Robert Mondavi - Competitive strategy.

“tastings”, wine seminars and funding local non-profit wine organizations/groups;o     per case advertising cost for Vichon and Coastal disproportionate with capacity; Vichon ad costs six times higher per case than Woodbridge which shipped up to 20 times more cases and Coastal per case cost 3 times higher than Woodbridge whose case shipments were 6 times that of Coastal;o     relied completely on foreign importers for overseas advertising and promotion;o     overhead of 100 sales people assigned to independent distributors which had stopped being “brand builders” and were nothing more than “logistics providers”•     Brand categories – only 3 brands in the Popular category in a market becoming more price competitive; •     No vertical alignment – unlike Gallo, suppliers, distributors, wholesalers, shipping etc were all contracted independents; overall production costs not competitive – over 100 separate independent distributors and over 300 suppliers with up to seven year contracts;•     Distribution – only 8% of revenue comes from exports to 90 countries.Opportunities•     Reduce production cost of Woodbridge brand – transition from Oak Barrel aging to cheaper and more efficient processes;•     Discontinue the Twin Oaks brand – attempt to “upscale” Woodbridge failed because Hotels and Restaurants associated it with Jug brand Woodbridge and would not pay the higher price; re-allocate 115 acres of planted grapes to profitable brands where capacity is short;•     Advertising/Promotion:o     expand advertising to national and international broadcast media - particularly the UK and Switzerland;o     reduce or discontinue investments in tours, educational seminars, training, tastings etc;o     leverage Woodbridge market share by increasing its advertising (currently only .48 per case) – increase to be offset by savings in more efficient aging process; o     reduce advertising budgets for Vichon and Coastal until capacity can be increased for those brands;o     reduce or eliminate sales staff for independent distributors;•     Global distribution – cost to distribute to 90 countries exceeds 8% of revenue; target “soft markets”:o     eliminate unprofitable exports and target emerging markets - wine consumption up almost 40% in China, 44% in Latvia, 35% in Ireland with virtually no local supply of “vintage” wines (China can’t make vintage wines because most vineyards are well under 10 years old – China importing “foreign waste” to produce fortified wines);•     Business strategies - reduce or eliminate non-strategic investments like the Walt Disney venture; re-negotiate existing supplier contracts and shorten terms; consolidate supply and distribution chain (move to be more “vertical”) and mechanize production for Popular brands;Threats•     Industry trends – price competitive dynamics taking shape; explosion in the number of brands, over production, less consumption, more wineries etc;•     Competitive products – wine coolers, Smirnoff Ice etc taking market share;•     The strength of the U.S. dollar and exchange rate;•     Huge wineries like Gallo and Canandaigua moving aggressively into the Premium segment;•     Most of Europe in recession;III.     ObjectivesMarketing ObjectivesMondavi continues to carry on its family run small business tradition despite its growth and transition to becoming a publicly traded company. Although Mondavi’s functional level strategy remained as a family run business, the company’s marketing goals and objectives changes better influence the current market and demand. In the past Mondavi’s marketing objectives was to focus its efforts on the small group of wine drinkers that appreciated Mondavi’s wine quality and were interested in learning more about wine. The company’s marketing strategy was to focus on impressing the group of wine drinkers and depending on their opinions to spread word by mouth on the brand and quality of the wine.      Currently Mondavi marketing objectives broaden from just the small group of wine drinkers to mass marketing and some special focus on the core groups whom has extra interest in learning more about wine. In addition to advertising in printed media such as newspapers and magazines, broadcast advertising such as radio and television, Mondavi maintained its relationship with the community by continuing to promote through public relation activities. One of Mondavi’s new marketing strategies is to target the on-premise market by introducing consumers to new or specific wines by offering wine-by-the-glass at restaurants and bars. Business Objectives     Mondavi’s business objective should be to increase sales and become more efficient in its supply and distributions chain internationally. The company’s goal is to increase overall international sales by 10% and earnings by 5% in the next few years. Mondavi’s business strategy in expanding its products internationally was to market through the high-end hotel chains and premium restaurants but unfortunately they were running into difficulties in the European market. European hotels and restaurants prefer to carry high-end brand wines that are unavailable to consumers to purchase through off-premise channels but Woodbridge brand, which is Mondavi’s major distribution channel in Europe, was offering variety of brands and had wide availability.      Another business strategy Mondavi used to improve its distribution channels internationally was to segment its current market. Mondavi segmented its international wine market into three broad types. The first types are countries that consumed and produced wine domestically, which Mondavi classified as being the most difficult challenge to distribute its products in. The second market types of market are the countries that consume significant amount of wines but no large local wine industry. The second type of market was classified to be the highest potential to expand its distributions channels. Market share targets in these countries should be no less than 20%. And the third but not least are the Asian countries that did not yet drink significant amount of wines. Mondavi is targeting these Asian countries to be their highest potential to introduce new product lines, increase sales, and expand distribution chains as their biggest goals for future international expansion. Corporate Objectives     Mondovi’s distributors had shifted from being the “brand builders to logistics providers”; a quote from Michael Mondavi. The corporate strategy is to develop company’s brand by creating “brand teams” in each company’s divisions. Their objective is to improve communication among its operating groups and the accountability of brand performance by monitoring the different aspects of their brand’s activities from production to marketing. Nonetheless, Mondavi will continue to produce the highest quality wines and hopefully the traditional Mondavi’s wine brands and quality will carry on to the next generation and lead the company in the next century.Marketing, Business, & Corporate Strategies Combined     Mondavi’s corporate, business, and marketing level strategies can all be combined and should work well together because all three levels of strategies were formulated under one company tradition and belief. Corporate strategy gives the business level guidelines and directs the business level in developing their strategy. For example, corporate strategy is to continue producing the highest quality wines and also becoming the largest provider of high quality brand globally. Therefore, the business strategy was to increase sales and reduce costs. Carrying on the corporate and business strategies, the company’s marketing strategy was to improve its advertising methods, expand its “pull” marketing activities and develop and expand distribution channels internationally by segmenting its target market. With all three levels of strategies working together Mondavi could be on its ways to becoming the leading company in the winery industry.IV.     Statement of AlternativesBusiness Level Competitive StrategiesIn the wine market, Mondavi positions itself as a defender unit. One of the strategies they carry throughout their different brands is that their wine is fermented in the finest oak aging barrels which make the Mondavis’ wines the finest is beginning to hold them back in the market. In order for Movdavi’s wines to gain market share and increase profit they should take a closer look at what business strategy they are in and where they want to head. Mondavi’s strategically needs to take a look at what is going on in the industry and consider what they are doing wrong. They should be moving into the analyzer or prospector stage. Porter’s Five Competitive Strategies     Taking a look at Porter’s five competitive forces may help the company and brand move into new opportunities. The understanding of Porter’s five competitive forces will help them move from the defender strategy to the analyzers or reactors unit. Moving into the next business unit such as analyzer or reactor combined with the understanding and analysis of Porter’s strategies should help them gain the market share and improve on its sales and become more efficient in its supply and distributions chain internationally. Rivalry among competitors is the first issue they should take a look at. Maybe if Mondavis wines were made like their competitors they would make wine faster and cheaper. However, Mondavis wines strive to be the finest so they could possibly make one winery the latest technologies like Gallo’s wineries. They may consider even making a new brand for this wine so that it is not related to their name brand. Hence, their current customer is less likely to reposition their perceived value of the brand name.Threat of new entrants is the second of Porter’s five competitive strategies. Mondavis cash cow wine, Woodbridge, may need to be marketed stronger to maintain or gain market share. Also, all the other wines marketed under the Mondavi’s brand name needs more advertising to stay in the competitive market. Huge wineries like Gallo and Canandaigua moving aggressively into the Premium segment and Competitive products such as wine coolers and Smirnoff Ice are taking away from the Mondavis’ market share in the industry. Advertising and Promotion are disproportionate and dollars are largely invested in “local” advertising. With these new entrants, advertising could be changed so that there is more attention globally on their brands. Next, taking a look at the bargaining power of the suppliers and the buyers is very important. No vertical alignment exits with the supplier and buyer when it comes to the Mondavi brand name. Unlike Gallo, suppliers, distributors, wholesalers, and shipping were all contracted independents and overall production costs are not competitive. Over 100 separate independent distributors and over 300 suppliers with up to seven year contracts leaves little to now room for vertical alignment. There is to much profit being lost here.Lastly, the business management should take a look at threats of substitute product. This is extremely important. There are a lot of different competitive substitute product is the industry that are highly advertised. Products such as wine coolers, Smirnoff Ice and Twisted Teas are taking over market share and quickly. Mondavi may possibly want to think of introducing themselves into this target market.V.     RecommendationGiven that Mondavi has to start acting like a global company, has to increase sales and reduce costs, the following is the recommended course of action:•     Increase broadcast media advertising for Woodbridge by 10%;•     Between 1996 and 1998, wine consumption in the U.S. increased 4.2%, in China and Latvia over 40% and in Ireland by 35%. As such, increase broadcast media advertising in:o     The U.S. to 2% of current U.S. sales;o     UK and Switzerland to 4% of current sales in those countries;o     China, Latvia, Ireland and Poland to 10% of current sales in those countries.•     Limit further investments in market share expansion in France, Italy and most other European countries (except the U.K and Switzerland). Between 1996 and 1998, wine consumption in France and Italy decrease by 2.8% and 4.1% respectively. •     Increase production capacity for Vichon and Coastal by 10%;•     Reduce costs by:o     Modernizing “Popular” brand manufacturing methods by eliminating Barrel aging;o     Discontinuing unprofitable brands;o     Reducing (consolidating) the number of export countries by 50%;o     Eliminating the sales budget currently allocated to the distribution chain;o     Consolidating supply and distribution by reducing the number to a select few, re-negotiate outdated contracts, and/or bring some of it into the company (move in a “vertical” direction). In terms of implementation, market share in the low end segment will be increased by additional advertising of Woodbridge but also by adding additional low end brands. Possibly keep the Twin Oaks brand alive instead of eliminating it and lowering its price. Export countries can be reduced to 45 by targeting unprofitable regions and switching to emerging, high potential markets. The overall advertising budget increase should be funded by cost savings realized in modernizing the low end manufacturing process, eliminating local community support efforts, shifting the distribution sales budget into advertising and streamlining the supply and distribution chains.