Mondavi: Organic Wine Line
Mondavi: Organic Wine Line
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Mondavi: Organic Wine Line
After reading the Mondavi Case study, I recommend that Mondavi does not pursue an organic wine line. There are factors in the case that give the appearance of such a strategic approach to be viable, however after careful analysis it is my conclusion that such approach is ill advised.
Few would argue that the world is becoming increasingly concerned over excessive reliance upon the use of chemicals in the food production chain. While some of the concern is based on real health and environmental issues, much of the trend towards organic products is due to preference in test, adherence to trends and other interpersonal factors objective. There is little doubt that the widespread adoption of agricultural pest and disease management methods using manufactured products has greatly contributed to the high standard of living we enjoy today, and most people would endorse that view. This is so in the wine industry in which the industrialization of production methods has been a major factor to its profitability; Mondavi is not an exception. Grape production constitutes one of the highest user of agricultural chemicals; needing insecticides, pesticides, herbicides, fungicides, fertilizers and other synthetic chemicals.
As population pressures increase, there is valid concern that if Mondavi is able to produce organic wine in a cost effective manner, and also a manner that assure quality of the product they will be very profitable and also will contribute to the society in general. The overall trend in demographics is moving towards healthier products and aggregate to this factor, people are becoming more aware of their environment. If Mondavi can launch a organic line that accommodates this segment and meets this growing trend they will be able to increase, profit, market share, and create a competitive advantage from in a saturated and competitive market. Also their image will be boosted since they will be seen as health conscious and environmentally friendly, in every standpoints from resource, to production methods thus creating a sustainable strategy that is economically feasible and environmentally friendly.
As Mondavi has done before, they should start the organic line through joint ventures. In their search to enter other regions of the world Mondavi has partnered with other wine producers in order to assure quality of the image and the quality of the liquid. Due to the size of the segment, the trends for premium wine and the cost of producing an organic wine, Mondavi would have to position its organic wine as a super premium wine.
The cost of producing purely organic wine can be astronomical; for example the cost for producing ultra premium wine in 100 acre Napa Valley will range will approximately $ 4 million dollars . Producing wine in purely organic manner can double or even triple these costs. This can pose an obstacle for Mondavi since they will be investing large amount of capital in a niche that is growing but is not yet stable to create effective forecast and financial models. The waiting period of 5 years for a significant harvest is another factor that exemplifies the cost incurred Mondavi is to choose the organic line thus partnership with an already existing small winery would be the optimal solution.
Mondavi currently has a very good image and name recognition which are key factors in introducing a new product line. However, the concern will be to bring into the market a product that is bound to fail and thus decrease the image of the company. Mondavi is in a strong financial position to invest in the new venture whether it be using its current assets, which total $864,358 , or negotiating for loans with financial institutions and increasing the amount of long-term debt, which is currently $366,247.
The current marketing approach of Mondavi will facilitates the positioning of the new product since the company has implemented a new organization structure that encourage the development of a clear and distinct competitive positioning for each brand. Therefore, the new organic wine line will have their customized sales, marketing strategies that fit the overall company’s strategy. Furthermore, this autonomy will be beneficial for the overall image of the organization as far as any failure to launch the new product will not tarnish the image of the other lines. Furthermore it would take 5 years to have a significant harvest of organic grapes thus unless the company does a joint venture or buys out a company that already produces organic wine, it will have 5 years of inactivity and this lag time can be detrimental to their market share and profitability.
Embedded in the time constraints, there is also the fact that early attempts at making organic wine often resulted in products that were not very satisfactory. The company will need many trials to assure quality in the product.
Mondavi’s competitors were focused of making premium wines. This means that if Mondavi successfully creates and positions its organic wine, it will have a niche market devoid of competition. Furthermore, by the time competition decides to enter the organic market, Mondavi will have already developed competencies that will allow them to have a competitive advantage.
For Distribution they should try selling their product not through distributors as they have traditionally done, but instead they should focus on partnerships with organic products vendors such Wholefoods. This is due to the fact that many distributors will not embrace the new line initially because the market demand for organic wine just started gaining ground recently. However as this segment matures, Mondavi can take advantage of their 100 independent distributors and sell this new line through already existent channels.
Mondavi should invest heavily on a mix marketing campaign in order to attract premium wine consumers who are health sensitive and environmentally friendly welcoming this new segment in a delightful premium line of wine made only from certified organically grown grapes. This campaign should praise the quality and the test of the new product as well as pointing out the differentiation factors such as a pleasant drink without negative side effects such as headaches which result from the use of chemicals.
One major limitation for organic wines is that you do not find it often in major supermarkets thus shelfing will be a problem Mondavi will have to face. This problem can be solved by a strong public relations campaign as well as paying for shelf spaces. Furthermore the labels in the new line should be clear and indication of quality that way the product does not get ignored by customers. As Mondavi has done before, they should organize wine testing shows and classes in order to educate people about the new wine, and assure long time consumers that the new organic line meets the same standards they have always expected from the Mondavi products.
There seem to be apparent benefits in pursuing such a niche, but that exactly were it all ends: in appearances. In order to pursue such a niche, Mondavi has to realize that the market is not fertile yet. My suggestion will be for them to wait, strengthen their competitive position; create strategies to compete with Australian wine makers. The flux of Australian wine makers in the US market poses a big threat to Mondavi’s profitability, after all Australian wine makes are successful because they can offer their products at a low cost. Following this line of thought, we have analized that starting a new organic line will need heavy capital investment furthermore, since organic will take away polluting factors such machines, chemical etc, to grow quality grapes will require a lot of labor. Labor in United States is very expensive and thus in competing with their key competitors specially Australians Mondavi will be in disadvantage for having a much higher production costs.
The organic niche market is in its infancy stages. For a big company like Mondavi to invest in it at this junction such a waste of resources; the return on investment will no compensate. Furthermore, even if the production of wine goes smoothly there are still various obstacles to face such us positioning, marketing and other cost related to the launch of new products. If Mondavi wants to do it as a trial, then they should create the organic line either through joint venture, or through the acquisitions of a small company that already produces organic wine.
Disclaimer
The above essay was written by a college student and merely states opinions of a college student. However, if you feel strong about responding to the opinions stated, please write to articles@directorym.com and express your concerns.
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