Imagine that your entire inventory goes up in smoke. And your insurance doesn’t cover it.
That’s what happened to Delia Viader, owner of the Viader winery in California’s Napa Valley, nine years ago, when an arsonist set fire to a warehouse storing her 2003 vintage. In one day, she lost 84,000 bottles. She had just been about to reap $4.5 million by shipping the wine to restaurants, distributors and exporters. And then poof. “I had absolutely nothing,” she said.
Nothing prepares you for the moment you lose everything, and even now, Ms. Viader has difficulty talking about that day. “It is something I try to put behind me,” she said. But when pressed, she recalls how it unfolded — and the combination of strategic decisions and lucky breaks that allowed her to rebuild.
Ms. Viader had been walking into a private dinner at a Napa resort when her son Alan, who managed Viader’s vineyard, called to say that flames had engulfed the warehouse — a giant structure in Mare Island, Calif., that stored wine for close to 100 wineries. “He tells me, ‘Mom, I am looking at the smoke — I can’t even get close,’” she said.
Ms. Viader, who started her winery in 1986, had fire insurance, but she immediately feared the payout would take months if not years — and probably wouldn’t cover her losses. (She would be proven right on both counts.) Her first reaction was to tick through various situations that might keep the winery afloat. “I immediately calculated cost and cash flow,” she said. She had production bills and 28 employees who needed paychecks.
With the fire still raging, Ms. Viader attended the dinner, which happened to be hosted by the bank, Silicon Valley Bank, that held a loan on her winery’s 92-acre property. She took her branch manager aside and asked for a bridge loan of $1 million. The banker, while sympathetic, said Ms Viader would have to arrange to have other people co-sign the loan and guarantee the debt. In the days ahead, she managed to line up friends who agreed to do just that. And she received the loan.
Once she had propped up the winery’s operations, she went after her insurance company. The situation was even worse than she had feared. She said she now believed that her broker made a mistake in writing her policy, limiting losses to $500,000 for wine that was “in transit.” Her insurer deemed the wine to be “in transit” because it was at a storage warehouse; Ms. Viader initiated litigation, arguing that the wine wasn’t “in transit” but rather awaiting hand-labeling while in storage. The case dragged on, and Ms. Viader racked up legal fees. Her “business interruption” insurance policy – devised to cover lost income after a disaster – did not kick in, because her winery, technically, was still operating. In the end, she settled: “It took two and a half years to get the insurance to pay less than 10 percent” – less than $500,000 – “of the claim.”
There was also no insurance to collect from the warehouse itself, which went out of business, Ms. Viader said. According to news reports, nearly 95 vintners wound up losing wines estimated to have been worth $200 million to $250 million. In 2012, a Sausalito businessman convicted of setting the fire was sentenced to 27 years in prison.
To make ends meet, Ms. Viader decided to sell assets. Before the fire, she had bought a vineyard in Tuscany that she was in the process of developing with partners. “We ended up selling the whole thing completely,” she said. “I needed the resources.”
Next, Ms. Viader tackled the long-term repercussions of the fire. In the wine business, you can’t just replace your inventory immediately. Grapes must be grown and harvested; the wine must be aged and bottled. You develop relationships with restaurants and distributors, who keep a place for your annual vintages on their menus or wholesale lists. “When you don’t have a way to give them more wine, they don’t put a placeholder for your next vintage,” she said. “They just replace you.”
That led Ms. Viader to change her business model. Instead of using third-party distributors and exporters to sell her wine wholesale, she decided to sell it directly to consumers. She bet that aficionados who toured Napa Valley’s wineries would be willing to pay $150 a bottle for her signature product — Viader, a blend of Cabernet Sauvignon and Cabernet Franc that she affectionately calls “liquid cashmere.” (In fact, the price represented a discount to what customers at upscale restaurants or wine boutiques were already paying for the wine.) Ms. Viader, who lives on the winery property, converted her guesthouse into a primary tasting room.
In 2007, her daughter Janet joined the family business to help with sales and marketing. “It was, in the sense of family, a call to arms,” Ms. Viader said. Her daughter now runs Viader’s wine club, a crucial part of the winery’s direct-to-consumer model. The club has a small buy-loyal membership, with basic-level members paying about $1,100 a year for 12 bottles. The winery has targeted customers with marketing campaigns and special events, such as intimate tastings from the barrel. Viader also has a social media presence on Facebook and Twitter, although Ms. Viader said it had mostly built its membership through word of mouth.
Nearly a decade after the fire, Ms. Viader said the winery had recovered — at least financially — and was poised to have wider profit margins. Before the fire, Ms. Viader produced about 10,000 cases a year, selling the wine at wholesale prices to restaurants and distributors. Now, because she has cut out the middle man and sells directly to consumers, she needs to produce only 5,000 cases to make the same amount of annual revenue, about $4.5 million, as before.
But Ms. Viader regrets that the decreased production forced her to eliminate most of her vineyard crew. She now needs only 15 employees to help with everything from picking grapes to shipping wines to out-of-state club members. “There were sacrifices in order to remain in business,” she said.
And these days, Ms. Viader buys more expensive insurance and reads the fine print, to make sure she is “100-percent covered.” But she no longer trusts warehouses. She now stores most of her wine in her own tunnels, burrowed into the hill where her winery is located.