Premium Wine High Company Quality

5 Forces Analysis (relatively high) Barriers to entry is HIGH for a new company – Capital-intensive business: working capital – Unproductive land up front – Cost of land, resources, and capital investment Barriers to entry is LOW for company that is already in the business – Established market Brand Loyalty: Mondavi brand image is very strong European labeling and process regulations U. S. Distribution cartel – Distribution consolidations – 3 tiered system to prevent organized crime monopoly Advertising and Promotion for current brand names Rivalry Among Existing competitors (very high) Industry consolidation – Premium wines M&A with direct rivals Supplier Power (relatively low) – Jug wine producers acquisition of premium wineries Buyer Power (high) Sourced large % of grapes internally for highest quality wine – Large alcoholic firms diversifying into premium wine business Wine was becoming more price competitive – RMV obtained 63% grapes inhouse Due to lack of growth at lower end market, competitors is moving into premium market Buyer want quality wine, but for a lesser price Long term contracts with grower for ~75% of grapes Low switching cost for consumer – Geographic diversification: in case of natural disaster in one area Other wineries production is more efficient (stainless steel tanks) – Substitution between wine company is very easy American oak barrels are cheaper than French oak – Mondavi uses oak barrels to preserve quality – Power on repeat transaction Labor cost is high in US and Europe compare to Latin America General competitions is high at every level: ultra premium, premium, jug wine Different variety of alcoholic beverage Labeling and packaging is inexpensive – Different brand and type Substitution between wine company is very easy Buyer can find alternative supplier Competitive pricing among firms – Gallo, KJ, other premium wine Restaurant & hotels purchased directly from producer Threat of Substitute (moderate) Highly advertise competitive substitute product – Wine cooler, beers, & spirits American age demographic is getting older, so less substitution threat, due to quality preference Substitutes product from different country – Australia imports is growing ~30% / year.