Economically Surviving the Covid Crisis and the Shelter in Place Orders: A Primer on Regulatory interpretations and Options
By: The Hinman & Carmichael LLP Team
March 17, 2020
To our friends and colleagues,
Our political leaders (at the state level at least) are taking responsible steps to address pandemic medical issues through public health initiatives such as “shelter in place” and “social distancing.” The health initiatives vary across the state, and across the country. Shelter in place is in effect in 8 Bay Area counties but is quickly coming to other counties and states. The ability to stay open will vary across locations (for example restaurants outside of the shelter in place counties may remain open with social distancing – although that may quickly change) so we urge taking the most conservative course when planning for the duration.
We want our clients and friends to economically survive the pandemic and emerge on the other side with an intact business. Planning now for the next three to six months is imperative. Please consider these techniques and call us with questions.
Restaurants – Turn to Delivery and Virtual Waiters
Restaurants not permitted to be open for in-person dining may deliver food during the crisis. That includes the legal right to deliver wine and beer (this is true in California and New York, and some other states – it’s a state by state matrix). In California on-premise licensees may deliver off-premises whatever alcohol products (by the closed bottle) they may sell on-premises; except spirits, and unless there is a license condition prohibiting off-premises sales.
We suggest that special delivery menus and specially curated wine lists be developed and emailed to regular clients, and those on the email list. These can be multiple course menus with instructions for heating and serving the food at home, and for pairing a curated wine list (which may be part of a package).
For an additional charge this could include a virtual waiter to explain how each course was prepared, and how the wine was matched with the food, communicating for example with the diners via FaceTime, Skype or other similar programs. This keeps waiters and servers employed and leads to tips. Other restaurant staff can be diverted to delivery.
Personal service keeps the establishment connected with good customers, preserves some basic revenue to make up for lost table revenues and will make re-opening smoother.
This path is being explored in New York.
https://vinepair.com/articles/nyc-bars-restaurants-alcohol-delivery-coronavirus/
Those of us who are restaurant customers want to support our friends in the restaurant industry. This is a time for all of us to pull together.
Wineries and Breweries – Virtual At-Home Tastings
Tasting rooms are shut at the order of the Governor, but delivery of wine to consumers for off-premises consumption (wine clubs and retail consumer sales) is permitted. We are of the opinion that direct service to “essential business” retail accounts (direct to trade) is permitted. The Wine Institute has clarified that other winery operations are permitted. https://wineinstitute.org/news-alerts/impact-of-county-shelter-in-place-orders-on-wineries
As tasting room personnel know, the most effective sale is made one on one to a customer who understands and appreciates the wine (or malt beverage) being offered (and often signs up for a club membership). A virtual tasting package could be marketed, along with wine or beer to be tasted, as a personal guided tasting presentation by a tasting room employee conducted over Skype, FaceTime or similar virtual assistant. This keeps key tasting room employees engaged from their homes and earning income.
Because of DTC rights, this package (for wine) could also be offered to consumers in states other than California and could (after the crisis passes) become part of the wineries regular marketing program. At its core, this is a consumer marketing program tailored to a one on one presentation.
Bars with Entertainment – Virtual Entertainment Packages
Bars are a much tougher call because they do not fall under the definition of “essential businesses” (unless they also serve food – in which case they may be a restaurant) and (at least in the California shelter at home counties) cannot remain open to the public even on a limited scale. However virtual entertainment packages can be offered to the customer via email, twitter, Instagram and Facetime. For example, recorded shows, comedians who can schedule shows from home and live stream them to bar audiences, past recorded sporting events, etc., are possible offerings. Liquor and wine (in California) may be ordered from grocery and off-premises establishments that sell liquor and food, and an order placed with a bar may be forwarded for delivery from off-premises establishments for fulfillment. This is called Third Party Provider activity, may include a marketing fee paid to the bar, and is lawful in California subject to ABC guidelines.
https://www.abc.ca.gov/third-party-providers/
This is an opportunity to connect with shut in customers of the bar. Special drink recipes could be created and shared with regular customers of the bar, with the pre-arranged ingredients being ordered for delivery from an appropriate off-premises licensee. Keeping in contact with customers during the shutdown will help encourage attendance at the bar when the shelter in place order is finally lifted.
Craft Distilleries
Craft distilleries must be closed to the public but may offer virtual tasting and cocktail experiences like wineries and breweries. The difference is the availability of the craft product. The product must be sourced from a licensed spirits retailer, and the craft distiller may not process orders for the customer. The limit would be identifying two or more retailers that carry the product and making sure (through their wholesaler) those retailers are stocked with any special tasting package developed for the virtual tasting and cocktail program.
Essential Businesses – what are they?
This is a new term developed in affected Bay Area counties (and now including Sonoma and Monterey). An “essential business” is one that may stay open while a shelter in place order is in effect. We interpret an “essential business” with an alcohol license as one that serves or sells food and other essential products (such as drug, club and variety stores). That also includes the key supply chain partners (including wholesalers, winery, brewery and other suppliers) that service the essential businesses.
The Economic Impact of the Pandemic
We are in the beginning stage of a long journey to societal health. This is day one of “shelter in place” in Northern California. We anticipate shelter in place orders spreading to other locations quickly. By days 30, 60, 90 and 120, businesses (and the overall economy) will be suffering immense damage if plans to move to alternative business models are not made and executed immediately. The overall priority is treating the international pandemic, but personal and family health are critical and business survival is right behind.
By the time the first three weeks of the shelter in place order expires (on April 7th) cabin fever will be setting in, business owners (and employees) will be experiencing a serious drop in revenue and the public will be searching for acceptable social outlets.
We are all in this together, and if we can alleviate some of the anticipated harm in a manner consistent with addressing the pandemic, we should do so. All of us here at Hinman & Carmichael LLP are available to our clients to assist them in working through these issues as we all attempt to manage our way through the crisis.