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Searching for competitive advantage through sustainability
A qualitative study in the New Zealand wine industry
Daniel J. Flint
Department of Marketing and Logistics, University of Tennessee, Knoxville, Tennessee, USA, and
Searching for competitive advantage 841
Received April 2009 Revised August 2009 Accepted September 2009
Susan L. Golicic
Department of Management, Colorado State University, Fort Collins, Colorado, USA
Purpose – Sustainability is becoming increasingly important in supply chains, particularly in those that function in highly competitive industries. The purpose of this paper is to understand more deeply the role sustainability plays within supply chains based on a qualitative study conducted in the New Zealand wine industry. Design/methodology/approach – This research followed a grounded theory methodology which used in-depth interviews with managers from wineries, retailers, and restaurants; observations of operations; and interpretation of ﬁeld documents/artifacts. Findings – The ﬁndings show that managers within the New Zealand wine supply chains are trying to ﬁnd ways to leverage sustainability-related competencies for competitive advantage in what is now a highly competitive industry. Within this context, the emergent theme of searching for advantage through sustainability involves: pursuing and leveraging sustainability; telling a story that involves sustainability; managing supply chain relationships around sustainability; and experimenting with sustainability initiatives. Research limitations/implications – The research is limited to the context and participants of the study. As a qualitative inquiry, ﬁndings are exploratory. The research implications, however, involve deeper studies into how wine industry ﬁrms in other nations and regions of the world are treating sustainability and searching for competitive advantages. Further validation of the models that emerge can be accomplished through future research, which would draw on aggregate data. Originality/value – The approach and context within which sustainability is explored is unique. By seeking deep insights from managers on the cutting edge of sustainability initiatives, we are able to get close to strategic thinking and explore the impact on distribution relationships. Keywords Economic sustainability, Competitive advantage, Supply chain management, Wines, New Zealand Paper type Research paper
The authors contributed equally to this research and are listed alphabetically. The authors would like to acknowledge the ﬁnancial support of the Colorado State University Ofﬁce of International Programs and the Visiting Erskine Fellowship at The University of Canterbury for making this research possible. This paper has been through a double-blind peer review in accordance with IJPDLM’s review process. This paper will be presented at the 4th Annual Supply Chain Management & Industrial Distribution Symposium (SCMID), 5 November 2009, New Orleans, LA, USA: www.cba.ua.edu/ scmid
International Journal of Physical Distribution & Logistics Management Vol. 39 No. 10, 2009 pp. 841-860 q Emerald Group Publishing Limited 0960-0035 DOI 10.1108/09600030911011441
Introduction Distribution networks ought to serve as a means for competitive advantage (Mentzer et al., 1989). A competitive advantage exists when a ﬁrm has one or more competencies that allow it to create superior value, relative to competitors, for some market segment (Hunt and Morgan, 1995). As business becomes more dynamic and managers more savvy, relying on the product alone to provide such an advantage often only results in temporary beneﬁts. Thus ﬁrms increasingly rely on competencies obtained through their supply chain to excel (Markley and Davis, 2007). One such competency that has received increasing attention in the literature is environmental sustainability. Indeed, Porter and Kramer (2006), propose that sustainability is “an inescapable priority for business leaders in every country” (p. 78). Early studies found positive associations between environmental management initiatives and ﬁnancial performance (Klassen and McLaughlin, 1996; Russo and Fouts, 1997). Subsequently, research has argued that a proactive environmental strategy creates entry barriers and is a source of competitive advantage in international markets (Aragon-Correa and Sharma, 2003; Porter and Kramer, 2006). In order for a ﬁrm to gain and sustain an advantage, it must be difﬁcult for competitors to duplicate the beneﬁts of the ﬁrm’s competencies due to the fact that they are rare, valuable, imperfectly imitable and have few strategically equivalent substitutes (Barney, 1991). A sustainability competency therefore provides a differential advantage if this competency is relatively unique in the ﬁrm’s market. Supply chain management, and in particular distribution-related competencies, is recognized as providing such an advantage for numerous ﬁrms (Mentzer et al., 1989). However, costs to business organizations as well as to the environment can be high in today’s global supply chains. As such, sustainability initiatives have focused signiﬁcantly on the upstream and downstream distribution aspects of business management due to the costs associated with distribution. But beyond cost reduction efforts themselves, can environmental sustainability initiatives within and throughout the supply chain be leveraged, as logistics competencies can be leveraged (Bowersox et al., 1995), for differential advantage in the marketplace? And what role(s) can sustainability-related capabilities play in helping companies differentiate themselves in a highly competitive and established marketplace? Prior research in competitive advantage from sustainability has been largely conceptual or has been limited to studying the advantage obtained by the ﬁrst mover in the market. This paper seeks to begin to ﬁll this gap and explores the phenomenon within the context of the New Zealand wine industry. New Zealand has a rich ecological heritage and was one of the ﬁrst countries to address the interdependence between economic and environmental systems as well as establish voluntary sustainability initiatives within business (Patterson, 2006). An absence of a core of heavy industry, a low population density, its relative geographic isolation, a sizable small to medium enterprise business base, and an economy dependent on a buoyant agricultural sector all contribute to the value New Zealand places on a “clean green” image (Brown and Stone, 2007) as well as effective distribution networks. Thus, the country is committed to goals of sustainability, particularly within the agricultural sector, which accounts for 50 percent of all exports and 15.7 percent of the country’s GDP (Aerni, 2009). The New Zealand wine industry, which has experienced a boom over the past two decades (the number of wineries increased 173 percent and the value
of exports grew 816 percent from 1990 to 2000), capitalizes on the image of the country and promotes products through the catch phrase, “the riches of a clean green land” (Hughey et al., 2005). This speciﬁc industry is one of the oldest in civilized human history and has seen a signiﬁcant increase in both consumer demand and in the number of global wine producers competing for that demand (Anderson, 2003). We originally posed this speciﬁc research question: How do managers in the New Zealand wine industry conceptualize sustainability and what role does it play in their supply chain? It was in pursuit of an answer to this question that the notion of “searching for advantage” emerged. The paper is structured as follows. First, we review foundational literature on competitive advantage, sustainability, and branding. Second we explain the grounded theory qualitative methodology we chose to explore the phenomenon. Third, we discuss the ﬁndings from our ﬁeldwork. Finally, we offer a discussion about possible implications for managers and researchers. Foundational literature As is typical with qualitative, inductive inquiry, and speciﬁcally grounded theory (Glaser and Strauss, 1967; Strauss, 1987), we initially used the literature to establish the importance of the phenomenon of inquiry. During our inductive inquiry, we discovered that sustainability was playing a role consistent with competitive advantage and brand equity theory. We introduce this relevant literature next even though in truth, literature and ﬁeld immersion occurred simultaneously in a tacking back and forth fashion. The global wine industry Interestingly, the history of the wine industry closely parallels that of the automobile industry. The US “Big 3” automakers (General Motors, Ford, and Chrysler) made the mistake in the 1970s and 1980s of believing that Toyota and Honda were not worthy competitors and their historical dominance would keep them on top of the market. Toyota is now the most proﬁtable automobile manufacturer while General Motors and Chrysler declared bankruptcy despite billion dollar government loans to remain viable. Similarly, the Old World wine producers (those within Europe) relied on their centuries of tradition and were thus unprepared for the rapid invasion of their global markets from New World producers. A 2001 report commissioned by the French Ministry of Agriculture admitted, “Until recent years, wine was with us. We were the center, the unavoidable reference point. Today, the barbarians are at our gates: Australia, New Zealand, the USA, Chile, Argentina, South Africa” (Anderson, 2003, p. 47). While the top four Old World producers still accounted for almost 55 percent of global production in 2004, they are losing market share as their exports decreased or grew much more slowly than those from New World producers (Hussain et al., 2007). The high levels of competition in the wine industry are being driven by several factors. Although demand is growing due to changing regulations and consumption patterns along with reports of the apparent health beneﬁts of wine, the world currently produces more wine than it can consume. Production surpluses have ranged between 15 and 20 percent over the past ten years (Hussain et al., 2007). Consolidation in all tiers of the supply chain is escalating making it increasingly difﬁcult for the tens of thousands of wineries to get their product onto the shelves of fewer and more powerful retail establishments. Consumer behavior with respect to this product is also changing.
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Purchases by most segments are governed by reducing the perception of risk (Spawton, 1991), a foundational driver of branding success; therefore consumers are becoming more educated about products/brands and demanding more variety. This increased knowledge is expected to lead to discrimination between brands and preferences for differentiated products. What in the past has been characterized as a “cottage enterprise” is expected to be indistinguishable from any other highly competitive global industry (Anderson, 2003). Thus those countries and producers best able to adapt to these market changes and differentiate themselves and their brands will gain competitive advantage. On competitive advantage A functionalist perspective on competitive advantage can be traced back at least to Alderson (1957), which states that every ﬁrm must seek and ﬁnd a function that enables it to maintain a position in the marketplace. How ﬁrms perceive their market and competitive environments, whether local, regional or global, will inﬂuence the opportunities they see for differentiation. The competitive challenge is to outperform rivals in light of internal and external constraints and to satisfy continually changing consumer wants and needs (Dickson, 1992). As Hunt and Morgan (1995) stipulated, ﬁrms constantly struggle for comparative advantage through resources, which will yield competitive advantages enabling unique marketplace positioning and eventually superior ﬁnancial performance. As ﬁrms move to leverage their resources for competitive advantage, rivals observe these actions and retaliate (Kuester et al., 1999). This expected behavioral norm prompts some competitors to signal or mask their intentions (Prabhu and Stewart, 2001). These processes can be seen playing out in many markets and industries daily as ﬁrms and their supply chain partners attempt to obtain resource advantages through unique distribution networks providing anecdotal support for the use of distribution systems as a differential advantage. What we do not know is how the recent emergence of environmental sustainability, which has been strong across disciplines but extremely so within supply chain management, has impacted this search for differential advantage. Sustainability in New Zealand There has been an increasing range of business initiatives in New Zealand focused on sustainability. Businesses have begun producing triple bottom line reports (accounting for the social, environmental and economic impacts of a ﬁrm’s actions) and joining organizations such as the New Zealand Business Council for Sustainable Development. In accordance with its heritage as described in the introduction, the government has stated that sustainable development must be at the core of all policy (Roper, 2004). While the policy development in this area has progressed signiﬁcantly, these initiatives are largely voluntary. The argument is that it is more robust in the longer term to rely on market pressures for implementation rather than mandates through regulations (Brown and Stone, 2007). This logic appears to be working within the wine industry as many producers are implementing environmental management systems (EMS) as a means of differentiation. For example, a select number of vineyards and wineries have implemented ISO 14001, and a few have obtained organic certiﬁcation through Bio-Gro New Zealand (Hughey et al., 2005). Currently, over 600 of the country’s wineries and vineyards are members of Sustainable Winegrowing New Zealand (SWNZ) in
anticipation of this being a requirement to export wine in the near future (Sustainable Winegrowing New Zealand, 2009). Firms in the wine supply chain believe these EMS serve as a marketing tool and are becoming more important in order to compete in the industry. Some even believed that their EMS enabled product differentiation and their business experienced a competitive edge (Hughey et al., 2005). With so many ﬁrms trying to pursue sustainability, it is possible that the ﬁrst mover advantages for those individual New Zealand wineries leveraging sustainability in the marketplace has been lost at this point with respect to other New Zealand wineries. However, the nationwide initiative may very well be behind part of the increased brand equity of New Zealand wines in general globally. So it could be that efforts, which have differentiated the region, may help the national industry but simultaneously not help individual wineries, brands and retailers. On brand equity Brand equity is determined by customers and represents the power of a brand in the marketplace. It is the differential effect of brand knowledge on customers’ responses to marketing efforts (Keller, 1993). This knowledge is comprised of brand awareness and brand imagery (e.g. associations, attributes linked to beneﬁts). Customers, both business and consumer, prefer certain brands over others in part because the associations customers perceive represent better value (Woodruff, 1997). Due to brand equity being determined by customers and the dynamic nature of competitive business environments, customers’ perceptions of value change over time as they are exposed to competitive offerings (Flint, 2006; Flint et al., 2002), and as a result brand equity perceptions change as well. In the broadest sense, ﬁrms and even nations have brand identities, and perceptions of products associated with ﬁrms, regions and nations are malleable as well. How is this related to distribution and supply chain management? As customers become aware of unique availability options (e.g. place utility), and unique transportation or distributive options, they naturally value some products, service providers, and suppliers over others. We would therefore expect that in the wine industry, certain attributes, capabilities and resources become associated with speciﬁc brands of wine, distributors, producers, and even regions of wine production. The attempted management of these associations is at the heart of branding. When we entered into this research, we were essentially interested in how sustainability was playing out within the wine industry. It was only after becoming immersed in the ﬁeld data that we discovered that one role sustainability initiatives were playing, beyond simply striving toward sound business practice, was one of differential advantage through brand associations and brand awareness. Methodological approach The research question we posed (how do managers in the New Zealand wine industry conceptualize sustainability and what role does it play in their supply chain?) is exploratory and as such demands a methodology appropriate for digging deeply into how mangers interpret, interact within, act on and create their worlds as they attempt to solve the differentiation business problem. Grounded theory (Glaser and Strauss, 1967; Strauss, 1987) is a particularly good inductive-partially deductive research tradition that helps to reveal how social actors interpret and act on their environments
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as they attempt to solve problems they face. We describe in this section basic tenants of grounded theory and how our use of the approach elucidated how New Zealand managers in the wine industry were addressing differentiation in a highly competitive environment. We address only the highlights of grounded theory here, encouraging readers unfamiliar with the tradition to seek out additional details in available texts and manuscripts dedicated to grounded theory (e.g. Glaser, 1992, 2001; Strauss, 1987). We adopt the Glaserian approach to grounded theory in this study due to the interpretive freedom it allows (Glaser, 1992, 2001). This approach aims to construct substantive theory grounded in ﬁeld data, i.e. from the bottom up, and draws on a solid foundation in sociology and social psychology that emphasizes how people interact with others, make sense of their environments, and use aspects of their environments to deﬁne themselves, and solve problems. Finally, it relies on multiple sources of ﬁeld data, primarily but not limited to in-depth interviews, to reveal conceptualizations that are constructed through rigorous coding and interpretation procedures. Our data, collected in the ﬁrst half of 2009, consist of formal (11) and informal (16) in-depth interviews, over 60 hours of observation, and the collection and interpretation of over 100 contextually (culturally) relevant documents, e.g. winery brochures, photographs, advertisements, press releases. Data collection was conducted primarily on the South Island of New Zealand in the Canterbury, Waipara and Marlborough regions but also included brief visits to management ofﬁces in Auckland on the North Island. The formal interviews were pre-arranged meetings with wine industry business managers (winery chief executives, wine makers, grape growers, winery sales and marketing managers, restaurant managers/owners, sommeliers) and lasted between 60 and 90 minutes. Some people we revisited several times for follow-up conversations. We initially contacted ﬁrms (growers, producers, retailers) that attempted to be sustainable and/or innovative based on information provided on their web site (e.g. a description of an innovative practice). In other words, we contacted those in which we expected to observe our phenomenon to maximize internal validity. We then contacted them through email or professional network contacts we had in those regions. As grounded theory theoretical sampling dictates, we let initial interpretations of initial interviews help guide us toward who we should interview next. We made sure to obtain a variety of companies (large and small, public and private, old and new) to maximize external validity. All formal interviews were digitally recorded. Table I provides descriptors of the formal interview participants. Interview questions began broadly by asking participants about their businesses and personal roles within their organizations. The interviews generally moved in conversational manner to explore participants’ perceptions of the current business environment, the aspects of their businesses that make their organizations unique, the way they were trying to market, the ways they viewed their supply chains and supply relationships, and their views on sustainability. These were open-ended conversations conducted by both authors who are well experienced in qualitative interviewing techniques, bracketing of a priori conceptualizations, and interpretive analyses. Many probes were used in order to gain deeper and deeper insights to issues raised by the study participants by tapping into actual lived experiences. Although an initial interview guide was used, most conversations moved into areas that emerged from within the interviews.
Descriptors Operations and marketing manager at family owned winery in Canterbury region; parents began the winery; Bob returned to help add business/marketing discipline and run operations several years prior to the interview; helps set strategy for organization Chief Financial Ofﬁcer of wine holding ﬁrm managing four major brands; has a long history in the wine industry both as manager and producer/owner; highly involved in strategic decision making for ﬁrm Marketing director for small, relatively new winery; decade of experience in marketing for large, Australian winery; formal brand management training Chief Executive Ofﬁcer for boutique winery; signiﬁcant experience in Australian wine industry; supply chain speciﬁcally designed to leverage and support the indigenous (Maori) ownership of this winery Founder, owner, chief chef at high end restaurant in Christchurch; also runs a sommelier school and other retail and product ventures Partner in multi-brand wine company responsible for strategy, positioning, partnerships and operations Sommelier at Cindy’s restaurant; formerly trained in wine selection and food pairings; responsible for wine recommendations for patrons Austrian sommelier for a second high-end restaurant in Christchurch; very knowledgeable about menu, wide variety of wines, and customers’ preferences and reactions to organic wines; a former student of Cindy’s school Part owner in largest, most successful wine retailer in Christchurch; very innovative in creating customer-oriented atmosphere; very knowledgeable about wines and their differential advantages Wine maker for higher end winery; responsible for managing supply and distribution relationships as well; key manager designing and coordinating minimum carbon foot throughout the supply chain working with major U.K. retailer Senior Controller at large and one of the fastest growing wineries in the region; responsible for setting up state of the art operations, acquiring state of the equipment; leveraging state-of-the-art processes
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Vick Ann Ted Cindy Jim Gina Mike Jeff Adam
Table I. Formal interview participants
The informal interviews were not pre-arranged and thus, not digitally recorded. These interviews occurred during drop-in visits to various companies as recommended by formal interview participants and area literature. Every participant was aware that we were researchers collecting data on the wine industry. This sample primarily included wine retail managers and cellar door (i.e. wine tasting rooms on winery premises) managers. Extensive notes were taken by one member of the research team, during both formal and informal in-depth interviews to record observations. Both researchers were involved in all phases of the study. Recorded interviews were transcribed verbatim and combined with other sources of data such as the extensive informal meeting notes and other accumulated company documents. Coding of the documents involved open coding of meaning units, i.e. words, phrases, sentences, paragraphs, which essentially involves labeling concepts. After some time, concepts began to form patterns or clusters and as such, ﬁt into categories, i.e. addressing or forming aspects of the same issues or more abstract concept. After a constant comparison by tacking back and forth among all data sources and interpretations, a core category emerged as it should in grounded theory. This core
category we termed “searching for advantage through sustainability” and will be discussed in detail in the ﬁndings section. Findings The core category which emerged as “searching for advantage through sustainability”, was not sought a priori. We began our investigations merely trying to understand how managers approached sustainability and innovation in such a competitive environment in the New Zealand wine industry. We wanted to know “what they were up to” as an ethnographer might put it. It turned out that many of them described a phenomenon whereby they were trying to work with supply chain partners in order to ﬁnd an edge (advantage) and had seemed to have landed on the notion of sustainability, or something closely related to it, as a way to do it. The core category of searching for advantage through sustainability involves important sub-categories of concepts, which include leveraging the brand, telling a story, managing supply chain relationships, and experimenting with sustainability, each of which is described next. Leveraging the brand Searching for an advantage from participants’ perspectives meant ﬁnding a way to differentiate oneself from competitors. In the New Zealand wine industry that may occur at multiple levels. For example it may sometimes mean differentiating New Zealand wine from wines produced in other countries, differentiating wine from the Waipara region near Christchurch from the more well-known and established northern wine region of Marlborough, or differentiating one winery from another:
The Canterbury region has done a poor job marketing itself. Waipara [region only 30 km north] has done a better job marketing the region; they try to distance themselves from the plains growers in Canterbury (Bob).
Demonstrating this point, the Waipara wine region has its own web site. The web site for Waipara Valley Wine Growers prominently claims that Waipara is “the world’s greenest wine region” (Waipara Valley Wine Growers, 2009), clearly placing environmental concerns front and center. Within that region is a winery named Waterstone who not only claims to be environmentally responsible, but also well connected to everything in nature as noted on their web site. Thus they are building their brand based on sustainability:
Waterstone is comprised of a small team who love hunting, ﬁshing and the natural New Zealand environment. We have planted over 3,500 native trees on our vineyard and we continue our quest to produce the best wine for a high country rainbow trout cooked over a river stone ﬁre.
Our intrinsic connection with the natural landscape
We realise we are the caretakers for land we need to derive an income from, but also feel we have a responsibility to increase its biodiversity and recolonise the landscape with native plantings.
Searching for advantage is about survival right now for individual players in the wine industry – survival domestically and globally. Excess capacity is a relatively new phenomenon for New Zealand wineries. Combined with the global recession and the extreme variety of choice consumers have, this has served to create an intensely
competitive time in the industry. As Ted, who has seen similar patterns before from years working in large, mass producers of wine in Australia, there is “a train wreck about to happen and most (NZ) people don’t see it”. This is why people who do see it are frantically “searching for a competitive advantage”. Participants readily spoke about searching for better ways to differentiate themselves through their brand(s). For example, Vick discussed the importance of having a physical presence in the valley and tying his brands together. This presence was critical for effective distributor relationships:
A decision we made last year was that we needed a real footprint in the area . . . so the challenge of locating our Cellar Door to where we were, we didn’t have adequate ofﬁce facilities in [ZZ]. We bought this to act as a function of the purchase of the [XX] brand; this was [XX]’s Cellar Door originally, and we felt that we could utilize this door in the fall for business administration and local marketing functions which we are doing anyway and that we could refurbish the Cellar Door and re-brand it and incorporate that in our overall re-branding of the whole company. So we’re looking at re-branding the whole company as the [YY] Wine Company. So we actually have a number of entities within our corporate structure, so we’re working through that central structure and really putting [YY] at the head of that company, as the key brand . . . . So for me this facility that we look at now is more about presence to the trade having real roots here as opposed to where we were (Vick).
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Similarly, Ted expressed standard views of brand associations and differentiation:
The wine industry is relatively unique, I mean I suppose every industry is relatively unique to some extent, but the wine industry being a luxury item . . . there is a lot that’s based around perception. Okay so it’s not just expense, there is a lot of qualitative as well quantitative aspects to measure when the consumer is actually considering what beneﬁts they’re getting out of your produce versus someone else (Ted).
Ted went on later to describe how his choice of distributors affected his ability to export and penetrate markets and move appropriate brands through the network:
When you . . . take that step to exporting . . . you don’t just take a trip across to the UK or the US and set up an ofﬁce and hope to god that you make it work. You must ﬁrst partner up with people and you get to know the distribution and the way things actually work over there . . . The core in this business in terms of goodwill is coming effectively down to brands, but also bearing in mind that brands have lifecycles so as one brand is petering out we’re making sure we’ve got another brand coming up behind it (Ted).
In essence, the right distribution partners help in leveraging a brand’s image for differential advantage. We interviewed managers downstream in the wine supply chain as well, including retail owners, restaurant owners, and sommeliers. Each was seeking ways to differentiate themselves. Some of these efforts involve leveraging aspects of environmental awareness. For example, the owner of a high-end restaurant (i.e. Cindy) leveraged the fact that all of the lamb served at her internationally known restaurant was raised organically on her family farm. She and her sommeliers would steer patrons toward appropriate pairings between the lamb and wine selections, sometimes emphasizing the taste beneﬁts of organic wines over non-organic. Another sommelier who we interviewed echoed the same view, i.e. that organic wines have more complex and superior taste. Because few restaurants offered or emphasized organic
food or wine, this helped differentiate these two restaurants in a competitive dining industry within Christchurch. Telling a story
[You need to] create the story around your wine . . . that’s really important. When people look at a label they don’t think about the wine in the bottle; they think about what that label represents, and so that is very much what we are trying to do here . . . . a brand that reﬂects the place in which it’s grown, the idea of terroir . . . weave those stories into anything you say. For example the water stone – the symbol of our wine and the symbol of what being and living here is all about . . . the area is very much about outdoors – hunting and ﬁshing . . . [it’s about] . . . brand associations (Ann).
Searching for advantage often seemed to involve a related concept that emerged as the idea of “telling our story”. Each winery, wine business, restaurant and retailer seemed to strive for a unique story to tell, be it the unique circumstances surrounding the family who began the winery, the naturally raised lamb served in a restaurant and raised on the owner’s property, or the relationship between the owners of the most widely known wine retailer in the city. These stories seemed to be critical for creating emotional bonds between customers and wineries/restaurants/retailers. Participants consistently raised the topic of “the story” independently and unprompted. Participants from many of the wineries with who we met liked to position themselves as “boutique” to contrast themselves from the few, extremely large, mass-producers in the country. This boutique positioning demands an almost quaint, personal relationship with customers, a relationship forged on the hearth of the local story. Many participants explained that their stories helped to create such memorable experiences for visiting consumers that the consumers became strong advocates for and loyal buyers of their brands back home. For a winery this story is “told” often at cellar doors:
You get to tell them the story. Try to make it a bit different. Often it’s not just the story of the grapes, it’s about you (Bob).
Even for a high-end restaurant owner, the story had become more critical in ﬁnding an edge within these tough economic times:
Up to last year I would say (my view on business was) more, better . . . today I would say . . . survival. It’s critical to have a local ﬂavor, a local story (Cindy).
For many of our participants, this story had come to include a focus on sustainability-related initiatives. We say “sustainability-related” because the term sustainability when raised by our study participants carried a speciﬁc connotation. It speciﬁcally meant the national initiative for all New Zealand wineries to adopt a standardized sustainability program by 2011 in order to export wine (Sustainable Winegrowing New Zealand, 2009). This standardized program serves to highlight processes and metrics for maintaining a winery in an environmentally responsible way. As one participant described it:
It’s kind of like a beginner’s guide to growing grapes in a sustainable manner . . . helps them to convert [from using chemicals] . . . managing disease and pests, using cultural means . . . beneﬁcial bacteria . . . machines for mechanical weeding . . . (Bob).
Yet, even though the initiative was positioned as a “beginner’s guide”, when asked how he would describe his winery’s positioning, Bob said it would be, “Single vineyard wine grown in a sustainable way . . . ” To Bob, it all makes sense as well. After seeing a promotion for the initiative, he thought, “That’s a good idea. It’s backing up New Zealand’s clean green image . . . It makes marketing sense and it makes sense from looking after the land as custodians of the land . . . ”. Sustainability as seen by our participants usually meant this initiative speciﬁcally. But the overall idea of an environmental focus also meant carbon emission and organic initiatives:
The New Zealand wine industry in general is pretty much focused on sustainability. All the wineries will not be able to export unless they are part of the sustainability program. A clear direction is a move toward carbon zero. The concept of organic or biodynamic is signiﬁcant here and in the UK market, but I don’t think it is signiﬁcant in other markets at the moment . . . but it will be (Ted).
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Because the New Zealand sustainability initiative is essentially mandatory, compliance may help differentiate New Zealand wine from other wine nations, but will do little to differentiate regions or individual wineries. Thus, many wineries have adopted additional environmentally related initiatives as Ted mentioned, such as carbon zero. Carbon zero, known speciﬁcally as carboNZeroe in New Zealand, is another voluntary initiative which strives for a minimal carbon footprint. Tree Hill is one winery which forcefully markets themselves as “The Wolrd’s ﬁrst carboNZero certiﬁed winery”. We spoke with cellar managers at Tree Hill who repeated sentiments stated on the company web site:
The company has for many years operated to minimise its adverse environmental impacts and this has led to awards and acclaim for its environmental management, waste management and energy conservation [name of representative of the New Zealand Wine Council], says the Company is extremely proud to have achieved carboNZero certiﬁcation, a signiﬁcant environmental milestone: “We have a proud history of environmental awareness, including habitat rehabilitation, and becoming carboNZero certiﬁed now places us at the cutting edge of global sustainability”.
An image demonstrating the overt leveraging of carboNZero for branding purposes is provided in Plate 1. Another winery manager participant, Adam, freely criticized his competitor’s efforts to promote the carboNZero certiﬁcation as not that signiﬁcant because it merely focuses on the wine component of the product and not the ﬁnal product on the shelf. Instead of pursuing the carboNZero certiﬁcation, he and his winery had launched an initiative with a major grocery chain in the UK, a major export market for most New Zealand wines, to develop a process to track and target a truly minimal carbon emissions footprint over the life cycle of the ﬁnal product, including all supply chain operations from raw materials to the shelf. Through a partnership with growers, other component suppliers, the grocer, supply chain service providers, and a consultant, he was coordinating the monitoring and management of every carbon emissions-related aspect of production and distribution. This required a fair amount of work on the part of supply chain partners, including growers. At the end of the day, Adam’s goal was to be “the world’s ﬁrst winery classiﬁed under this initiative (i.e. low carbon footprint by stock keeping unit)”. Clearly, Adam feels that being known as the “ﬁrst”, will create a
Plate 1. Overt marketing of carboNZero
competitive advantage, just in the way Tree Hill promotes itself as the ﬁrst carboNZero certiﬁed winery. Some participants dismissed these initiatives as an inappropriate focus for the long-term. Instead, they were more concerned about organic initiatives:
By 2010-2011, all New Zealand growers need to be sustainable; it will be impossible to trade; it’s not a choice . . . This does not get any brand differentiation; carbon zero makes no difference. What really will make a difference is bio-dynamics and organic; we are seeing a growing movement for organic – sustainability is merely an ante to the game, organic is where it is (Vick).
Yet, even here, there are differences, which can be made between organically grown and an organic wine, the latter of which includes the winemaking processes. All of these attempts to position a ﬁrm or brand along environmentally friendly lines can be seen on promotional literature we collected as well using terms such as world’s ﬁrst carboNZero, grown in a sustainable way, connected to the earth, concern for biodynamics and so forth. An example of a ﬂier demonstrating the recognized importance of “the story” is offered in Figure 1. To achieve what is being claimed, the winery needs to coordinate with over 30 growers in some cases to ensure compliance. To position one’s restaurant or retail establishment as supporting sustainability initiatives, it too requires extensive coordination with and oversight of numerous partners in the supply chain. Managing supply chain relationships Regardless of the initiative adopted, each seems to require close collaboration and coordination with numerous supply chain partners. In order to be seen as an organic
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Figure 1. Example of “story” literature
vineyard, grape growers must not only alter their own processes, but must also use products that are organically friendly. Wine makers, in order to minimize the carbon footprint of bottling, were partnering with local bottle manufacturers who used recycled glass. One member alone of a wine supply chain cannot claim to be sustainable, carboNZero, or organic without having already developed solid relationships with appropriate supply chain partners. Thus, searching for advantage through sustainability by its very nature demands seeking out and developing and managing relationships with like-minded business partners. As Ted described it, he spent a lot of time working on “supply chain alignment of goals, alignment of the capabilities, . . . do they understand our story? . . . [Dealing with the bad supply chain partners who don’t get the story] is like a death of a thousand cuts”. Ann described how connecting the environmental story, one that they know their customers care about, to supply chain partners was critical for entering global markets, such as Australia:
We’ve been in Australia for the last ﬁve months . . . we’re really keen to build our brand, build our story, managing relationships . . . [we will] partner with smaller more focused distributors rather than large houses where you can get lost. We will always know our customers. There is always a risk of not knowing who your end customer is if you only work with the distributors (Ann).
Recall that Adam’s initiative for a low carbon footprint on the shelf required signiﬁcant coordination and collaboration among supply chain partners who willingly monitored carbon emission-related processes and shared the results of their evaluations with other supply chain partners. Ted noted, the supply chain relationships that help along these lines are “great, sharing relationships.” It is interesting how the story helps supply chain partners, i.e. distributors, succeed as well. As one winery manager participant put it:
Oh it’s [the story] absolutely critical you know in terms of we go out and we spend time with our agents and their sales reps as much as we can in different countries, and it’s fascinating how if you just arm them with some additional bits of information . . . it just gives them the extra ammunition that opens the doors, it makes it more appealing . . . for them to be able to say, ah look . . . the story just makes it, and you know you . . . give them something memorable with some good points around it, that’s about it. The story’s got to be simple, it’s gotta be appealing and it’s gotta ﬁt with your business (Jim).
Jim went on to describe how exclusive arrangements with distributors and retailers for his various wine brands helped all of them differentiate themselves signiﬁcantly. It enhanced each of their brand images. One of the consistent themes through their brand stories beyond simply quality was the sustainable way through which they were producing and distributing the wines. Experimenting with sustainability Several participants commented on their views of a New Zealand cultural attitude, i.e. that of a desire to experiment:
Kiwis like to try things out . . . They will try one varietal and if that isn’t working out, rip out the vines and try something else. This experimentation attitude is who we are in New Zealand. Kiwis will say “okay, let’s give it a go!” about almost any good sounding idea and be quick to switch if it doesn’t work out (Vick).
This experimentation attitude is reﬂected in how supply chain partners seem to like to work with each other. They are each willing to give initiatives a try if the logic seems sound. Adam’s partnership with a major retail chain in the UK is in essence an experiment, and within that relationship, the partners are experimenting on ways to produce and distribute wines in a sustainable way and then leverage that in the marketplace. Even the way wineries seem to be using connections with the environment and the land itself as a differential advantage seems to be part of this willingness to experiment. For example, Taonga Wines is positioned on its Maori ownership, a New Zealand indigenous people who are known to be good “custodians of the land”:
Taonga’s competitive advantage is two-fold actually. It’s wholly indigenous owned – only Maori owned wine company in the world. We are also a boutique winery . . . So it comes down to the original question, why is someone going to buy our wine? It comes down to the brand story . . . Getting a piece of the Maori culture is the story we are trying to get across (Ted).
Continuing on the theme of experimentation to ﬁnd a story, Ted commented that, “Wine growers are trying out different varieties, some just don’t have it right yet; some don’t have a brand of their own – their own story – so they are trying to ﬁnd it”. As a way of experimenting with supply chain sustainability issues, Adam, his partner growers, his distributors, a major retailer in the UK and a consultant all generated a detailed process map of their wine distribution from grapes on the vine to consumer purchase and container disposal. At the time of our interviews, they were in the process of identifying carbon footprint data at every step, setting targets, and managing toward their goal of being able to leverage a fully minimized carbon footprint on the shelf. For example, this process contributed toward Adam selecting a local glass manufacturer over a cheaper per unit-imported bottle due to the sustainable ways in which the local glass bottles were produced combined with the reduced transport costs. Discussion and implications The searching for advantage phenomenon emerged out of our ﬁeld data gathered from within the New Zealand wine industry as involving aspects of leveraging the brand, telling a story, managing supply chain relationships, and experimenting, and the continual interaction among these aspects. This phenomenon is depicted in Figure 2. The search for differential advantage is not a new concept. However, it is interesting to note that in New Zealand it seems many managers in the wine industry are ﬁnding that their sustainability efforts can be used to differentiate themselves in what has become an intensely competitive, almost commoditized, global market space. Sustainability in New Zealand and its related initiatives, carbon zero and organic growth/production, are discussed as the right things to do and as useful from a
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Figure 2. Searching for advantage through sustainability
competitive advantage perspective. They serve as a classic case of how supply chain management expertise, i.e. the coordination that occurs across organizations, can serve as more than a cost focus; it also serves as a differential advantage. Additional images of documents as examples of hundreds we gathered from the ﬁeld demonstrating how wineries and regions were trying to leverage their sustainability efforts in the marketplace are shown in Figure 3. The implementation of Sustainable Winegrowing New Zealand (SWNZ) has been discussed by others as a key initiative that helped to position New Zealand wine in the global competitive landscape by leveraging the environmentally focused cultural imagery often associated with the nation (Brodie et al., 2006; Hughey et al., 2005). Our participants freely discussed this initiative and its effects but called into question the ability of SWNZ to help them differentiate their individual brands. Other environmental management systems are also evident in the New Zealand wine industry such as ISO 14001 and Bio-Gro (Hughey et al., 2005) which again have served to differentiate the nation’s wine somewhat, but have yet to signiﬁcantly help differentiate individual businesses/brands in the supply chain (e.g. growers, wineries, retailers, restaurants).
Figure 3. Examples of leveraging aspects of sustainability
Thus, individual businesses are seeking a capability within the environmental realm that as a resource or assortment of resources, serves to create comparative advantage because it is perceived by some market segment as valuable and/or helps them reduce costs as comparative advantage theory would predict (Hunt and Morgan, 1995). From one perspective, the nationwide environmental initiatives may have been a solid ﬁrst step that laid a necessary foundation for markets to recognize New Zealand wine, with the next stage being individual businesses searching for differentiation within that landscape. However, from another perspective, the nationwide initiatives might have hurt; had they not been implemented, individual businesses might have been able to leverage their own initiatives – had they pursued them. As it stands now, businesses are ﬁnding that in order to differentiate within this space, they must ﬁnd a unique edge and/or simply execute in a far superior fashion in order to break out of the pack. And they can only do this by aligning themselves with superior and likeminded supply chain partners. It seems that our study’s participants are coming to the conclusion that growth is increasingly dependent on coordination across many supply chain organizations, as ¨ others have articulated (Caniels and Romijn, 2008). For environmentally focused businesses in the New Zealand regions of the wine world, our ﬁndings suggest that there is an opportunity – maybe even necessity – to align themselves with like-minded environmentally-focused supply chain businesses. Leveraging a sustainability positioning requires many coordinated organizations all focused on sustainability. It seems apparent as well that membership in this coordinated environmentally-focused network of relationships needs to become part of each organization’s “story” that is told. From a research perspective, there is still a great deal more to learn about how wine industry organizations are attempting to understand and leverage all of the emerging sustainability options at their disposal. There is signiﬁcant opportunity to continue exploring these issues, through both qualitative as well as quantitative means. For example, the themes discovered from this research should be examined across other new and old world wine regions. Ethnographic research or supply chain case studies could be conducted in these different regions to determine if similarities exist or if there are anomalies dependent on certain characteristics, such as history, culture, or even regulations. These qualitative studies could begin to develop theory or theories about the role of sustainability in building competitive advantage within the supply chain. Quantitative research, e.g. surveys, quasi-experiments, or content analysis of secondary data, could then be used to further develop and test theories. Future research may also examine other competitive industries to determine how they are attempting to leverage sustainability in their supply chains for a competitive edge. We would like to conclude with an implication for supply chain managers, and that is although sustainability initiatives such as organic, bio-dynamic, and low carbon emissions can all be used to differentiate companies and supply chains in some way, marketing purposes need not be, nor should they be, the sole reason for pursuing them. For some, being organic is merely a way of doing business. Curt described a well-known winery in the region for example:
Organic is how they do things, it’s not a marketing thing for some wineries; it is what they stand for; it is integral to who they are; [Curt’s winery] is not at that level . . . (Curt).
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However, it is beneﬁcial if you can also grow a business and achieve an advantage by doing what is sustainable as well as integral to who you are.
Notes 1. For this research, we are limiting our deﬁnition of sustainability to only the environmental dimension. 2. France, Italy, Germany and Spain. 3. Please note that we have disguised all names of participants and their companies in the ﬁndings and discussion by using pseudonyms. While we used company web sites and marketing literature as data sources, we do not include these in the reference list for conﬁdentiality purposes.
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Quarterly, and International Journal of Physical Distribution & Logistics Management. His areas of interest cover business buyer behavior and relationships, customer value dynamics, shopper marketing and its supply chain implications, supply chain management innovation, value co-creation, sustainability as a differential advantage and new ventures. Susan L. Golicic (PhD University of Tennessee) is an Assistant Professor of Supply Chain Management at Colorado State University. She has an MBA in logistics and operations from the University of Tennessee and a BS in Chemical Engineering from Wayne State University. Her research focuses on managing business relationships, strategy and sustainability in the supply chain. She has several years of professional experience in logistics and environmental engineering. She has consulted with numerous ﬁrms on supply chain management and forecasting, presented at many academic and practitioner conferences and has published in Journal of Operations Management, Journal of Business Logistics, International Journal of Physical Distribution & Logistics Management, Journal of the Academy of Marketing Science, Industrial Marketing Management, Transportation Journal, The Wall Street Journal and Supply Chain Management Review. Susan L. Golicic is the corresponding author and can be contacted at: Susan.Golicic@business.colostate.edu
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