aging processes. Besides, it also built a state-of-art winemaking facility and
assembling a team of experts in the area of viticulture and winemaking. All these new techniques
and development of experts have been an added advantage for U.S. wineries in the production of
world-class premium wines. Their willingness and ability to implement new marketing techniques
is the KSF for wine industry.
2.3
STRATEGIC MANAGEMENT
U.S has a very strong domestic market for wine industry. It is the fourth largest producer of
wine and third largest consumer in 1999. (Exhibit 4 & 5) The wine consumption has increased
steadily in U.S. with overall growth of 1-2% every year since 1994. The highest concentration of
table wine consumers is in the 35-to-55 age bracket and 31.4% of consumption contributed by the
adults in families earning over $75,000 annually. Normally this group of people has a very high
disposable income and willing to pay more for premium wine. As a result, wineries are able to
leverage on this favorable demographic to enjoy economies of scale in the growing premium
market. Those adults who are not regular wine consumers consist of teetotalers and beer or spirit
supporters. (Castaldi, Cholette and Hussain, 2006) There are a lot of potential to convert this group
of beer purchasers to become wine consumers via innovative marketing strategy, e.g. health
benefits related to moderate wine consumption. In conclusion, many project that U.S. will become
the worlds largest wine market by 2008 with the steady rise of per-capita consumption in recent
years. (Exhibit 5)
2.4
In 2001, U.S. wine industry has gone into globalization with the signing of Mutual
Acceptance Agreement (MAA) on Oenological (winemaking) Practices with four new world
countries - Canada, Australia, Chile and New Zealand. The main purpose is to promote greater
international wine commerce and eases trade barriers for U.S. wine & imported wines. (Wine
Institute, 2007) Such move enables U.S. wineries to sell their product outside the region with lower
tariffs, logistic cost and trade barriers. As such, U.S. wineries have increasingly look abroad to
increase sales, earnings and take advantage of certain macro-economic factors such as exchange
rates. It also gives an opportunity for them to showcase other wines to enhance its reputation in
international markets.
3. Strategy Implementation
KANG HEAN LEE / MAL10067
3.1
STRATEGIC MANAGEMENT
Robert Mondavi future business strategy is to form global join ventures as a way to
develop world-class wine and transform RMC to become a truly global company that grow,
produce and sell wines in all the best wine-growing regions in the world. (Silverman, Gilinsky,
Guy & Baack, 2001) To ensure the success of strategy implementation, RMC need to focus on
below few areas:
3.1.1
With the plan to venture globally, it is very important for RMC to determine the
characteristic and needs of consumers as well as analyze consumer similarities and differences in
every new market. As consumers are different in every country, RMC needs to produce different
wines to meet different country preference. With market segmentation, it will enable RMC to
position each of its wines appropriately to meet consumer needs and expectation. As a result, RMC
will have better control on production, distribution and advertising for each of its wine. It will help
RMC to improve operation efficiency and maximizing the profits.
3.1.3
To conquer the global market, it is extremely important for RMC to build its brand
and broaden its customer base. Based on the study by Professor Roberto (2002), most of the
premium wineries in U.S. do not spend much on consumer advertising. They tended to focus more
on channel promotion. As such, it poses a large opportunity for RMC to strengthen its brand
appearance in advertising medium. RMC can focus on TV and radio advertising to build trust and
KANG HEAN LEE / MAL10067
STRATEGIC MANAGEMENT
emotional connection with consumers or advertise in selected premium magazines to strengthen its
premium market penetration. Furthermore, with the emerging of new online medium, it will also
help RMC to reach those consumers who are difficult to reach via traditional media. In conclusion,
advertising is an important tool for brand building.
3.1.4
Strategy implementations will never success without the strong management and
operations control. RMC needs to establish clear, reasonable, measurable and achievable annual
objectives which are well communicated throughout an organization. With clear annual objectives,
all the employees will have the same understanding and moving towards the same direction in
implementing the strategy. It will also help in allocating resources more efficiently according to
annual objectives and provide relevant training for each employee to further enhance their skills.
Besides, performance-linked rewards must be well implemented to motivate and improve the
productivity of all employees. Lastly, adequate and timely evaluation is needed to ensure the
performance conform to the strategy.
3.2
Questions and problems will undoubtedly occur as part of implementation due to the
divergence of views throughout the implementation stage. It is common as some of the decisions
cannot be completely planned until implementation begins. Some of the potential problems are
described below:
3.2.1
Resistance to Change
STRATEGIC MANAGEMENT
Resistance to change is another potential problem that RMC might face during the
strategy implementation. People fear to change because any changes in structure and strategies will
affect or disrupt the current working environment. However, continuously adapt to changes is
necessary for RMC to compete in the fast growing and increasingly competitive wine industry.
Normally those organization best adapt to the changes will gain significant competitive advantage
and strategy implementation can be relatively easy.
3.2.3
RMC will face a challenge to maintain its financial stability over the next few years
as strong financial budgets & capital are required to sustain the business worldwide. RMC will also
deal with two or more exchange rates which can complicate its global operation. Furthermore, the
companys profit will be affected by the direct impact from the weaker U.S. dollar when the
economy slowdown. All uncertainty and instability in international financial and currency could
present considerable risks for RMC to gain strength and meet the challenges of the years ahead.
4.
Conclusion
Based on the above analysis, RMC is facing fierce competitive pressures in the domestic wine
industry. However, its plan to build the brand and improve the financial returns through global
expansion, complemented by an improving economic outlook as well as favorable long-term
demographic trends in U.S. wine industry will definitely position the company for future success.
5.
Bibliography
David, Fred R., (2010). Strategic Management Concepts and Cases, Thirteenth Edition, New
Jersey: Pearson.
10
STRATEGIC MANAGEMENT
Silverman, Murray., Gilinsky, Jr. Armand., Guy, Michael. & Baack, Sally., (2001). Robert
Mondavi Corporation, Case Study 12, in Thompson, A. A. & Strickland, A. J., Strategic
Management Concept and Cases, New York: McGraw-Hill Higher Education
Castaldi, Richard., Cholette, Susan., & Hussain, Mahmood., (2006). A Country-level Analysis Of
Competitive Advantage In The Wine Industry, DEIAgraWP-06-002, pg15-27
Roberto, Michael A., (2002). Robert Mondavi and the Wine Industry, HBS Case #9-302-102,
from http://hbr.org/product/robert-mondavi-and-the-wine-industry/an/302102-PDF-ENG?Ntt=
%25239-302-102
Wine Institutes, (2007). California Wine: A Signature California Industry, Press Room,
from http://www.wineinstitute.org/resources/pressroom/04032007
Wine Institutes, (2007). U.S., Canada, Australia, Chile and New Zealand Sign Mutual Acceptance
Agreement on Oenological Practices, Press Room, from
http://www.wineinstitute.org/search/node/U.S.%2C+Canada%2C+Australia
%2C+Chile+and+New+Zealand+Sign+Mutual+Acceptance+Agreement+on+Oenological+Practic
es
11
6.
STRATEGIC MANAGEMENT
Appendix
Exhibit 1
Potential
Developme
nt of
Substitute
Products
Rivalry
Competing
Bar
gain
ing
Pow
er
of
Cus
tom
ers
Bar
gain
ing
Pow
er
of
Sup
plie
rs
among
Firms
Potential
Entry of
New
Competito
rs
Source: Fred R. David, Strategic Management Concepts and Cases (Thirteenth Edition)
12
STRATEGIC MANAGEMENT
Exhibit 2
1999 U.S. Market Share U.S. Wine & Spirits Wholesalers
Distributor
Market Share
11.7%
Charmer/Sunbelt
6.6%
5.7%
Youngs Market
4.5%
Glazers Wholesale
4.5%
TOTAL TOP 5
33%
TOTAL TOP 10
45%
% Market Share
1994
% Market Share
1996
% Market Share
1998
34.3%
27.7%
27.5%
Canandaigua Wine
17.7%
15.5%
14.8%
9.7%
11.4%
14.6%
3.2%
2.5%
4.0%
3.2%
3.6%
3.8%
13.7%
11.9%
12.9%
13
STRATEGIC MANAGEMENT
Other
18.2%
27.4%
22.4%
Total
100%
100%
100%
Source: Murray Silverman, Jr. Armand Gilinsky, Michael Guy, Sally Baack,
Robert Mondavi Corporation, Case Study 12
Exhibit 4
Wine Production 1999 (000s of Hectoliters)
Production
Imports
Exports
France
62,900
5,580
15,700
Italy
58,400
749
18,600
Spain
36,800
1,600
10,600
US
26,000
4,210
2,850
Argentina
15,900
96
900
Germany
12,120
12,442
2,100
Australia
7,900
243
2,200
South Africa
5,900
154
1,300
Romania
5000
Chile
4,300
178
2,300
14
STRATEGIC MANAGEMENT
Exhibit 5
Wine Consumption Selected Nations
1999 Per Capita
1994
1999
2005E
Italy
59.5
33,000
35,100
35,300
France
58.2
34,900
34,300
34,000
Spain
35.5
12,900
16,000
16,500
Germany
22.9
18,560
18,420
18,500
Belgium
26.2
2,200
3,000
3,200
UK
19.3
7,400
9,300
12,700
Australia
19.8
3,300
3,700
4,000
Argentina
36
14,200
12,800
13,800
Chile
18.5
2,500
2,100
2,000
US
10.5
17,400
20,800
22,300
Canada
8.6
2,200
2,700
3,000
Japan
2.8
1,390
2,910
3,500
China
0.3
3,460
5,300
6,000
South Africa
9.5
3,700
3,900
4,300
Rest of World
17,130
18,090
19,000
Total World
174,240
188,420
198,100
15
STRATEGIC MANAGEMENT
Exhibit 6
Robert Mondavi Corporation, Statements of Income (FY1997-1999)
Jun-99
Jun-98
Jun-97
Revenue
205.40
175.70
166.00
Gross Profit
165.20
149.50
134.80
44.60%
46.00%
44.80%
SG&A Expense
104.60
90.00
79.80
Operating Income
60.60
59.50
55.00
Operating Margin
16.40%
18.30%
18.30%
Non-operating Income
3.60
0.40
1.90
Non-operating Expenses
14.20
12.30
10.60
50.10
47.60
46.20
Income Taxes
19.30
18.60
18.00
30.80
29.00
28.20
30.80
29.00
28.20
1.94
1.83
1.80
--
--
--
Source: Murray Silverman, Jr. Armand Gilinsky, Michael Guy, Sally Baack,
Robert Mondavi Corporation, Case Study 12
16