Robert Mondavi Corporation - Company Profile, Information, Business Description, History, Background Information on Robert Mondavi Corporation



P.O. Box 106
7801 St. Helena Highway
Oakville, California 94562
U.S.A.

History of Robert Mondavi Corporation

Robert Mondavi Corporation, with its family of Robert Mondavi wineries, is one of the United States' premier winemakers and has done much to bring the Napa Valley region to the forefront of international winemaking. Dedicated to producing only premium wines, the Mondavi wine family includes the brands Robert Mondavi, Woodbridge by Robert Mondavi, Vichon, Byron, Robert Mondavi Coastal, and the more recently introduced La Famiglia di Robert Mondavi. Since 1979 Mondavi has also produced, in a joint partnership with the Baron Phillippe de Rothschild wine family, the ultrapremium Opus One label. Together, these wines accounted for sales of more than 4.5 million cases and nearly $200 million in revenues in 1995. In that year, Mondavi owned more than 1,500 acres of vineyards in the Napa Valley and surrounding regions. Founded by Robert Mondavi in 1966, Mondavi went public in 1993, although the Mondavi family retains control of 92 percent of voting stock. Robert Mondavi is chairman of Robert Mondavi Corporation. His oldest son, Michael, is president and CEO, and his youngest son, Tim, is managing director and winemaker.

The Mondavi family's involvement in winemaking began in the early 1920s. Cesare Mondavi emigrated to the United States from Marches, Italy, in 1906, finding work in the iron mines of Minnesota. Two years later he returned to Italy to marry; returning to Minnesota with his bride, he opened a saloon and boarding house. Robert Mondavi was born in 1913 in the town of Virginia, Minnesota.

Prohibition brought the Mondavi family to California. A provision of the Prohibition laws allowed families to make up to two hundred gallons of fruit juice per year. A member of the local Italian Club, Cesare Mondavi was sent to California to buy grapes, which could be processed into wine. Soon after, Mondavi settled in Lodi, California with his family, and set up a business shipping grapes from the Napa Valley and Central Valley regions. At thirteen, Robert Mondavi began working for his father, including acting as the family's chauffeur, while attending high school. After high school, Robert Mondavi went on to study at Stanford University.

When the Prohibition laws were repealed, Cesare Mondavi moved from shipping grapes to pressing wine. In 1936 he bought a small winery in Napa Valley, the Sunny St. Helena, which produced bulk wines. Robert Mondavi, then in his last year of college, began taking chemistry courses in order to prepare to join his father's new business. After graduating, Robert Mondavi moved to St. Helena, and began learning to make bulk wines. His younger brother, Peter, then a student at the University of California at Berkeley, also turned his studies toward the making of wines, including cold fermentation techniques. The Mondavis incorporated cold fermentation into the making of their wine, producing a lighter, fruitier taste than the predominately sweet California wines available at the time. Before long, St. Helena's production reached more than a million gallons per year.

At the time, the bulk-wine market was dominated by a few large wineries, such as the Gallo Brothers, and bulk-wine making was made still less lucrative by a government imposed price-freeze that held the price of bulk wine at 27 cents per gallon. Robert Mondavi's interest began to lean more and more toward producing the more sophisticated dry wines. In 1943 Robert learned that the Charles Krug Winery, one of the region's oldest, was up for sale. Robert planned to produce higher quality dry wines under the Krug label, while financing the purchase with the continued sale of St. Helena bulk wine. After Cesare Mondavi's initial reluctance, the family bought the Krug winery and its 160 acres of vines for $87,000. Robert and Peter Mondavi were each given 12 percent of the new business. Peter, then still in the Army, would join the business as its winemaker. Robert Mondavi became general manager, handling the development and marketing of their wines. The new company was called C. Mondavi & Sons.

The old Krug vines were torn out and replaced by Cabernet Sauvignon, Sauvignon Blanc, Riesling, and Chardonnay vines. The winery itself--which, in its later years, had served as bulk wine factory--needed extensive renovations. Sales of the Mondavi's bulk wine, selling in half-gallon and gallon jugs, financed the new Krug operation. The bulk wine was renamed CK Mondavi, marking the first appearance of the Mondavi name on a label. The premium wine to be produced would be sold under the Krug label.

By then, Robert Mondavi had spent many years consulting wine-growing experts and experimenting with wine production techniques. In an effort to improve the quality of the Krug wines, he bought a number of used brandy barrels. By aging the wine in smaller barrels, in contrast to the giant aging vats common in the American wine industry at the time, Mondavi hoped to produce a finer wine. It wasn't long before the Krug wines began to win its first prizes at state fair competitions. Still more important to Krug's growth were Robert Mondavi's tireless promotional efforts. Mondavi was convinced that the Napa Valley region could produce a grape--and wines&mdash≡ual to those of the renowned French and Italian wine-growing regions. He also insisted on blind tastings, which allowed his wines to stand on their own merits, uncompromised by the stigma still attached to Californian wine. Soon, the Napa Valley name--and Krug's&mdash⟩peared on more and more wine lists and store shelves across the country.

Unfortunately, tensions arose between Robert and Peter Mondavi. Peter Mondavi resented Robert's interference in the winemaking, and Robert's salesmanship also placed continuous pressure on the winery's production capacity. By 1946 the brothers faced a crisis: Robert had placed large orders for grapes from the local growers, but a bumper crop that year cut the price of grapes in half and the Mondavis faced a loss of nearly half a million dollars. Nevertheless, the family made good on its contracts with the growers, and the Krug winery went into debt. Robert Mondavi continued to promote the Krug wines, and continued to push his brother to expand the winery's production.

In order to meet the demand that Robert was creating, however, Peter was forced to release their wines before they were properly aged. Quality declined, followed shortly thereafter by sales. Robert appealed to Cesare Mondavi, who still controlled the majority of the company, and was placed in full control of the winery's production. When Cesare Mondavi died, however, Rosa Mondavi, inheriting the majority of the company, made herself president, and Rosa favored Peter's vision of running the Mondavi wineries. Meanwhile, both Peter and Robert were trying to establish their sons in the family business. Nonetheless, largely due to Robert Mondavi's abilities as a salesman, the Mondavis were showing pretax profits of $200,000 by 1965.

The tensions between Peter and Robert reached a head in that year and ended in a fistfight. Robert was dismissed as general manager and given a six-month leave from the company. At the same time, Robert's eldest son, Michael, then 23, who had grown up at the Krug winery and recently graduated from the University of Santa Clara, was barred from working at the company for ten years. It was then that Robert Mondavi decided to open his own winery.



Together with two partners, Mondavi raised $200,000 and purchased property in Oakville, California. Financing for construction was arranged through an insurance firm, while a glass company funded a bottling line. In September 1966, the Robert Mondavi Winery was ready for its first crushing. It was the first new winery to appear in Napa Valley since Prohibition. From the outset, the Mondavi Winery was dedicated to producing premium wines. It was Robert Mondavi's ambition to one day produce wines that could compete with Europe's best.

The Krug side of the Mondavi family responded to the new winery by dismissing Robert Mondavi from the company altogether. This set the stage for a legal battle that would not be resolved until 1979. Robert Mondavi still controlled 24 percent of the C. Mondavi & Sons, and remained on its board until 1973. The feud between the brothers extended to include the pronunciation of the family name. Peter called himself "mon-day-vi," the Americanized pronunciation first adopted by Cesare Mondavi. Robert Mondavi began calling himself "mon-dah-vi," the traditional Italian pronunciation.

The new winery featured many of the innovations Robert Mondavi had introduced to California winemaking, including cold fermentation. On a trip through Europe in 1962, visiting the great chateaux and tasting their wines, Mondavi discovered what he considered a key element to the quality of French wines: they were aged in small barrels. Over the next several years, Mondavi experimented with a variety of wood types and barrel sizes, finally choosing small French oak barrels for his wines. At the new Mondavi winery, all wines were to be aged in French oak barrels.

Joined by Michael Mondavi and, later, by Tim Mondavi, the Robert Mondavi Winery produced its first wine for sale--a $3 Chenin Blanc--in 1967. By the following year, sales of this wine, previously known as White Pinot, increased fivefold. In that year, Mondavi also introduced a new wine, Fumé Blanc. This wine was, in fact, a Sauvignon Blanc, not a highly regarded wine variety. Mondavi changed the fermentation, blended the wine with Semillion, and aged it in French oak barrels, producing a drier wine. In order to distinguish his new wine, Mondavi coined the new name. The Americanized structure of the name--with the adjective first--connected it to California, while achieving a link to the renown of the French Blanc Fumé wines. Fumé Blanc was an immediate success, and did much to put Mondavi on the winemaking map.

The success of Robert Mondavi's wines was not enough, however. By 1969, Mondavi had run out of capital he would need to increase production beyond 25,000 cases per year, and he was forced to look for a fresh source of financial backing. Mondavi advertised for investors in the Wall Street Journal and received more than 250 responses. Both Suntory of Japan and Nestlé approached Mondavi with partnership offers, but Mondavi turned them down. Then Mondavi's two partners sold their share of the winery and vineyards to the Rainier Companies, a Seattle-based brewer, 48 percent of which was owned by the Molson Companies of Canada. The Mondavi Winery now had the capital to expand: over the next decade, Rainier poured more than $6 million into expanding the winery. At the same time, Rainier had also gained 100 percent of the vineyards and 75 percent of the winery, with Robert Mondavi retaining only 25 percent of the winery. Importantly, however, he remained its president, still in control of its winemaking operations.

The feud over the C. Mondavi & Sons winery--which enjoyed considerable success through the 1960s and 1970s--gave way to a series of lawsuits and trials in the mid-1970s. Robert Mondavi emerged victorious in 1976, and by the following year, the courts ordered C. Mondavi & Sons to be sold in order to pay Robert Mondavi fair market value for his 24 percent interest. Eventually, the brothers reached an out-of-court settlement. Robert Mondavi received more the $5 million, which included five million gallons of wine and 430 acres of vineyards.

The settlement enabled Mondavi to take back financial control of his winery. After Rainier sold its brewing operations to G. Heileman Brewing Co. in 1977, Molson agreed to sell its interest in Rainier to Robert Mondavi, at $9.40 for each of its one million shares. At the same time, Rainier, now little more than a holding company for the winery, began liquidation procedures, including buying back its stock from its shareholders. In the end, Robert Mondavi and his family regained full control of the Robert Mondavi Winery.

Despite several years of losses and nearly $10 million in debt by 1978, Mondavi's wine enjoyed considerable success during the 1970s. In 1972 the Los Angeles Times named the Mondavis' 1969 Cabernet Sauvignon as its top wine. Production expanded to include red, rosé, and white wines by 1974, and by 1975, Mondavi wines were distributed nationwide. Two years later, Mondavi began exporting. In 1976 Napa Valley wines gained international renown when a 1973 Cabernet Sauvignon from the Stag's Leap winery won in a blind tasting of Californian and French wines that became known as the Paris Tasting.

Napa Valley's reputation was further enhanced when Baron Phillippe de Rothschild, of the famed Chateau Mouton Rothschild, announced plans to collaborate with Robert Mondavi on a new ultrapremium wine, to be called Opus One and to be produced in the United States. Importantly, the U.S. market for premium wines was beginning an explosion: by the end of the 1970s, U.S. wine consumption had grown to more than 450 million gallons per year. Robert Mondavi, with its commitment to quality, became one of the most powerful brand names in the U.S. wine industry. This, despite the fact that the company spent almost no money on advertising, relying instead on the salesmanship--and showmanship--of Robert Mondavi himself.

Through the 1980s, Mondavi continued to expand its product line. Its purchase of the Woodbridge Winery in 1979 allowed it to expand into California varietal wines, selling premium wines in the important $3-$7 per bottle market. In 1980 the first Mondavi vintage-dated wines were introduced, selling in the super premium, $14-per-bottle-and-over category. Mondavi purchased the Vichon Winery, in Napa Valley, in 1985, giving it greater vineyards and research capacity. Five years later, the company bought the Byron Vineyard & Winery in Santa Maria Valley in Santa Barbara County. Exports continued to grow, from one percent of the company's sales in 1980 to six percent in the 1990s, reaching more than 75 countries. By 1988 its revenues had reached $95 million, with earnings of $7.2 million.

In 1990, at age 76, Robert Mondavi turned over active management of the company to sons Michael and Tim. Michael was named managing director and chief executive officer; Tim became managing director, and continued his role as head winemaker. Robert Mondavi remained chairman of the company, and continued his role as promoter of California wines. By the following year, production had reached 500,000 cases per year. However, despite growing revenues--reaching $145 million in 1992--income had dropped, struggling to $7.1 million that year. By then the company was carrying more than $126 million in debt.

A greater problem threatened the Mondavis, and the whole of Napa Valley, in the late 1980s and early 1990s. Grape phylloxera, a species of lice that attacks the roots and leaves of grape vines, had attacked much of the Napa and Sonoma valleys. With no cure for the disease, growers were forced to tear out their old vines and replace them with phylloxera-resistant varieties. Grape production throughout the Napa and Sonoma valleys, which accounted for some 80 percent of grapes used in the making of premium wines, was expected to drop by more than a third over the coming years. The majority of the Mondavis' grapes came from outside growers; however, they were largely shielded from rising grape prices because most of their grape purchases were done through long-term contracts. Nevertheless, some 15 percent of their grapes were grown in their own vineyards, and the Mondavis were faced with spending $20 million or more to replace their damaged vines with new stock, which would take five years or more before they were ready to produce commercial quantities of grapes--which would require still more years of aging before they could be released as Mondavi wine. Meanwhile, growing competition from such countries as Chile and Australia, as well as increasing exports from Europe, forced American wineries to keep their prices low despite rising grape costs. More and more wineries were being bought up by large, cash-rich corporations.

Intent on maintaining control of their company, the Mondavis went public to raise funds. Despite misgivings from some industry analysts, the initial public offering of Mondavi stock, made in 1993, raised $32.3 million. A secondary offering two years later raised an additional $35.5 million. Yet the Mondavis still retained control of 92 percent of the voting stock. Production rose, to 3.9 million cases in 1993 to 4.5 million in 1995. Revenues had grown to nearly $200 million in 1995, while net income more than doubled from $8.6 million in 1993 to $17.8 million in 1995. The company also discovered a hidden benefit of the phylloxera plague: the new disease-resistant vines could be planted closer together, allowing up to four times more vines per acre. In keeping with the Mondavi tradition, the company intended to grow fewer grapes per vine, producing a more intense flavor; nonetheless, it expected a 50-70 percent increase in yields.

In 1995 the company planned to spend $2.5 million on its first print advertising campaign, while Robert Mondavi continued to be the company's chief spokesman, salesman, and ambassador. With both Michael and Tim Mondavi raised in the art of winemaking, the company expected to double its production by the end of the century without sacrificing its hard-won reputation for quality.

Principal Subsidiaries: Robert Mondavi Winery; Woodbridge by Robert Mondavi; Vichon Winery; Bryon Vineyard & Winery; Opus One Winery (50%).

Additional Details

Further Reference

Conaway, James, Napa: The Story of an American Eden, Boston: Houghton Mifflin Company, 1990.Erdman, Andrew, "Robert Mondavi," Fortune, March 11, 1991, p. 99.Ferguson, Tim W., "Mondavi Bucks the Tide," Forbes, October 23, 1995, p. 203.Koselka, Rita, "A Pox on the Stox," Forbes, June 7, 1993, p. 46.

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