The Fall of the House of Mondavi
More than anyone else, Robert Mondavi made Napa Valley the heart of the $22 billion U.S. wine industry. At 91, there's just one thing he doesn't have anymore--the company that started it all.
(Business 2.0) – "Take it back," snapped Robert Mondavi, his pulse quickening with rage. What had been a festive family celebration that day in November 1965 got eerily still. Robert and his brother Peter had toiled side by side at Charles Krug since their father bought the winery in 1943, but it had hardly been a collegial collaboration. The brothers had been feuding since childhood. "We always seemed to disagree," Robert later wrote.
But this was more ominous. Two years earlier, Robert and his wife, Marge, had been invited to a White House function, and wanting to make a good impression as Krug's representative, Robert had scraped together enough money to buy Marge a fur coat for the occasion. When the subject came up in conversation at the family gathering in Napa, not only did Peter snipe at Robert for spending too much on promotion and travel, but he accused Robert of dipping into the till to buy the coat.
The blurs that cut through the air were Robert's fists. Those punches, and the bitter lawsuits that followed when Robert left Krug soon afterward, split the family in two as violently as a blow from a tempered steel blade. Four decades later, the wound still has not fully healed.
Yet the feud did much more than change a family. In its own way, it sparked an age of entrepreneurial daring in the American wine industry that will likely never be equaled. In 1965 only a couple dozen wineries operated in California's Napa Valley, churning out unexceptional products. That was fine with most local vintners: At the time, Americans had little taste for wine, so why bother with premium labels?
But today, of course, Napa has evolved into the Shangri-la of a $22 billion U.S. wine trade. It's filled with hundreds of wineries, many crafting sophisticated blends that often rate with the classic bordeaux and burgundies of France. There have been many heroes, but more than anyone else, Robert Mondavi led the crusade, cajoling compatriots to strive for perfection and stumping across the globe in a campaign to convince naysayers that American fine wine had arrived. For years, much of that wine flowed from the Robert Mondavi Winery, which he built in 1966 and turned into a multimillion-dollar company.
That golden era, catalyzed by a family feud, ended recently in an uncharacteristic whimper. Mike Grgich, who made wines for Robert before founding the elite Grgich Hills label, was there at the end--though it was so muted, he didn't even realize it.
On Nov. 3, Grgich arrived at Robert's home for lunch. "We wanted to give some support," recalls Grgich, who had heard rumors that the company was in trouble. But Robert appeared to need no hand-holding. "He said, 'Let's talk about happy things.' I didn't see in his face that it had affected him. Always positive." With a perplexed shrug, Grgich adds, "I had no idea the board had already made its decision."
The next morning, Robert Mondavi Corp. announced that it had been sold for more than $1.3 billion to Constellation Brands, an international conglomerate whose first large-scale success had been Wild Irish Rose, a fortified wine for drinkers who wanted to get hammered in a hurry.
For years, consolidation has been commonplace in the capital-intensive wine business, and the Mondavi family decided in 1993 to take its business public. So in truth, it had long relinquished the reins to the dictates of the Street. Still, a sense of mourning has darkened Napa Valley. The buyout closes the book on a pioneering era, whose fearless trailblazer, at age 91, can look back on it all with pride but also with a measure of remorse.
"It never crossed our minds that the family would lose control," says Peter Mondavi Jr., Robert's nephew, who, with his brother Marc and father Peter, still owns the venerable Krug Winery. "Obviously this is not how [Robert] envisioned the company would go."
While Robert remains unflinchingly optimistic about the wine business, he laments what he has lost. "If I had to do it over again, I would not go public," he says. "I took a gamble."
The sale was sudden and strategic--telling, in part, of the financial might of Constellation. It's the world's largest purveyor of wine, last year shipping 87 million cases (compared with Mondavi's 10 million) and boasting total annual sales of $4.5 billion. Its potent portfolio of brands includes, among others, Corona beer, Fleischmann's vodka, and Black Velvet Canadian whiskey.
The speed of the takeover also reflected serious inner turmoil at Mondavi. Last September, chairman Ted Hall, the only one outside the family ever to preside over the organization, announced a restructuring that would divide the company in two. The original Robert Mondavi Winery in Oakville, with its high-end cabernet sauvignon, pinot noir, and chardonnay, would be sold--as would the company's 50 percent stake in Opus One, the touted Napa cabernet blend made in partnership with the Rothschild family of Bordeaux, France. The remaining corporation would retain Mondavi's two blockbuster brands: the Woodbridge and Robert Mondavi Private Selection labels, which sell table wines in retail chains and supermarkets. Last year, they accounted for 81 percent of Mondavi's $468 million in sales and 60 percent of its profit.
"The original concept," says Robert's son Michael, 62, "was 'Let's divide the business in two and see if the family could buy the luxury portion.'" Then, Michael says, Hall changed the rules, arguing that the company could derive more value for shareholders by breaking up the premium properties into smaller lots. Michael, who had been removed as Mondavi's chairman in early 2004, resigned from the board in protest.
Richard Sands, the Constellation CEO whose family started the Fairport, N.Y., company, saw a train wreck in the making--and an opportunity. "In their proposal to sell the luxury business, the board members were ripping the heart out of Mondavi," Sands says. "That's what made Robert Mondavi. Woodbridge is a great brand. But the legacy was not built by Woodbridge."
No one denied that something had to be done. After 9/11 and the ensuing recession, most high-end wineries saw sales and profits decline. Mondavi was among the hardest hit. The 20 percent annual profit growth rates it had enjoyed throughout most of the 1990s fell to a 20 percent annual retreat. Having invested millions in new vineyards, the company found itself in a sea of surplus wine just as demand dried up. Higher marketing costs had pushed Mondavi's overall selling, general, and administrative costs to a staggering 28 percent of revenue, more than twice Constellation's 13 percent. The past few years "pushed Mondavi off a cliff," says Harvey Posert, a friend of Robert's who spent 16 years with the company.
To make matters worse, Mondavi had squandered some of its cachet by concentrating so heavily on its mass-market labels. "What Robert built up in terms of quality may have been traded down," says Don Sebastiani, a third-generation winemaker. "You walk into Safeway and see a bottle that says Robert Mondavi cabernet, and it's featured for $6.99." Tim Mondavi, Robert's other son and the company's former top winegrower, agrees. "Usurping the name Robert Mondavi for the benefit of the broader wines," he says, did more harm than good by undercutting the higher-priced products.
Last October, according to Constellation officials, Sands phoned Hall to make an offer. Hall turned him down. Sands made a second secret overture, also refused. Near the end of the month, Sands pressed harder, Constellation made its interest public, and a week later the deal was done. At an annual meeting in December, shareholders took just 12 minutes to approve the sale.
It's hard to cry sour grapes when the founding family pockets almost $400 million. At the same time, Robert Mondavi genuinely seemed to measure success not by the bottom line but by the quality of his wines and the respect they and his family garnered. So, by his standards, the sale would seem to be the result of a tragic miscalculation.
Warren Winiarski, the founder of Stag's Leap Vineyard and another alum of the heady early years at Mondavi, hinted at the root cause of the downfall. "Large dreams sometimes lead in directions different from the intent," he says. "By that I mean that large-scale ambitions could be a source of weakness."
Always pushing himself as a young man--named most valuable player of his high school football team, for instance, despite being a bit of a runt--Robert Mondavi had plus-size aspirations. He was the one who had persuaded his father to buy the Charles Krug Winery in the first place, and it was not an easy task. An Italian immigrant who came to America in 1906, Cesare Mondavi worked as a miner in Minnesota and then ran a saloon before moving to Lodi, Calif., where he started a wholesale business selling grapes. The intricacies of making wine held no interest for him. But eventually Cesare consented to the purchase on the condition that his sons run the show, with Peter as winemaker and Robert as salesman.
It wasn't a natural fit. Peter was a methodical family man who enjoyed taking time off to fish. Robert was a restless soul, hungry for new challenges. After touring European wineries in 1962, he returned to chastise Peter for Krug's inferior products and insisted that they change course.
When Robert finally left Krug, he filed suit against the family, demanding a 20 percent share of the company. Not about to be pushed around, Peter hired Joseph Alioto, who later became mayor of San Francisco, to represent him. Alioto took Robert for a stroll and offered him a bit of advice: "As a friend, hire the smartest attorney you can so that we don't steal you blind." Famous last words: In 1976 a judge granted Robert his 20 percent and ordered the family to pay more than $500,000 in penalties because it had purposely lowballed Krug's value. When the case ended, the divide between Robert's and Peter's branches of the family was vast.
Back at the Mondavi Winery, Robert was only getting started. Fellow winemakers watched, and learned, as he experimented with new techniques, such as the cold-temperature fermentation of white wines that became the new standard. Also, by aging sauvignon blanc in French oak barrels, he invented a popular spinoff: fumé blanc.
Production soared. Grgich, one of Mondavi's first winemakers, recalls that Mondavi crushed 500 tons of grapes in 1968 and 5,000 four years later. Sales quadrupled as Napa wines began to win over European critics--and as Robert began to curry favor with five-star restaurants. He traveled constantly, inviting chefs to blind tastings, putting up his latest vintages against the finest in the world.
Baron Philippe de Rothschild, one of the best-known names in all of winemaking, took notice. He first approached Mondavi in 1970 about a joint venture, but Robert said he wasn't ready. In 1978 they shook hands on Opus One, a label that would create America's first "ultra-premium" wines. Hailed as a revolutionary collaboration, Opus One was an instant hit, and the label still sells 25,000 cases a year at an average price of $150 per bottle.
By the mid-1970s, Robert's imagination had outgrown his beloved Oakville estate. And his next move would change the industry even more. In 1979 he acquired vineyards in Lodi that would produce an affordable "premium" wine that would sell alongside the discount jug and box wines at the supermarket. "We made red and white table wines meant for the knowledgeable consumer," says Tim Mondavi, 53. "It was a new category. No jugs. It was dry, made from good-quality grapes in a classical way." Called Woodbridge, the label soon became the company's most profitable brand.
From a marketing standpoint, it was pure genius, and Robert played the salesman role like no one else. "Bob Mondavi was a great showman," Sebastiani says. "That was healthy for the industry. He's the chief ballerina for wine and food."
As driven as he was, Robert believed that true success could not be achieved by a single winemaker. "You rarely would find him out proselytizing for Robert Mondavi," says Robin Lail, a former Mondavi assistant whose family started Inglenook and who now runs her own label. Robert became known for uncommon generosity, touting competitors' wines and sometimes even crushing their grapes.
Jack Cakebread recalls that while making his first chardonnay in 1973, he ran out of tartaric, an acid used to stabilize fermenting wine. "So I go across the road with my Pyrex cup and I say, 'Hey, Mr. Mondavi,'" Cakebread recalls. "He says, 'My name is Bob, OK?' 'All right, Bob. I need about this much tartaric. Can I buy that from you?' He goes into this trailer, hauls out a 50-pound bag, and says, 'Here, it's free.'"
Only one tiny corner of the valley seemed to suffer emotionally from Robert's consuming dedication to wine: his own family. "When I was growing up, family and business were always connected," he says. "We were an Italian family, and wine was naturally a part of our lives. It was our work, and it was our food."
But he later chastised himself for taking his first wife for granted, ultimately leaving her for Margrit Biever, a Swiss native who came to the Mondavi Winery in 1967 to help with public relations. And though his sons Michael, the outgoing businessman, and Tim, the more introspective winemaker, never came to blows, tensions between them often ran high, and Robert concedes that he didn't help matters.
Michael remembers the trials. "Our father would pit us against each other," he says. "One of us was always in the penalty box, and the other was the hero--and you could never predict when it was going to happen." While Michael respects his father's business acumen, he says Robert "had no skills in how to be a family person... He's my boss, or was. He's my genetic father, and emotionally I'd like to have a father, but it never developed."
Robert, who assumed various executive roles throughout the 1980s and 1990s, exacerbated things by juggling the sons' duties in an effort to find a workable management formula. He put one son in charge, then the other, then an outside manager, then formed an executive oversight committee. Confusion at the top helped enable an overzealous buying spree, during which properties on California's central coast and elsewhere were acquired to meet booming demand for Woodbridge and other new brands. About the same time, a new strain of aphids began nibbling away at Mondavi's precious Oakville vines.
By the early 1990s, the family faced escalating debts and a costly vine-replacement program. Though Robert had long sworn to keep the company independent, in 1993, beset by financial pressures, he agreed to roll the dice and go public. Some say he believed he could still somehow maintain control, but secretly they anticipated the worst. Says Grgich, "If you have to take out a loan, sell instead."
Michael insists that if family members had banded together, they could have realigned the board early last year and either saved the company or at least put the Oakville estate back in family hands. Tim (who still works as a consultant to the Oakville estate) and his sister Marcia would not act, Michael says, because they feared spooking Wall Street analysts. If the Street thought the family was getting too involved, the stock price might dip, and if it fell too low, his father--who had donated so generously to so many charities--would go bust.
In essence, those close to the family say, Robert had failed to manage the transfer of leadership to the next generation. Suffering from an acute loss of hearing, he had also resigned from the board. So last fall, when it came time to debate the fate of the company, Robert and Michael were absent and Tim and Marcia sat on the sidelines. The family had no voice. Then the company was gone.
Just days after the sale, the Mondavis made it clear that even as one chapter in their saga had closed, another had opened. Michael created Folio Wines, whose purpose is to promote a new generation of risk-taking winemakers. Then came news that Robert and his estranged brother Peter, 90, would co-produce a single barrel of cabernet sauvignon to be sold at the annual Napa charity auction. Peter Jr. had floated the idea with his father first, and then approached Tim, who in turn went to his father. "With the sale of the Robert Mondavi winery," Peter Jr. says, "we thought it would be a great thing to do."
Peter Jr. may possess a whiff of his uncle's marketing flair, but his sentiments are shared on both sides of the family. And his ultimate goal is heartfelt: "To bring the families back together again."