Robert Mandavi and The Wine Industry Harvard Case Solution & Analysis

Case Overview

With the changes in the economy and the economic status, becoming weak and slumped in the year 2002, the wine industry began to falter and drastic changes started to occur in the industry. Mondavi, one of the largest players in the US wine market, also suffered from the consequences of these changes as the wine sales started to decline drastically and the overall position of the company began to get weak in the industry. With these declines in sales, some threats started to arise especially from the external players and the major threat came from the Australian imports that began to grow at about 30% per annum. This scenario also encouraged new world producers to move ahead in the industry through consolidation and pose a serious threat to the established players.

Mergers started to occur in the industry, and the competitors of Mondavi saw an opportunity and indulged jug wine producers in the premium wine business through mergers. This new trend became a serious threat for the company and the competition in the industry started to grow intense. Despite the changes in the economy and industry and growing threats from competitors and industry consolidation, Mondavi decided to rely on the US market and boost the sales.

Initially, the company decided to remain independent, but with the growing changes in the coming years decided to follow the same practice, the other players were doing in the industry. Although the company used different mergers and joint ventures to remain competitive, but the wine industry became an attractive industry and the competition  in the US market started to grow significantly.

Problem Statement

As the wine industry started to suffer from a decline in sales, other threats in the industry also began to grow for Mondavi. The major challenge faced by the company is the growing competition. The reasons for this increase in competition is the due to the consolidation among the players in the industry and new entrants entering the US market. The company needs to formulate competitive strategies to safeguard its position in the US as well as in the Global market.

Analysis

The analysis portion will be comprised of industry, environmental and internal analysis using different models to identify the critical threats to the company and how the company can utilize its resources to create a competitive advantage.

Porter’s Five Forces Analysis

Bargaining Power of Buyer

Buyers in the industry have strong, and rigorous control over sales and companies in the industry are facing the challenge of decline in sales. Since buyers have the control over sales, therefore, the companies are at the weak end, thus giving buyers high power to bargain.

Although the company is among those players or distributors in the industry that have strong market share, but there are only a few players in the industry having control over distribution.

Southern wine and spirits account for generating around 29% of the company’s sales and is the largest wholesaler for the company that is why also have control over the decisions of the company. Therefore, the buyers have the edge in bargaining as the power lies with them.

Bargaining Power of Supplier

The essential supply needed for the production of wine is the grapes, which are the vital competent required to produce quality wine. Since grapes are the essential ingredient for the production, therefore, the cost associated with them is very high and accounts the major portion of the cost. The bargaining power of the supplier can vary in the industry depending on the decisions taken by the companies.

If companies in the industry decide to go for backward integration then, the power of suppliers is totally eliminated, but the cost of production will eventually increase the overall cost. On the other hand, in order to gain low-cost advantage the companies can seek suppliers for the supplies of grapes, but the bargaining power at the supplier's end will increase.

Threat of New Entrants

Since the initial capital required to start the business in the industry is very high as the working capital along with the cost of acquiring the land are two major expenses which keeps the threat of new entrants at its minimal. On the other hand, the barriers to entry in the industry are also very high as the cost associated for operating and starting is very high which further discourages the new entrants. Besides that the revenues in the industry start to come but at a slow pace and an ample amount of time is required to achieve a break even since the industry is a long-term beneficiary.

Market sustainability depends on the capital strength of the company that is a very rare case.  On the other hand, the quest for gaining market share is also very intense since the premium brands and the old players have the advantage of customer loyalty. Delivering the same quality and snatching the market share from the established players is also a challenging task.

Furthermore the new practice in the industry of consolidation among players has also reduced the chances for new entrants to enter the market. Thus,  the barriers to entry in the industry are very high, and a new entrant will have to face serious challenges in establishing itself in the market and sustaining its position in the market. Therefore, the threat of new entrants is at its lowest in the industry........................

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