The banishment wounded Ramona deeply. More than just an employee, he’d felt like a trusted and loved member of an extended family. The Mondavis had generated intense loyalty from their staff over the years through many small kindnesses. Robert, for instance, gave all of his employees a Thanksgiving turkey once a year, and a case of wine quarterly. Timothy made eggnog based on his mother’s recipe for the company’s annual Christmas parties. Margrit and her daughter Annie Roberts, who’d helped out in the Vineyard Room in the 1970s and eventually became the winery’s first executive chef, made ham and cheese croissants for the company’s traditional Easter brunch celebration.
The Mondavis paid the highest wages in the industry at the time, generally about 10 percent above average. Partly in an effort to stave off unionization, they were among the first in the valley to develop a benefits plan for seasonal workers and also offered company housing. They’d throw a separate crush party with barbecue and beer for the Spanish-speaking fieldworkers at the company-owned labor camp, a modest single-story cluster of buildings set in the Oak Knoll vineyards, since many felt uncomfortable about joining their white, English-speaking bosses for the other crush party at the Vineyard Room. The workers, whose wives and girlfriends were mostly in Mexico, would dance instead with each other or even a broom. There was a bocce ball court at the Oakville winery and staff would often stay after work to play. At the company’s summer picnic each year, Robert was often the first to grab a baseball bat. Willing to poke fun at himself and his passionate family, Robert once wore a T-shirt to a company picnic that said, “Get revenge: Live long enough to be a problem to your children!”
The Mondavi family’s caring for employees extended beyond paying good wages and throwing parties. Michael not only attended the funeral of longtime Woodbridge employees, he’d also remember the names of their spouses and children. More than once he’d send Mondavi’s finest wines to a friend celebrating a wedding. If an employee was diagnosed with a serious illness or hit a rough patch in his marriage, he might confide his problem to a Mondavi family member. Margrit would offer staffers a shoulder to cry on and was known to boil an egg to comfort a distraught secretary. If a Mondavi employee landed in the hospital, he might get a surprise visit from Michael and Isabel, encouraging him to take time off his job as needed. When Gary Ramona broke down at work and confided to Michael that his wife, Stephanie, wanted a divorce, the eldest Mondavi son gave him a hug and asked, “What can we do?”
But the Mondavis’ deep-rooted paternalism started slipping away as the company expanded. That change coincided with a momentous personal event for Robert and his three adult children: the death of Marjorie Mondavi. Through the 1980s, Robert’s ex-wife had lived quietly in the Oakville home that Robert had provided for her, which rested on a small knoll near the family’s To Kalon vineyards, sheltered by oaks. Frail and suffering from stomach ailments in the years before her death, she focused her waning energy on her children and grandchildren. When she died in October of 1990, at age seventy-five, her death certificate cited gastric hemorrhage as the immediate cause. But some family members maintained that Marjorie had, in fact, died of a broken heart.
The news of her death came as a shock to her ex-husband, who was on a business trip when it happened. Although Marjorie had spent much of her time in her later years in and out of hospitals, often tended by either Timothy or Marcia, the seriousness of her accumulated health problems may not have been apparent to her former husband. Robert, then seventy-seven, flew back to attend her funeral at the Catholic church in St. Helena. As he sat in the front pew, several friends recall Robert openly wept.
Their mother’s death was just as traumatic for her three children. Honoring her last wishes for cremation rather than burial, they mixed her ashes with rose petals and arranged for a friend with a small plane to sprinkle them from the sky over the To Kalon vineyards, as the family watched from below. Michael felt Marjorie was the spirit of the winery, particularly in its early years: “My mother was the family magnet. She was the heart and soul of the family. When she passed away, that void was not filled.”
After Marjorie’s passing, the company’s culture took on a harder edge. Margrit persisted in spreading her intimate, personal style in everything she touched, insisting on cooking for large dinner parties at a time when more hostesses in Napa were turning to caterers. But as Mondavi’s sales climbed and it began acquiring wineries and vineyards, the genuine, if sometimes disorganized, kindheartedness that was the core of the Mondavi family’s relationship to its employees began to be replaced by a more corporate, numbers-driven approach.
That cultural shift grew more pronounced as the company began looking for outside sources of capital. Indeed, Ramona suspected he had been put on leave because Mondavi was preparing to go public and the markets were not likely to look favorably on the news that one of Mondavi’s top executives had been accused of incest. His suspicions about a possible public offering were justified. In 1986, the company had hired Goldman Sachs and Company, the top tier New York investment bank, to value the closely held shares as part of Marjorie’s gifting of her stake in the company to her three children. By the fall of 1991, as a powerful wave of technology IPOs began breaking across Silicon Valley to the south, both Goldman and a San Francisco–based boutique investment bank called Hambrecht and Quist had approached Mondavi about taking it public.
There were very few precedents of wineries turning to the public markets to raise capital. The Chalone Wine Group Ltd. and what was then known as Canandaigua Wine Company, based in upstate New York, had both done it, but neither had performed spectacularly. Because wineries are capital intensive and subject to the vagaries of weather, pests, and regulation, conventional wisdom held that they tended to operate better as private, long-term investments than as public companies, which would subject them to the quarterly profit pressures of Wall Street.
Mondavi also had unique concerns about opening up its management to the scrutiny of Wall Street analysts and investors. Would investors readily understand or accept the company’s odd executive structure—with Mondavi run by committee and brothers sharing the title of managing director? Although the company had created a specially designed space for them to share, named “the partners’ office,” they were rarely there together. Were the brothers capable of pulling together to present a solid public front when the time came to make the sale to investors?
It seemed inevitable that word of the brothers’ feuding would eventually reach Wall Street, since talk of Michael and Timothy’s power struggles had already seeped past the Oakville winery’s arched entrance and onto the pages of the local newspaper.
Adams and others urged Robert to more seriously grapple with the family management problems. Over the years, Barry Grundland had tried to help the Mondavis change their troubled dynamic, but he’d had little success. After Dr. Grundland himself went through a divorce from his wife of twenty-nine years that alienated some members of the Mondavi family, the company stopped using him as a counselor.
At Michael’s urging, the company instead hired Family Business Solutions, a “family transitional advisory team” comprised of Robert Taylor, dean of the College of Business and Public Administration at the University of Louisville; Jerrold Lee Shapiro, a psychiatrist and professor at Santa Clara University; and Michael Diamond, another psychiatrist from southern California. Their specialty was helping family companies make the transition from one generation to the next, using such exercises as having family members write down their aspirations for a year, five years, and twenty years.
One key challenge was convincing Robert to hand over the reins and eventually he agreed to do so, at least on paper. In October 1990, he wrote a memo to the company’s directors and the management council announcing in blandly benign language yet another attempt at shaking up the top tiers of the company. Robert began the memo, titled “Transition Plan,” by stating: “After several years of thinking, talking with family members, senior management, and outside advisors, I have concluded that we must now end the debate and take the necessary steps to structure the senior management of our company in a way which will position us as a family and a company to make the transition from a small to a large more orderly structured business.” He then went on to explain that he had asked Price Waterhouse to do a study and make recommendations about the “appropriate senior management structure.” He named Alan Ferguson, his close friend from the Rainier days and still a Mondavi director, as the board’s point person on the project. Robert also wrote he would review the plan with the company’s investment bankers “to make sure they agree that these changes will position us to raise outside capital.”
Price Waterhouse, the firm that had audited Mondavi’s books for many years, began digging into the company and delivered a report that was highly critical of Ramona’s leadership and management style. It slammed his departments for exceeding their planned expenses by $1.6 million, or 10 percent, in 1990 and it targeted Ramona for doing a poor job, citing “lack of creativity and communication skills and his limited management information system background.” It also questioned whether Ramona should keep his job when he returned from his sabbatical.
The report infuriated Mondavi’s top salesman. No one at the winery had ever asked him a single question about his daughter’s accusations and it seemed that the Price Waterhouse study was a smokescreen to get rid of him, at a time when the company was hoping to raise capital and wanted to limit its exposure to potentially damaging allegations about one of its top staffers. Ramona suspected that Michael and Timothy, with Adams’s help, were laying a paper trail to justify firing him. So he decided to counterattack. By addressing the study’s points one by one, he sought to lift the veil on Michael and Timothy’s management shortcomings, which, in his view, the Price Waterhouse report had entirely ignored.
In a confidential, twenty-three-page, single-spaced memo addressed only to the Price Waterhouse consultants and Robert, he turned the spotlight on his boss, Michael, who he claimed undermined the sales staff’s motivation through his inconsistent messages and mixed signals. Ramona also charged that Michael had held up key hiring decisions for weeks by insisting on personally interviewing all final candidates for sales and marketing positions, rather than delegating those decisions. Ramona explained his reluctance to take on the additional jobs of running Vichon and Byron, another winery the company had recently purchased, because he feared getting caught in the crossfire between “the boys.” Because of “the differences and sensitivity between RMM (Michael) and TJM (Timothy), it was a no-win situation,” he wrote.
Ramona detailed the brothers’ battlegrounds, including what he called “family philosophical differences.” Ramona blamed the family’s inability to agree for the company’s three- to four-year delay in introducing its own White Zinfandel—a hot category created by the rival Sutter Home Winery that Michael wanted and Timothy opposed. He noted that the company had been working on a sparkling wine for nearly a decade, but still couldn’t come up with agreed-upon packaging or a program. He also wrote that Mondavi’s sales force felt intimidated and confused by the family’s discussions over introducing a Woodbridge Chardonnay, which Michael had opposed.
“I find it interesting that nowhere in your report did you mention the philosophical differences between RMM [Michael] and TJM [Timothy] and the impact this has had on the day-to-day operation at the Winery, Management Council, and the Sales and Marketing Department,” Ramona wrote. “Lack of clear direction and more importantly the opposing philosophies between them make it difficult, at best, to implement short-term plans.”
Ramona also raised the uncomfortable issue of nepotism in his memo: referring to Peter Ventura’s recent appointment by Michael as the company’s marketing director. Ventura, the son of Robert’s sister Helen and Michael and Timothy’s first cousin, had moved from practicing law in the Central Valley to working for the Robert Mondavi Winery. Outspoken and opinionated, he quickly developed a reputation as a loose cannon, even among Mondavi family members. According to Ramona, he had managed to alienate some nonfamily employees, who found it difficult to work and communicate with him. Ramona cited one example: Ventura’s insistence that his office be located on the opposite end of the building from the office of the national sales director, whom he did not get along with, as well as the heads of other departments. Ventura’s poor relationships with other staffers “is a highly sensitive issue at the winery and creates a high degree of frustration,” Ramona wrote.
Ramona’s memo did not stay confidential for long. Michael heard about it and stormed into Ramona’s office area, which, although he was on leave, at that point was still staffed by two administrative assistants. He demanded a copy of the memo. They refused to hand it over, but Michael got it from his father over the weekend. The incendiary report further inflamed Michael and Gary’s animosity. Ramona threatened a lawsuit alleging unfair dismissal and Adams began negotiating with him to leave quietly.
On December 20, Robert announced he was handing over the day-to-day management of the company to Michael, forty-seven, and Timothy, thirty-nine, who would serve as co-chief-executive officers. “At seventy-seven, the time has come for me to pursue my interests in wine and culture. Having worked with Michael, Tim, Marcia, and our staff for the last twenty-five years, I feel very positive about this transition which limits my direct involvement to serving as chairman of our board of directors,” said the carefully worded press release. The memo also noted that Cliff Adams, then forty-six, would be promoted to chief operating officer. Robert, it seems, had chosen to ignore Ramona’s warnings in his parting memo about Michael and Timothy’s shortcomings as managers.
Unlike the warm, homey atmosphere of the Mondavis’ Oakville winery, with its bell tower and canopied wings embracing a green lawn, the symbol of the Mondavi family’s surging international ambitions rising across Highway 29 was an imposing and somewhat cold edifice. From an idea conceived in the Baron Philippe de Rothschild’s bedroom, the Opus One winery looked out of place in rural Oakville. Its designers were Johnson Fain and Pereira, a Los Angeles–based architecture firm that was known for its futuristic designs of landmark buildings, such as the Transamerica Pyramid in San Francisco. Their design concept in Opus One was to blend California boldness with French formalism, complete with classical columns and a formal, olive-tree-lined avenue leading to the building. When it finally opened in October of 1991, critics were not universally impressed. Some said it looked as if a spaceship, lined in pale yellow Texas limestone, had landed in the middle of a vineyard. Others described it as a modern temple to Bacchus. What everyone could agree on was that it was different from any winery ever before built in Napa Valley.
It also had the distinction of being Napa Valley’s most expensive new winery. Construction overruns drove the final cost up to as much as $26 million, vastly more than what the architects had originally estimated. The partners blamed high cost on the fact that the soil below the winery had unexpected warm pockets, due in part to the hot geothermal springs in the area, requiring them to install an expensive cooling system even after burying much of the winery belowground for natural cooling.
The Mondavis and Rothschilds also hit other problems along the way. Despite the publicity generated for their new wine at the first Napa Valley Wine Auction, when a case of it, still unnamed, was presold for a record $26,000, the task of selling such expensive wine proved a challenge. In early 1984, the partners released the first two vintages of what was now called Opus One. They packaged it like a Bordeaux wine, bedding the bottles in oblong wooden boxes. To build excitement, they announced its launch at lavish press events in Paris, New York, Los Angeles, and San Francisco, with the baron’s daughter, Philippine, and Michael and Timothy involved.
In San Francisco, Opus One was unveiled like a society debutante to the upper tier of wine lovers. In what was heralded as its first tasting, it was uncorked at a $500-a-plate benefit ball for the San Francisco Symphony. For its coming-out party for the press, the baron and Robert presided over a lunch of salmon mousse at the Fairmont Hotel’s chandeliered Gold Room. Philippe, then eighty-four and with his ethereal wisps of hair brushed back from his round face, told the guests in a voice so quiet he could barely be heard, “There were times when Bob might have liked us to move a little faster, but patience is the thing in a great wine.” The publicity blitz worked: Although the partners priced Opus One at up to $50 a bottle, making it one of the most expensive American-made wines at the time, it was quickly snapped up.
But within a few years of its initial rollout, sales of Opus One lagged behind production. The result was that the Mondavis and Rothschilds were stuck with too much inventory, particularly between 1985 and 1989. As a solution they came up with the novel idea of offering “Opus One by the glass,” charging customers $9 for the pleasure of tasting a wine that otherwise might have been out of their reach. Even more inventive, Opus’s general manager, H. Stuart Harrison, adopted a novel marketing idea, pioneered a few years earlier in Napa Valley by the upscale winemaker Joseph Phelps, of asking distributors to presell the wine and provide the winery with a list of their customers, thus creating the impression of a shortage. In time, demand for the wine grew.
The French and the American partners may have agreed on the “Opus One by the glass” program, but they disagreed on much more, ranging from such fundamental issues as whether to ferment wine in French oak tanks or stainless steel tanks, to whether the wine should taste leaner or richer, to such seemingly small matters as the French habit of smoking in the winery, which the Americans objected to on the basis that cigarette smoke blunted the palate. Aesthetic concerns, mainly left to members of the Rothschild and Mondavi families, also were a source of Franco-American tension.
Upon his death in 1988, the baron’s role in the partnership passed to his daughter, the Baroness Philippine de Rothschild. The baroness and Robert quickly developed a lively friendship, based in part on sparring with each other. Robert and Philippine first met each other in 1978, where French producers at an event in Los Angeles were pouring a vast quantity of premier cru wines—far more than anyone at the event could ever drink and that had been decanted well before the wines had fully matured. After the event’s organizers uncorked the 250th or so bottle, Philippine turned to Robert and asked, “Aren’t you shocked by this?” referring to the wastefulness of opening so many unaged bottles of fine wine.
Robert jokingly replied, “In California, we drink much younger wines.”
“Well, I don’t agree with you,” huffed Philippine. She was truly appalled by the extravagance.
Philippine, Robert, and Margrit worked closely together in the following years on the “aesthetics committee,” quarreling over such issues as whether to cover the fanlike berms stretching out from the colonnades with wild grasses, as the Californians advocated, or in manicured lawn, favored by the French. The French and Americans also went back and forth on details such as whether its windows should have curtains or roman blinds. The baroness, who had grown up surrounded by priceless art and exquisite furnishings and landscaping, ultimately prevailed on many of the decisions. But Margrit, too, had a good sense of style and would purchase statues and pieces of art on her and Robert’s travels, such as a stone Buddha from Asia, then seek approval for them from the baroness and her Paris-based interior designer.
While the Rothschilds and the Mondavis were arguing over aesthetics, a far greater threat to their venture was lurking in the vines. It was a microscopic pest called phylloxera, a voracious form of aphid that hid beneath the soil and quietly sucked on the roots of the vines until they shriveled up and died. The Mondavis first spotted phylloxera in their Q block vineyard in 1988. The French, with their history of the aphids’ devastating nearly all of their country’s vineyards in the second half of the nineteenth century, immediately understood the danger, but many Napa Valley grape growers, including the Mondavis, were slow to recognize the full threat of the pest.
By the early 1990s, Mondavi acknowledged it had a potential crisis on its hands. About 80 percent of its Napa Valley vineyards—about 750 of its 937 total acres—were infested. Although researchers at the University of California at Davis worked feverishly to try to come up with a pesticide or some other way to tackle the problem, none of the ideas worked. The only solution was to pull out the diseased vines and replant. That’s what many growers did, with huge pyres of burning vines pockmarking the land. In early 1993, Mondavi only had 59 percent of its Napa Valley acres still in production. At the same time, the company was forced to write down more than half a million dollars in vineyard assets in the fiscal years from 1990 to 1992. Rumors were ricocheting across the valley that the family was in serious financial trouble.
More alarming than the write-downs, though, was the estimated cost of replanting its vineyards: $20 million or so. That bill was coming due at a time when Mondavi had been aggressively expanding its holdings. After purchasing the Byron Winery in 1990, it had more than a thousand acres in Santa Barbara and San Luis Obispo counties alone, as well as its newly developed vineyard in Carneros, a relatively new growing area to the southwest of Napa. But the buying binge had pushed Mondavi’s debt to an alarming level at a time when its longtime financier, the Bank of America, was drastically culling its agricultural lending.
Mondavi also faced another pressing issue: In March 31, 1992, the company had $80.7 million in working capital. A year later, its working capital had plunged to $30.3 million. Heading into harvest, the time of the year that requires the most cash because of the hiring of seasonal workers and purchase of grapes from outside growers, Mondavi was overleveraged and faced a looming deadline: Its line of credit was set to expire on July 31, 1993, and the Bank of America was reluctant to extend it additional credit, beyond its existing line, unless something changed.
With replanting costs of $35,000 to $40,000 per acre, raising money from the public markets suddenly looked more attractive. The plan was to sell off a one-third stake in the business and use the proceeds to pay down bank debt. Because of Mondavi’s long history with the Bank of America, the bank agreed to reclassify its revolving line of credit as long-term debt, allowing it to borrow on more favorable terms. Essentially, the family would swap costly bank financing with shareholder equity.
Not only would the deal improve the company’s financial picture, but it would allow individual family members to tap into their wealth. After Marjorie died in 1990, Michael and his siblings became increasingly aware of their father’s advancing age and the threat posed by a hefty tax on his estate. Just as the family’s worries about the tax implications of Rosa’s estate had contributed to the blow-up between Peter and Robert, Robert’s children began pondering some of the same questions. How would they pay the tax, which could be up to 50 percent of the value of Robert’s property, while keeping the company in the business?
More troubling, how could they handle such a tax at a time when they were already dangerously overstretched? Because their shares were privately held and governed by a buy-sell agreement, they were not easy to turn into cash. That meant the family would probably have to sell off land, vineyards, and other assets to pay the tax, which they were reluctant to do. Another alternative would have been selling a stake in the business to an outside partner to pay the estate taxes, but because of the family’s painful experience with Rainier, it resisted that alternative. Finally, both Michael and Timothy had taken out large, no-interest home loans from the company: Michael’s balance was $444,000 and Timothy’s was $573,000. Eventually, they would have to pay them off.
To Cliff Adams, the company’s self-described consigliere, an IPO seemed the best solution. But convincing the family was tough. Timothy and Marcia both feared it would be a change for the worse. What will happen to our little family winery? wondered Marcia, who worried that going public would destroy the culture of the winery and potentially exacerbate the troubles between her brothers.
Timothy, on the other hand, was concerned that investors’ demands for ever-increasing sales growth would compromise quality. The theme of quality versus quantity ran not only through the Mondavi family’s history, with Peter and Robert disagreeing over how fast to grow, but through the industry as a whole. Could a winery truly maintain high quality and become a mass producer? The biggest industry players, such as Gallo, had traditionally been jug wine producers. But in 1980, the industry reached a watershed: Shipments and revenues of premium wine overtook those of jug wines for the first time. They continued to rise as lower-priced wines steadily declined. That in itself was an encouraging trend for the Mondavi family, since even Woodbridge fell into the “popular premium” category wines that were a few notches above those sold in jugs.
Just as worrisome was an onslaught of new competitors, including Kendall-Jackson, Glen Ellen, and new offerings from Gallo, which took direct aim at Woodbridge with their “fighting varietals”—lower-priced wines made from specific varieties of grapes, such as Chardonnay. There were also now hundreds of boutique high-end producers. The most startling indication of the rising competition was the sheer numbers of new wineries being built on the valley floor and on its hillsides. When the Robert Mondavi Winery opened its doors in 1966, there were two dozen or so wineries in operation in Napa Valley. By the early 1990s, there were more than a hundred.
Michael, who was eager to join the ranks of entrepreneurs who had taken their companies public, backed the idea of an IPO. Robert himself was fully behind it, particularly after Goldman and the San Francisco–based investment banking boutique Hambrecht & Quist helped convince him there was a way to retain control and avoid a repeat of the painful showdown he and Michael had experienced with Rainier.
After studying family controlled but publicly traded companies such as Levi Strauss and Company, Coors Brewing Company, The Washington Post Company, and The New York Times Company, the bankers suggested a plan that would create two classes of stock. The Class B shares, owned solely by family members, would have ten times the voting rights of the Class A shares, which would be publicly traded. The public “float” would represent only a tiny fraction of company shares. As an additional assurance of control, the Class B shareholders would have the right to elect 75 percent of the company’s directors—effectively making sure they got their way on any decision made by the board, as long as they voted together as a family.
It seemed like an airtight plan for raising capital while assuring family control, and would appear to make a hostile takeover of the company virtually impossible. So, faced with the alternatives of selling a stake to one large investor or offering shares to many small ones, the family chose the second. “Instead of one gorilla, we’d have two thousand monkeys,” says Adams, recalling his reasoning at the time.
But even as Mondavi contemplated selling shares to the “monkeys,” the entire jungle was rumbling with change. In 1980, the U.S. Supreme Court had struck down California’s Fair Trade Act, which had allowed suppliers to set the wholesale prices at which distributors sold to retailers. The court ruling represented a challenge to one key aspect of the modern liquor-distribution system: the question of who controlled wine and liquor prices.
The country’s patchwork system to address this and other questions had grown out of concerns about the mobsters who ran illegal liquor empires during Prohibition. In an effort to try to break the stranglehold that organized crime organizations had on the liquor business following repeal in 1933, many states had adopted a so-called three tier system where alcohol flowed from manufacturer to distributor to retailer. Generally, owners were not allowed to invest in more than one tier, thus defusing control by any single group of industry players. The hodgepodge of various state systems that resulted seemed to work well in its first few decades.
But in removing the artificial price floor set by suppliers, the U.S. Supreme Court’s ruling on the California law touched off a flurry of competition among distributors as they began slashing prices to win sales orders from retailers. Consolidation followed. In 1980, when the Fair Trade Act was scrapped, thirty regional companies distributed wine across the state. By the early 1990s, however, that number had shrunk to three statewide distributors and only fifteen local ones. The strongest player to emerge was Southern Wine and Spirits, the privately held and secretive Florida-based distributor owned in large part by Harvey Chaplin, who had gotten his start at Schenley Industries Inc., the New York–based distilling business that Harry Serlis had once run.
Over the years, with its aggressive lobbying tactics and growing political influence, it developed what The Wall Street Journal characterized as “a distinctive reputation: suspicions within industry and regulatory circles that Southern has or once had friends in the underworld,” a notion that company officials have repeatedly denied. Still, as Southern gained more clout with grocery chains and “big box” retailers such as Costco, Price Club, and Sam’s Club, Mondavi, like most other big wine producers, could not take the risk of being excluded from the lineup of wines that it sold—particularly since in some instances Southern became the sole supplier to big customers.
At the same time, these retailers were gaining sway in the marketplace. Price Club was the first warehouse store to open for business in 1976; Costco and Wal-Mart’s Sam’s Club chain opened in 1980 and 1983 respectively. In 1993, Costco and Price Club merged, attracting even more wine buyers. The grocery chains defended their position as by far the top sellers of wine through the 1990s, in part by deploying such new technologies as store scanner data.
To grapple with these changes, Mondavi started narrowing down its own web of distributors and, at the same time, began hiring some executives from outside the wine industry. One was Cindy Deutsch, who joined in 1989 from a leading market research firm, with the mandate to improve Mondavi’s selling to the big box stores and chains. “Can we expect people to make a special stop at a separate store to buy wine? I think not,” she told attendees at the 1990 Wine Industry Technical Symposium. “I believe it is more and more likely that people will buy their wine from stores in which they also buy food.” As Mondavi began adapting to this fast-changing environment, it was perhaps inevitable hard feelings would arise.
One longtime distributor that lost Mondavi’s business was New York–based House of Burgundy, which had taken a chance on distributing Mondavi’s California wines in 1972, a time when most fine restaurants in New York favored the French. House of Burgundy’s owner, Robert Fairchild, contends that Mondavi changed New York distributors in 1992 because the company was planning to go public and wanted a lot of orders to boost sales for their financial reporting, since a new distributor would place a one-time big order to fill its product pipeline. After two decades of pushing Mondavi wines, which by 1992 represented a quarter of House of Burgundy’s business, losing the account stunned the distributor’s staffers, who had perhaps grown complacent over the years.
Another instance of Mondavi shedding a longtime distributor involved Robert’s old friend Charles Daniels, who ran the northern-California-based House of Daniels with his two sons and sold Mondavi wines to liquor stores, restaurants, and such retailers as Costco and Safeway through its business, Redwood Vintners. The Daniels family had been selling Mondavi wines since the late 1960s, but the relationship had started to deteriorate after 1980, with the U.S. Supreme Court’s voiding of California’s Fair Trade Act.
To compete against Southern and other large distributors, Redwood Vintners and many other small outfits began discounting some wines, including Mondavi’s. The Danielses believed that their deep-rooted relationship with the Mondavi family would protect their business. That may explain why they felt confident enough to begin the discounting that Mondavi claimed flouted its pricing “guidelines” for distributors—even though Mondavi had already canceled its distribution deal with Ceres, California–based Bronco, headed by Michael’s school friend Fred Franzia, because it, too, had refused to adhere to the winery’s suggested wholesale prices.
Yet neither Michael nor Cliff Adams nor Robert was inclined to remain lenient indefinitely with what they considered an underperforming distributor, regardless of their families’ history together. Around that time, Mondavi was working with more than a hundred distributors across the country—providing them with a rolling, eighteen-month calendar of marketing and promotions, such as one that linked Woodbridge wines with healthy pasta recipes. Yet, at a time when a few big distributors such as Southern were gaining more power, Mondavi’s patchwork of mostly small, local distributors looked glaringly inefficient. So they asked Charles Daniels Jr., known as Chuck, and his son Peter to take a ride with them.
In late October 1991, the two Daniels men climbed into the backseat of one of the Robert Mondavi Winery’s company limousines for a long trip to San Francisco International Airport. Michael, Robert, and Adams joined them. Michael took the lead in the tough conversation that ensued, remaining businesslike throughout. He explained that the Mondavi winery’s objective was to have “price parity” between distributors, especially on prices offered to such powerful customers as the wholesale clubs, and called Redwood Vintners the “instigator” of “low” wholesale prices for Mondavi wines. Michael was incensed that Redwood Vintners was offering to undercut the winery’s “suggested prices” to Price Club by $2 a case. Michael then went on to imply he would end Redwood Vintners’ lucrative distribution contract with Mondavi, worth some $7 million a year if the Danielses didn’t fall into line by ending its deep discounting immediately. “If it were not for our family relationship, you would have been terminated a long time ago,” Michael told his father’s old friend.
The relationship between the families deteriorated further. In April 1992, the Mondavis fired the Danielses and named Southern Wine and Spirits as their exclusive California distributor. It was a stunning blow to the elder Mr. Daniels, who had helped Robert in the early days when he didn’t have a penny.
Daniels was so enraged at being terminated that in June of 1992, he retaliated by filing a lawsuit against the company and Robert Mondavi, alleging violation of state antitrust law and breach of contract. He sought $15 million in damages—which would be tripled if Mondavi were found guilty of violating antitrust laws. At a time when the company already was heavily burdened with debt and facing huge replanting costs, it was a threateningly large sum. The Mondavis eventually settled the case by paying a fraction of what the Danielses had demanded.