2024 BMO Wine Industry Analysis: Market Concentration Threatens Small Producers

Facing an uneven playing field, 97% of wineries pursue alternative revenue streams to survive wholesale distributor domination.

Crafted by our Vinoshipper Market Analyst, this in-depth analysis of the 2024 BMO Wine Industry report highlights key insights crucial for our industry’s success. I believe this information is too important not to share with you.

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2024 BMO Wine Market Report, page 21

I just reviewed the 2024 BMO Wine Market Report, a survey of 630 U.S. wineries and one table really stood out, “Primary approach to increasing total revenue by [production] size”. It shows the differences in revenue strategies amongst wineries of varying sizes and confirms a known trend: large producers are tightening their grip on the U.S. wine market, while smaller wineries are struggling to compete by being forced to try to operate within an aging three-tier system. As an industry, we often focus on surface-level trends, shying away from the most critical issue: the outdated laws governing wine distribution, which unfairly disadvantage small producers and stifle true industry growth. 

Market Dominance of Large Producers (500k+ cases) 

Wineries producing over 500,000 cases annually are primarily focused on new brands or line extensions, with 36.8% citing this as their main revenue growth strategy. This approach underscores their entrenched position within the wholesale distribution channel and their ability to leverage existing channels to expand market share. 

Notably, these large producers show no interest in seeking new distributors or developing club sales, indicating their confidence in current wholesale relationships. This data suggests a concerning trend towards market consolidation, potentially reducing consumer choice and squeezing out smaller, more innovative producers.  

Large producers have the balance sheets necessary to undertake market testing and analysis with their main focus on market share. If a new wine company with an up-and-coming product is gaining traction, but has yet to hit distribution, these large producers can essentially recreate the product with an in-house brand and launch it directly into a wider market. The consumer is then duped into thinking there is a wide variety of choice when, in reality, their dollars are going to the same producer. This practice is done by virtually every major business, amongst all industries, a lá sodas, deodorants, shoes, cars, etc. The incumbents will always try to cut off the new players. When they can’t, we see M&A take place instead.  

Mid-Size Producers Aim for Wholesale (50k – 499k cases) 

The survey reveals that 42.4% of wineries producing 50,000 to 499,999 cases annually are prioritizing increased wholesale sales. This strategy indicates a clear attempt to gain a stronger foothold in traditional distribution channels, mirroring the approach of larger competitors. 

This focus on wholesale sales further emphasizes the power dynamics within the industry, where access to distribution can make or break a winery's success. These medium wineries understand that once they showcase success in the wholesale channel then the unfair advantage is in their benefit, as distributors will continue to work with that brand. They use DTC and new markets to create data points as to why they should be kept on the books by wholesalers distributors. Once they are in, brand extensions begin.  

Small Producers Are Left Behind (under 50k cases) 

In stark contrast, smaller wineries, representing 97% of the industry, are forced to adopt drastically different strategies than their large counterparts.  

• Those producing 5,000 to 49,999 cases annually (15% of the industry) are heavily focused on club sales (20.4%). 

• The smallest producers, producing under 5,000 cases (82% of the industry), spread their efforts across direct-to-consumer (DTC) sales, club memberships, and digital marketing. 

What do you take from this? Although operating in the same industry, the majority of US producers operate under vastly different conditions than the top 3%. 

It’s crucial to understand that this divergence in strategy is not a choice but a necessity. The current three-tier system, which mandates separation between producers, distributors, and retailers, heavily favors large producers with established relationships and the volume to command distributor attention. Let me repeat that small producers are using DTC, club, and new markets, not solely by choice, but for survival. No amount of digital marketing or “connecting with Gen-Z” will make finding success easier, as they are operating within an uneven playing field. 

All industry participants, journalists, PR, media, business owners, must focus on ensuring producers can sell wine through any channel – Direct to Consumer (DTC), Direct to Trade (DTT) and Wholesale. We like to call this the three channel system (TCS) and believe this term should be widely adopted as it emphasizes that producers should not be restricted by which channel they may operate in, allowing end consumers to receive higher quality, better priced wines.  

The Wholesaler Problem

The surveyed data paints a clear picture of a system that is no longer serving the entire industry. Wholesalers, originally intended to prevent monopolistic practices post-Prohibition, have instead become gatekeepers, prioritizing large producers that can provide volume and marketing support.

This concentration of power not only threatens the livelihood of smaller wineries but also limits consumer access to diverse, innovative wines that don't fit the mass-market mold or do not have the volume required to fit into a wholesale distributor playbook.

Regulatory Reform Needed 

Concentration of power was the exact reason for Biden’s Executive Order 14036, “Promoting Competition in the American Economy.” 

“The goal of the Executive Order is to reduce the trend of corporate consolidation, increase competition, and deliver concrete benefits to America’s consumers, workers, and small businesses. Those benefits include more choices, better service, and lower prices for consumers through a competitive market, as well as fairer opportunities for small businesses and entrepreneurs to compete.” 

Has anything from what you’ve read so far sounded like American consumers and small businesses are receiving the benefits outlined above? 

The report even gave the following recommendation, “We encourage the states to examine the effects of their regulations on small producers and their ability to compete, including their access to distribution.” Without disrupting the wholesale channel, allowing the 97% of small wineries to self-distribute would address this recommendation. The technology already exists to seamlessly allow for this to take place. 

While small wineries are admirably adapting through direct sales and marketing efforts, these strategies are ultimately band-aids on a major systematic issue. No amount of clever marketing or direct sales innovation can fully compensate for the structural advantages enjoyed by large producers in the current regulatory environment. 

Proposals such as allowing widespread Direct to Trade sales for small producers and removing volume limits on direct shipments could help level the playing field. However, such changes face significant opposition from entrenched interests (those representing both the wholesalers and the large producers) benefiting from the status quo.

What’s Next?

The U.S. wine industry stands at a crossroads. While large producers consolidate their market position through the existing three-tier system, smaller wineries are left to fend for themselves, relying on Direct to Consumer sales to survive. This disparity threatens not just individual businesses but the diversity and innovation of products that has long characterized the American wine landscape. 

As the industry grapples with these challenges, it's clear that the current distribution system is overdue for reform. The question remains: will regulators and industry leaders recognize the need for change before it's too late for the industry? The future of a diverse, expanding, vibrant U.S. wine industry may depend on it.