Determining the influence of belonging to a wine protected designation of origin on profitability

Abstract

AbstractTo guide consumers, wineries need credible attributes about the quality of their wines and its origin. In Spain, protected designations of origin (PDO) guarantee that the wine has been produced in a certain wine region in accordance with specific and officially regulated quality criteria thus providing elements of guarantee to the consumer. The objective of this work is to determine whether the belonging of a winery to a PDO is positively or negatively related to profitability. This analysis is important because based on its results, managers will have more knowledge to decide whether a winery is interested in joining the regional PDO or not. We performed an empirical study using a random‐effects generalized least squares regression analysis, with a sample of 1182 Spanish wineries, in which we determine the relation between belonging to eight of the major Spanish PDOs and winery profitability. The results show that wineries registered in these PDOs tend to have higher levels of profitability than wineries that have opted to remain outside, with these differences being significant in five of the eight PDOs analyzed. Additionally, the regression model reveals a positive relationship between PDO membership and winery profitability in six of the eight PDOs. Furthermore, the findings suggest that in some of these PDOs small wineries benefit the most from being part of a PDO due to their difficulties in having a recognized brand in the market, while belonging to a PDO seems to be less useful for large wineries that have greater resources to build their own quality brand. On the basis of these findings, the wineries now have more information to decide whether to stay in the PDO, join it, or focus exclusively on developing their own brands [EconLit Citations: L15, L66, Q13].