Competition boosts sustainability profits in wineries

Wineries and vineyards that adopt more sustainability practices have better financial performance, particularly when they perceive significant pressure from competitors, according to an international study.

It is a fragmented industry, meaning there are small- or medium-sized enterprises. Unlike industries that have a few large players, there is not a lot of pressure for companies to adopt the practices of their competitors.

Researchers used wineries to understand what drives investment in sustainability in a fragmented industry, and how that affects a business’s bottom line. They analysed data collected from managers at 289 small- to medium-sized wineries in France, Italy, the United States and Denmark.

Sustainability measures assessed in the report include using recycled materials, reducing fuel costs and engaging in environmental audits.

Beverly Tyler, Professor of Management, Innovation and Entrepreneurship at North Carolina State University and co-author of the study, said they found that sustainability is positively associated with profitability. “What’s new is that we found that perceived pressure from competitors drives up that effect. Specifically, we found that competitive pressure makes business managers focus on maximising the value that they get from their existing sustainability measures.”

Wineries perceiving less competitive pressure were more likely to adopt new sustainability practices because they “felt they had the financial wiggle room to take calculated risks”, according to Tyler. They also saw sustainability as an opportunity to differentiate themselves from their competitors, or reduce their long-term operating costs.

“This work helps us better understand why some small- and medium-sized businesses in fragmented industries are not investing in sustainability, even though it contributes to profitability,” Tyler said. “Basically, businesses in fragmented industries that feel threatened by competitors are scared to invest their limited resources in sustainability. However, the study also highlights the advantages associated with having sustainable practices in place when competition is fierce.”

The survey tool developed to assess the sustainable activity of wineries and vineyards may be used to assess sustainable practices in other sectors.

The paper is published in the journal Organization & Environment.

Image credit: ©Kyoungil Jean/Dollar Photo Club