Where’s My Wine? Customers Struggle to Get Wine From Bankrupt Retailer Underground Cellar

In a section of a Napa Valley warehouse, more than half a million bottles of wine rest on pallets stacked 30 feet high. Every bottle was purchased by customers of Underground Cellar, a San Francisco-based internet retailer boasting 24,000 clients. Among a variety of perks, the bedrock promise of Underground Cellar was that it would store wine for free under ideal conditions until customers asked for delivery.

But last April, one of Underground Cellar’s lenders called in an $8 million loan, pushing the firm into Chapter 7 bankruptcy. All that stored wine, instead of belonging to the firm’s customers (who had already paid for it), abruptly shifted to the control of a court-appointed trustee.

That set up an ugly legal fight.

Like Winning a Golden Ticket

Underground Cellar was founded by Jeff Shaw, 38, with a tempting promise—buy wines at good prices and you might also get better wine than you paid for. Phoeno, the company’s subsidiary that is licensed to deal in alcohol, acquired wines in bulk purchases from wineries, distributors and auctions. It then packaged the wines by themes, ranging from West Coast reds and whites to Riojas.

The firm attracted customers with an adventurous, even gambling, spirit. They might not always get the wines they ordered, but when that happened, they were upgraded to wines worth more than what they paid—possibly much more.

“If you bought a box of $35 Napa Cabernets, you had maybe a .01 percent chance of getting a bottle of Screaming Eagle,” said Rachel Dannemeyer, a beverage consultant whose 40 cases are stranded in the warehouse. She compared that ever-so-slender possibility to “finding the golden [ticket] in the Willy Wonka chocolate pack.”

Many customers, including Dannemeyer, were drawn to Underground Cellar during the pandemic. “Everyone was in lockdown mode,” she said.” You couldn’t comfortably go into a shop or a restaurant or travel. And then this website sent out emails three times a day. With all the negativity out there, it was a fun way to buy wine.”

The Fun in Mystery Wine

The concept of the mystery boxes was hatched, founder Jeff Shaw told Wine Spectator, when he was a 10-year-old growing up in Arizona. “My parents bought me a pack of NBA trading cards,” he said. “I didn’t know which players I got until I tore off the wrapper. And there was a holographic card of the great Charles Barkley. When I started Underground Cellars, I thought, why not apply the same idea to mystery packs of wine?”

One source for those most-coveted wines early on was Texas customer Lance McCollough, who also made a small investment in Underground Cellar as a startup. “I was on eight to 12 allocation lists for the top Napa Cabernets,” McCollough said. “At some point, I said to myself, ‘You have too much freakin’ wine, Lance!’ So I let the company take over most of my allocations, including Harlan, Promontory and Bond. I kept only my Screaming Eagle and Hundred Acre. ”

Shaw was removed as CEO of Underground Cellar by its board in March 2022. Rather than grow the company modestly, he says, the board was looking for a “moonshot, maybe even being the next Snapchat.” A new CEO was brought in from Google, and the $8 million loan was secured from a large financial firm called Triple Point Venture Capital. (Neither Triple Point’s CEO nor its counsel responded to request for comment on this story.)

The company had been doing well during the COVID-19 pandemic, when people were drinking less wine at restaurants and more at home. Gross revenues grew from $14 million in 2021 to $21 million in 2022.

As late as February 2023, just three months before its Chapter 7 filing, in what seemed a sign of confidence in its future, the company purchased seven micro-lots of elite wines at the 26th annual Premiere Napa Valley wine auction. Open only to the trade, the auction offers lots of elite wines as futures. Some of Underground…


Source : https://www.winespectator.com/articles/customers-cannot-get-wine-from-bankrupt-retailer-underground-cellar

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