Case 3 Robert Mondavi and the Wine Industry

1) Evaluate the structure of the global wine industry? How and why is that structure changing? What threats do these changes present for Robert Mondavi?

The structure of the wine industry is quite different around the world. The barrier to entry is relatively higher in the New World than in the Old World. Referring to the market data on the level of concentration in 1998, people can see a few players dominate the markets in Australia and the U.S. while the level of concentration is quite low in Europe. Therefore, the rivalry in Old World is intense there.

The Old Market consumers are more sophisticated and price sensitive than those in the New World. The main sales channels …show more content…

In addition, Napa is widely known as a land of wines in the US. Therefore, the investment is also desirable to produce a quality of wine and to enhance the image of wine.

3) Why are large alcoholic beverage firms such as Diageo, Foster’s, and Allied Domecq entering the premium wine business? Do their strategies make sense? And why and why not?

Large alcoholic beverage firms may want to diversify the alcoholic beverage business, entering into the premium wine business. According to the market data in Exhibit 4, the premium wine market grows at a fast pace. So, the market segment looks very attractive enough to lure the beverage giants to take the move. Beer companies could reallocate its resources to the new business and grow it in a relatively shorter period of time. To do so, cross-subsidization should come with the efforts. Generally, cross-subsidization is recommended when sizeable scope economies are expected.

However, it is questionable to judge there is such benefit can be seen. Otherwise, the decision for the investment would not be optimal for the companies. The new comers may hope to tap on its established sales channels and the strong market position as a beverage firm. However, beer and wine cannot be distributed using the same truck as beer keg need to be refrigerated. Also, the reputation as a beer company doesn’t contribute much to brand building