Sales are up but vintners, too, face new normal, Farella Braun lawyers say

Big sales and heavy rains might be cause for a toast under normal circumstances, but members of the wine practice at Farella Braun + Martel LLP say vintners are suffering now through the same uncertainty as other industries.

Matthew J. Lewis, a partner at the firm's San Francisco office, said the wine sales surge comes even as bars, restaurants, and wineries throughout California and beyond have shuttered sit-in service. Despite the industry's initial good fortune, Lewis said the pandemic has come at a time when the industry's still shrugging off a string of bad luck.

"Even before COVID-19, it was facing a grape glut, fallout from several devastating fire seasons, and some softening of the ultimate market," said Lewis, whose practice focuses largely around debt financing transactions for wineries, vineyards, bars and restaurants throughout the nation, with a particular concentration in Northern California.

"Now add the collapse of on-premises sales because of the shut down of tasting rooms and restaurants and uncertainties in the distribution chain, and we have some real challenges," Lewis continued.

Along with other practices at Farella Braun grappling with the COVID-19 crisis, Lewis said the wine group has responded with a multi-tier approach. Step one was simply reaching out, he said.

"Just asking them how they're doing, you know: 'How are things at home, how's the family?' That's the most important thing." Lewis explained. "The next important thing is the issues they're facing and how we can help."

Working to meet those challenges has been an "evolving process on a lot of different levels," according to firm partner David E. Stoll. He said he started fielding calls from concerned winery clients in Napa and Sonoma several weeks ago, around the time San Francisco and other Bay Area counties were starting to roll out shelter-in-place orders.

While the public policy advocacy group The Wine Institute marked wineries as an essential business early on in the COVID-19 crisis, Stoll said many clients understandably have questioned what that means in practice.

"You quickly realize that while some aspects are quite clear -- if you've got a tasting room, for example, you have to shut it down. Other aspects weren't. So they wanted to know, 'What is an essential business, what are minimal operations?'"

Thankfully, Stoll said, there's been much more clarity since the announcement of the state's stay-at-home order on March 19. Despite initial confusion about how county and state orders interact, Stoll said, clients are dealing with a lot less ambiguity. He hopes that continues.

"I think that's a positive step. I think we get a little more clarity and a bit more comfortable with the regulations on a day-to-day basis," Stoll said. "A lot of the uncertainty has not just been confined to the employers, but to the employees as well, who might not understand whether the business is operating and why, and what protections are in place for them."

Matthew J. Lewis

Lewis noted the pandemic is impacting some parts of the wine industry much differently than others. Online shops and doorstep delivery brands are seeing a boon, he said, as some consumers might be stocking their cellars in preparation for a long lockdown.

Sellers that traditionally market their wares at-venue have adapted by selling their product as take-out or incorporating deliveries into their business. But Lewis said some of his clients are concerned about the potential ramifications of losing their personal touch.

"Wine is an affinity business; there's an appreciation of the story and the brand, the level of care of the winemaker," Lewis explained. "A lot of people are firstly introduced and get invested in a brand when they go on a tasting tour."

Given the industry relies heavily on borrowed money, Lewis said, many wonder what the most realistic plan is for dealing with lenders while keeping investors happy in the trying times to come. The longterm impact on wineries selling their product through the traditional three-tier distribution chain -- from wholesalers to distributors to retailers -- is "another level of great uncertainty," he said.

Thankfully, Lewis said, the recently signed federal CARES Act has created great opportunities and avenues for relief, but he added wine clients have good reason not to give in to sour grapes that go well beyond employment relief and great initial sales. Lewis described the wine industry as one stocked with savvy people who want to keep spirits high.

"The industry has a lot of very smart people and a generally humane, patient ethos," he said. "So I am optimistic."