Pour & Loss

The average describes nobody

Silicon Valley Bank's 2026 State of the US Wine Industry report put 2025 volume down about two percent and industry revenue down 1.6. Those are the numbers that traveled, and they sound like a market catching its breath.

The table that mattered sat further in. Wineries in SVB's top quartile reported sales growth of eight percent and operating income of 11.9 percent. The bottom quartile reported sales down 10.2 percent and an operating margin of negative 10.5. That is a spread of more than 22 points of operating margin between businesses in the same industry, often in the same appellation, selling to what the trade press insists is the same consumer. And the spread understates the reality, because a survey can only count the wineries still standing to answer it.

Rob McMillan's framing this year was that the worst is behind us and 2026 will be less hard. Less hard for whom depends entirely on which row of that table you occupy, and the distance between the rows is no longer a market outcome. It is a management outcome. The industry average is the temperature of the room. Nobody in the room is average.

The spend didn't leave. The cases did.

BMO's 2026 Wine Market Report, released in May, counted more than 115 billion dollars of US consumer spending on wine in 2025, up three percent, while volume fell for another consecutive year. Worth being precise about what that number is: retail spend, not winery revenue. Between the two sit the distributor margin, the retail margin, and the import share, and the difference matters when you are deciding whose three percent it was.

Inside the total, the movement is not where the category wants it. Flavored wines grew twelve percent to more than 35 million cases. Sparkling fell three percent to 31 million. Traditional table wine kept giving ground. And nearly one quarter of the wineries BMO surveyed lost a primary distributor during the year.

That last number is the quiet one. A distributor loss used to be a crisis with a name attached. At a quarter of the industry per year it is a normal operating event, and the erosion rarely announces itself. Reorders don't stop the day the consolidation memo goes out. They fade across two quarters and show up in your reporting as soft depletions before anyone says the real word. BMO's own conclusion was that wineries now treat wholesalers more as fulfillment partners than growth engines, which is a structural change wearing a logistics costume. If the wholesale channel no longer sells for you, somebody inside your building owns selling, full time. Most org charts I see haven't caught up to that sentence, usually because the founder doesn't want to fund the seat.

Seventy-one percent of BMO's respondents expect the industry to stabilize or rebound within three years. That is a sentiment reading, not a plan, and the two get confused every budget season.

DTC repriced itself and called it premiumization

The 2026 Direct-to-Consumer Wine Shipping Report from Sovos ShipCompliant and WineBusiness Analytics counted the channel down 967,000 cases and more than 230 million dollars in 2025. Volume fell fifteen percent. Value fell six. The channel is back to roughly 2018 levels, and the report's authors called the decline systemic rather than selective.

The number getting repeated at conferences is the one buried in the middle: average price per bottle shipped rose eleven percent. It gets presented as proof the premium consumer is holding. Be careful with that. An eleven percent higher average in a channel that just lost fifteen percent of its volume is not pricing power. It is arithmetic. The sub-thirty-dollar shipment left the channel, the denominator shrank, and the average moved up because what remained was more expensive, not because anyone raised a price and got away with it. Survivorship, dressed up as premiumization.

The same trap sits inside your own club reporting. Flat club revenue can mean retention is holding, or it can mean a shrinking membership is being papered over by the remaining members spending more. Split the number: members times average annual spend, tracked separately, every month. One of those lines is doing the lifting, and which one changes what you should do next.

The correction is real. Growers are financing it.

The supply side is doing exactly what everyone said it needed to do, and it is worth looking at who is paying for it.

The 2025 California crush came in under 2.5 million tons, the smallest since 1999. An estimated 820,000 tons went unpicked, roughly a quarter of the crop and more than double the record 400,000 tons left on the vine in 2024. Growers removed close to 40,000 acres in each of the last two years, and Allied Grape Growers' Jeff Bitter has the state on track for another 40,000 this year, which would push three-year removals past 100,000 acres. Nurseries sold 7.7 million vines last year, enough for about 7,200 acres of new plantings, a historic low. The average price in arm's-length grape transactions fell eight percent in 2025, with Napa one of the few exceptions. And the Wine Institute put US wine exports to Canada down 78 percent last year, about 357 million dollars that used to exist and now doesn't.

Ciatti's July California report described an industry "adapting rather than rebounding," which is the most honest sentence published this summer. The 2026 harvest is already underway, early and uneven after a warm spring, and as of the first week of August nobody had published a documented national tonnage estimate. The field is guiding the field.

Here is the behind-the-numbers part. Almost none of this correction is being financed by the wineries that overbought and overplanted their way into the surplus. It is being financed by growers, in the form of pulled vineyards they spent tens of thousands an acre to develop and fruit they farmed all season and never picked. And the recovery timing everyone keeps asking about is not a consumer question. It is an inventory question. Wineries aim to hold roughly eighteen months of finished wine. Grape demand comes back when bulk and case inventories burn down to that line, not when a trend piece announces that wine is cool again. SVB's own read is that the bottom is more likely 2027 or 2028 than a fast turn. Plan against the inventory math, not the headline.

What the exit market is telling you

If a sale, a partial sale, or a generational transition sits anywhere in your five-year picture, the last ninety days of transaction news was the most useful reading of the year, and almost none of it was comfortable.

Pat DeLong of Azur Associates put the 2026 market for wine and vineyard sales at less than half the size of 2021, a year that moved roughly 3.5 billion dollars of assets. At an AWG conference in Santa Rosa in May, M&A advisor Mario Zepponi and appraiser Tony Correia described the deepest and most prolonged downturn in decades, with valuations down broadly and buyers holding the leverage. The value buyer is back, and has been since the Vintage Wine Estates bankruptcy put roughly three dozen brands and facilities on the block at once. Owners of profitable assets are mostly staying out of the market, which is rational and also means the comps being set right now are being set by the distressed.

Then read the Cain transaction twice. Third Leaf Partners bought the brand and the inventory. The 500-acre Spring Mountain estate is being sold separately. Buyers are no longer purchasing wineries. They are unbundling them into brand, inventory, land, and facility, and paying only for the parts they want. If you don't know the standalone value of each of those parts of your own business, a buyer will be happy to tell you, once, at the table, with no appeal process.

I owe a correction on this subject. I spent years telling owners that patience was an asset, that riding out a down market would only raise the price. I said it in 2021 and I believed it. What I didn't price was the carry. A bottom-quartile winery doing four million in revenue at that negative 10.5 operating margin is funding roughly 400,000 dollars of losses a year out of the family's pocket before a dollar of deferred replanting or facility capex. Three years of that can exceed the entire price improvement the owner is waiting for. Waiting is not a holding pattern. For some businesses it is a write-down on a payment plan.

Which leads to the sentence a sale-readiness consultant is not supposed to write: some owners should sell now, at today's number, into this market. Not most. Some. The ones with fading energy, no successor with real authority, and a P&L that needs three good years the family doesn't want to fund. For everyone else the obligation runs the other way. Buyers underwrite trailing twelve months, not narratives, and a quality of earnings review will test your club churn, your inventory valuation, and your dependence on the founder before anyone discusses a multiple. The most common deal killer in winery M&A right now is not price. It is inventory carried at values the market stopped supporting, which is precisely what surfaced in the Vintage Wine Estates court filings, and a WineBusiness Analytics survey earlier this year found only one winery in four not holding excess inventory. Whatever you want a buyer to underwrite in 2028 has to start showing up in your books about eight quarters earlier. That is the entire argument for a roadmap. The business a buyer sees should be one you built on purpose.

What I'd actually do

Three moves before the calendar year closes. None requires capital.

Quartile yourself. Take your real trailing twelve months, sales growth and operating margin, and place your business honestly against SVB's table. Not where you'd like to sit. Where you sit. Every strategic conversation you have this winter should start from that row.

Mark your inventory to market internally. Not for the auditor, for yourself. Identify the lots you will never sell through at book value and decide their exit now, bulk, private label, or write-off, before harvest receipts bury the question for another year. Three-quarters of the industry is holding excess inventory and most of it is priced at a memory.

Pick your base year. If exit or transition is anywhere in the picture, the trailing period a buyer eventually underwrites starts now, whether or not you have. Choose what that record needs to show, then work backward to what has to change this quarter for the record to exist.