Too Big to be Small. Too Small to be Big.

Why the winery landscape is splitting in two, and why the middle is getting squeezed out

For most of the modern American wine era, the middle was the safest place to be. The market, with its fragmented distribution and plentiful shelf spaces, favored balance over extremity, and sales growth was incremental rather than zero-sum. The mid-sized winery could rely on this model to include some wholesale 3-tier and DTC sales. They could build on some regional strength, with accessible national aspirations. You hired good, hardworking people to steady depletions, manage inventory, and ensure a predictable cash flow. But that middle is now collapsing, and not at all slowly.

What we’re watching isn’t cyclical or temporary, nor is it a hangover from the pandemic. It’s a rapid bifurcation of the winery landscape, driven by massive consolidation in wholesale and retail, real saturation in DTC, and a consumer market that has quietly changed its rules. Where our consumers used to wander and explore, they now ‘curate’ – keeping a short(er) list of brands they trust and buy repeatedly. These brands are either deeply familiar (big and visible) or deeply personal (small and direct).

The result is stark. Very small wineries and very large wineries can survive and thrive. The middle suffers mightily. Not all of them, but a lot of them.

We’ve talked about this before: that widespread presence used to signal success, but now it dilutes its meaning. Wine that’s everywhere isn’t special. Wine that’s expensive is now called confusing. The middle misses both the scarcity and the ubiquity. Infinite choices have trained our customers to ignore most of them. And since today, shelf sets reward velocity over potential, subtlety (or anything requiring some explanation) becomes too expensive – and the middle depends a lot on subtlety.

We should try to be precise about who we’re talking about. In practical, economic terms, the middle consists of wineries producing roughly 15,000 to 250,000 cases annually. I used to think the range was 5,000 to 50,000 cases some years ago, which now feels quaint.

Below that range, wholesale is optional; DTC can represent 60–90% of revenue; the founder is actually the brand; and scarcity and proximity still work pretty well.

Above that range, national distribution becomes viable, necessary obviously; dedicated sales teams are employed both by the winery and their wholesalers; retailers and distributors take your calls and are actively engaged with your products; and predictability, velocity, and margins matter more than any amount of romance.

What we underestimate and oftentimes do not recognize is that the pressure on mid-sized wineries is coming from both directions at the same time. Wholesale has consolidated, and this is a permanent feature. Get cyclical out of your mind. The top wine wholesalers now control the overwhelming majority of U.S. volume. Retail has followed the same path.

National and regional chains dominate shelf space. They’re offering far fewer SKUs, and they all seem very similar, as velocity matters more than story. Simplicity matters more than range under these conditions. And everything favors scale.

Mid-sized wineries struggle here because they fundamentally lack pricing leverage and sales rep mindshare – even though we are continually chasing this as if it were still possible. The middle is often squeezed out of resets, even if some are hanging on. Many are becoming “nice-to-have,” but not essential.

DTC is no longer a ‘greenfield’, having become crowded, expensive, and noisy despite the efforts of companies to streamline selling online. There are now more than 11,000 U.S. wineries competing for your attention one way or another. Digital acquisition costs have risen uncontrollably. Ad marketplaces are becoming more expensive as DTC startups and other CPG brands and experiences bid up prices at Meta/Google – and they’re often better capitalized than wineries. Targeting is worse now, conversion rates are falling, and attribution is getting murkier all the time. Small guys can tolerate inaccuracy, and big guys can absorb it – but the middle feels it. Retention is far cheaper and more important to focus on now.

Wine clubs are no longer novel, and honestly, they haven’t been for a long time. Consumers are fatigued by emails promising “exclusive access” that doesn’t feel exclusive. Scarcity that isn’t scarce is just disingenuous. Being widely available in wholesale weakens your DTC story. If (when) a consumer sees your wine at Costco, Total Wine, or their local grocer, the urgency to join your club plummets, no matter how good the wine is.

We are left to conclude that small wineries win by being unavailable, large wineries win by being everywhere, and the middle is stuck explaining itself.

Let’s bring it back to micro-economic business. Small wineries can and should optimize for margin per bottle while still generating that emotional connection. Large wineries unromantically optimize for inventory turns, working capital efficiency, and programmatic volumes. Mid-sized wineries must do both but tend to do neither well enough. The result shows up quietly at first but is becoming painfully obvious today.

Rapidly growing finished goods inventories are filling warehouses, manifesting in discounting disguised as “programming”.

Channel conflict between wholesale and DTC manifests itself literally every day, in every decision. Brand erosion that feels tactical, not strategic, is something I have personally lived through, and it’s not cool at all. Inventory and cash flows do not lie.

Why this is happening now is what we’ve all been talking about: three accelerants hitting at once. The post-pandemic demand normalized faster than supply could unwind, leaving wholesalers with oversized inventories and commitments. Consolidation crossed a tipping point, and we’re seeing its effects in many ways. Consumers simplified, not expanded, their choices while reducing consumption overall, and again, for myriad reasons that compound.

The uncomfortable truth about the middle is that the middle worked when distribution was fragmented, shelf space was abundant, DTC growth was cheap, tourism was working, wine clubs felt special, and none of those conditions are completely healthy anymore. And hoping for a return to what we thought was normal is not a good strategy. Sales growth wasn’t winner-take-all, not too long ago, and folks who dragged a bag could be counted on to create change when it was needed most.

So, what can the middle actually do to address all this? There are choices, even if they aren’t easy. Deliberately shrinking for the sake of strength may be the hardest one to swallow. It includes reduced production, fewer SKUs, exiting many or most wholesale markets (if there are no margins left), and rebuilding around places where you can access and maintain a presence. You do this for clarity.

But if the decision is to go-go-go, do it with conviction. Commit fully to your wholesale relevance and hire sales professionals. Invest in fewer, bigger bets, and accept fiscal discipline over being charming. After all, you are building for predictability, not applause at that point. Half-assing it will not be rewarded or tolerated for long.

If the wine alone can’t carry the model, redefine the business to meet the channel where it is today. Work on your hospitality-driven volume, your partnerships, private or exclusive programs, and experience-first revenue streams. Rethinking the economics will be key, especially if you want to drive subscriptions.

The greatest danger facing the middle isn’t necessarily collapse, but a slide towards irrelevance. When the industry drops by double digits year over year, being flat is a win. More SKUs, more emails, more noise, more discounts, and more hope will get you where you are today and no further.

Not pictured, I’m afraid I blurred it, my new favorite Cabernet Franc is the 2021 Paul Hobbs Nathan Coombs Estate, which was popped with a friend of mine here in Napa. Stunning purple and equally amazing aromatics, floral, swirling black fruits and exotic spices. Fresh and very traditional elegance, properly proportioned for a Franc. Long finish.

Same dinner, Domaine Tawse Savigny-les-Beaune 1er cru Les Lavières, is a demonstration of where Burgundy is headed, I think. Ripe, rich, and almost new-world-like. Still, that lovely complex Beaune terroir is there, as is the masterful winemaking.