Winery consolidation and brand proliferation — hallmarks of the California wine market over the past 10 years — both continue to grow. With nearly 5,000 wineries and some estimate over 15,000 wine brands now competing for a modestly growing consumer base, market survival for small- to mid-sized independent wineries in particular increasingly depends on strong brand identity, robust direct-to-consumer sales and enthusiastic customer support and loyalty.
As wineries seek out better ways to connect with their consumers on a personal level, distinguish themselves from their competitors and provide more meaningful guest experiences, hospitality and marketing events, at which winery ambassadors have the opportunity to interact personally (not just electronically) with existing and prospective customers, have become indispensable tools.
Like all aspects of a winery’s sales and marketing operations, however, hospitality and marketing events are subject to a host of complex — and sometimes nonsensical — regulatory restrictions, which if violated, can subject an unwary winery to serious administrative penalties, including monetary fines and license suspension or revocation. Although they were adopted nearly 100 years ago and are believed to be antiquated and unnecessary by many in the industry, California’s “tied house” laws — and the regulations they have spawned — are alive and well.
Wineries today are more creative than ever. They are sponsoring, organizing and participating in a variety of hospitality and marketing events, including “passport” events, winemaker dinners, nonprofit charitable events (including those with retail sponsors), invitation-only events, autograph signings, and tastings and sales at certified farmers’ markets. The regulations governing three of the more common and effective of these tools — passport events, winemaker dinners and invitation-only events — exemplify the type of restrictive framework within which wineries must operate.
Passport events are popular among consumers because they permit them to visit, taste wine and meet vintners at a number of nearby wineries over an extended period of time. For the most part, they are conducted over a weekend, but nothing prevents them from being held over a longer period of time.
Essentially, passport events are conducted by wineries under their existing licenses but marketed and coordinated through a third party, which in most cases is a local or regional winegrower association. Consumers purchase access to the event and t0 the participating wineries — oftentimes, receiving a wine glass, area map and “passport” in return — from the third-party.
To be legal, and not require the wineries or third-party organizer to obtain a separate license, passport events must satisfy several requirements, such as these:
• The third-party organizer must only sell access to experiences or activities that the wineries themselves can lawfully provide to consumers.
• Wineries can do nothing more than sell or provide tastes of wine under the authority of their existing licenses.
• There can be no commingling of funds or sharing of revenue between the wineries and the third-party organizer. All proceeds from the sale of access to the event must go to the third-party organizer, and all proceeds from the sale of wine or tastings must remain with the wineries.
Vintners with California type 17/20 alcohol-beverage licenses — operations sometimes called “virtual wineries” — cannot participate in passport events, unless the third-party organizer obtains an appropriate license and actually controls the licensed venue and the activities conducted during the event.
Richard Van Duzer (email@example.com) is a partner in the San Francisco office of law firm Farella Braun + Martel, which also has a St. Helena office. He maintains a complex civil trial practice with an emphasis on the construction, real estate and wine industries.