There's more than a little pride involved in the rivalry between the two Napa Valley giants, Robert Mondavi (MOND) and Beringer Wine Estate Holdings. Executives and employees of the former spend a fair amount of time grousing about just how much the market loves the latter more than them. The rivalry is stoked by the fact that they are located just five miles apart on Napa's Highway 29.
Brokerage analysts such as Caroline Levy of
Schroeder & Co.
generally feel that Mondavi should be trading at about a 20% discount below Beringer. And Mondavi usually does trade consistently below Beringer, often far lower than the expected discount. Levy gives both Mondavi and Beringer her top rating, significantly outperform. Schroeder has not been an underwriter of either company.
As a result, Mondavi has traded above Beringer only four times in the past year, each time for just two or three days when Mondavi showed a spike at the same time Beringer headed south. It happened last November when the brokerage analysts penalized Beringer, downgrading it for having the temerity to climb within 10% of what might be termed their consensus target price of $50 (which has since been quietly revised upward, to $55 to $60 now).
It happened again in late December when supermarket scanner data indicated a falloff in Beringer's all-important White Zinfandel sales, and yet again in late March this year for no discernable reason. The most recent was just this past week, as Beringer shares continued a skid from 42 1/2 on July 6 to 36 5/8 on Wednesday, below Mondavi's 37 7/8 closing price.
If the past is any indication, Mondavi's price advantage won't last very long. But the reasons remain sound: Schroeder's Levy pointed out in a July 14 report that Mondavi significantly outperformed Beringer in sales growth over the past three months. She said that
showed Mondavi sales volume was up 30% for the 12 weeks ending June 30 while Beringer was up only 2.4%.
Significantly, Mondavi ruled in the lower-priced brands -- a segment by which the two companies live and die. Mondavi's Woodbridge brand ($6.99 per bottle at local supermarkets), which Levy says accounts for 75% of total volume, was up 28%. By contrast, Beringer's White Zin ($3.99 per bottle, 40% of their revenue) was down 2%.
Beringer will probably launch another counterattack on the IRI data such as the one
wrote about last
December. Levy thinks that Beringer is correct and that IRI undercounts Beringer's sales. However, privately owned wine powerhouse
believes that the IRI numbers are a fair representation.
Beringer may also be suffering from some marketplace confusion as prices of its higher-end Meridian wines slip down into the same range of its new Founder's Estate brand introduced last month.
Drinks and Diversions
found the new Founders' Estate brand priced at $8.99 to $9.99 in California supermarkets. However, Beringer's Meridian brand Merlot and Cabernets are now selling at $9.99, down from their $12 price points last year. Consumers may be confused as to which to buy, especially since the Meridian wine is of noticeably higher quality.
The Glut Machine Slows a Little
The throttle on California's wine glut machine eased back just a bit this year with the announcement from the state's biggest grapevine supplier,
of Fulton, that it had filled orders for 10.7 million vines. That's down from a record of 13.7 million vines in 1998 and approximately equal to the 11.1 million and 11.0 million vines sold in 1997 and 1996 respectively.
Sonoma Grapevines has about one-third of the California market (down from 40% last year due to new competition) which means an estimated 32 million vines got planted this year. At approximately 1,000 vines per acre, setting aside 20% for replanting existing vineyards, and with the average vine bearing a crop three years after planting, that means that about 26,000 new acres will be going on line in 2002. This is an easing for sure, but hardly a set of brakes on what is a veritable looming ocean of wine.
Lewis Perdue is editor and publisher of
Wine Investment News, and the author of The Wrath of Grapes: The Coming Wine Industry Shakeout and How to Take Advantage of It. While Perdue does not hold any positions in any securities mentioned in this column, he is the chief technology officer (on a consulting basis) to the e-tailer Wine Society of the World, which may, from time to time, discuss purchasing or other agreements with wine companies. He can be reached at