Mondavi’s Missteps

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

‘So what do you make of the Mondavi mess?” a fellow journalist asked me.


The story, in case you missed it, is that the Robert Mondavi Corporation, which is publicly traded, announced on September 14 that it was selling off its luxury wine holdings: the namesake Robert Mondavi Winery in Oakville; Arrowood Winery in Sonoma County; and Byron Winery in Santa Barbara County. Also on the block are its 50%-ownership of three joint ventures: Opus One in Napa Valley, a partnership with Chateau Mouton-Rothschild; Tuscany’s Ornellaia and Luce della Vite, a partnership with Marchesi de’ Frescobaldi, and Chile’s Sena, a partnership with Eduardo Chadwick.


Once stripped of this glossy veneer of brands and vineyards – which account for 14% of Mondavi’s case sales and 23% of operating revenue in fiscal 2004 – the new entity will focus, as the company puts it, on “lifestyle” wines.


“Lifestyle” refers to the sub-$15 a bottle brands such as Woodbridge, Robert Mondavi Private Selection, La Famiglia, Papio, Arianna, Kirralaa, Hangtime, and Oberon. This is the meat and potatoes of the business, accounting for 86% of case sales and 77% of revenue. Actions quickly followed words: in late September Mondavi laid off 360 employees, all of them at the Robert Mondavi Winery in Napa Valley.


Why is Mondavi doing this? Here’s the company line: “We believe that a lifestyle focused company creates a new and unique business model with compelling future earnings growth, strong cash flow generating capabilities, and relatively high financial returns which provides an excellent profile for the investing public,” said the company’s president and CEO, Gregory M. Evans. “By contrast, because our luxury wine brands and assets are fundamentally agricultural in nature, with long-term investment horizons and lower financial returns over the next several years, they are better suited for a private entity that has different investment criteria.”


Napa Valley, it’s fair to say, is practically in mourning. Robert Mondavi, 91, virtually invented fine California wine when he founded his namesake winery in 1966. He is the (gratefully) acknowledged messiah of the industry. Mr. Mondavi didn’t merely sail his own boat; he raised the tide itself. He’s given tens of millions of dollars to charitable causes, single-handedly created the Napa Valley Wine Auction event (itself a charity), and privately and discreetly offered money and assistance to numerous Napa Valley residents. Now you know why he’s revered.


But when the company went public in 1993, making the family wealthy, the die was cast. Mr. Mondavi’s two sons, Michael and Timothy, proved wanting as, respectively, CEO and winemaker, of the ever-larger operation. The family’s squabbles have been widely reported and the wines themselves have been assailed in the Wine Spectator and Robert M. Parker’s Wine Advocate as less than they should be. It’s not been a pretty sight.


So what really happened? It’s simple: the “suits” took over. “Suits” move boxes – wine industry parlance for cases of wine. “Wine men,” in comparison, make wine. They never lose sight of what really counts, which is quality. “Suits,” of course, don’t care. These managers now insist that the Mondavi empire, as currently constituted, can’t effectively sell both up-market and commodity wines. This, in a word, is nonsense. After all, Beringer Blass, owned by Australia’s Foster’s Group, does just that. Beringer Blass makes some of Napa Valley’s most acclaimed cabernets, selling for upward of $100 a bottle, yet 40% of its total case sales is white zinfandel, a low-priced commodity wine.


Ask anybody who knew Robert Mondavi in his prime. He was a wine man supreme. His sons aren’t. And the people they hired (the Mondavis hold 85% of the voting shares) to run the ever-expanding company were strictly bottom-line men and women. Robert Mondavi, in comparison, was the sort who would do whatever it took to improve wine quality, even if it resulted in a short-term loss.


Mr. Mondavi himself conceded that the winery, under his sons’ direction, had lost sight of its raison d’etre. “We were interested in making money when I transferred the responsibility over to the next generation,” he told Alan Goldfarb of Napa Valley’s St. Helena Star newspaper in December 2002. “They were interested in making money and they forgot to promote Robert Mondavi Napa Valley wine … We lost the image.”


The suits now running the show (Michael Mondavi, 61, first resigned as an officer and vice chairman, and on Monday was booted off the board of directors altogether; Tim, 52, remains as winemaker and vice chairman) find it much easier to juggle boxes than make compelling wine. In today’s price-sensitive market, cheap wines sell easily.


But that won’t last. It never does. Commodity wines are always, by definition, a race to the bottom. Someone, somewhere, has a cheaper wine yet. Ask any Chilean winemaker. Once a wine darling, Chile soon found itself superceded by better-marketed and equally cheap Australian wines. Now Australia’s big brands are contending with a glut of excess production, with new, cheaper yet, Aussie labels emerging to take advantage of spot market deals.


What winegrowers at the high end don’t want to tell you is that, actually, the best model for a big wine company is the fashion industry. Cathy Horyn, writing recently about the Calvin Klein fashion house in the New York Times, put her finger on it as well as any wine analyst: “If Calvin Klein is to avoid going the way of Perry Ellis – down market, in other words – it must keep its fashion culture.”


Substitute the name Mondavi and you’ve got it in a nutshell. They failed to retain their wine culture. The suits won. And the boxes are moving – for now. But ask any fashionista: Once your couture collection loses its luster, your money-in-the-bank inexpensive commodities no longer are. Who wants a perfume from a nobody?


The New York Sun

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