Antica was one of many high-end Napa Valley wineries whose bottles were sold on Underground Cellar.
Michael Short/Special to The ChronicleThe offer was enticing: Pay $25 for a bottle of wine, and you might get upgraded to a bottle worth $100 or more. Better yet, the San Franciscotech companyUnderground Cellar promised: It would store your wine purchases — up to 500 bottles — for free in a “CloudCellar,” then ship them to you whenever you wanted.
But this week, Underground Cellar, which had raised $13.5 million in funding according to Crunchbase, abruptly announced it had “shut down for all future ordering and shipping,” apparently leaving customers without access to wines they’d purchased and winery suppliers with unpaid bills.
On Friday, a plaintiff named Erik Jensen filed a class-action lawsuit in Delaware against the 10-year-old company, alleging breach of contract, fraud and other charges. Jensen has 42 bottles of wine worth $3,115 stored with Underground Cellar, the complaint said, and he cannot access them now.
“It is definitely surprising, because they seemed to be doing quite well,” said Mitchel Harad of San Francisco, an early investor in Underground Cellar and a customer who bought more than 400 bottles since 2015. On Friday morning, he still hadn’t heard anything from the company or its founder, Jeff Shaw. (Shaw, who left his role as CEO last year, declined to comment on the record to The Chronicle.)
Harad wasn’t hopeful that he would ever see anything returned on his investment, or that he would ever regain access to the cases of wine he had stored at Underground Cellar’s Napa warehouse, the physical home of the CloudCellar.
“I’m going to make an educated guess that there’s not going to be anything coming back to me,” he said.
Harad had only two or three cases left with Underground Cellar, but others may have been less fortunate. Jim Helmers from Vallejo has purchased 670 bottles from Underground Cellar since 2021, which the company valued at nearly $47,000. He currently has 395 bottles stuck in his CloudCellar — worth nearly $32,000.
In addition to international bottlings from top regions like Burgundy and Champagne, Underground Cellar offered wines from many of Napa Valley’s heavy hitters, including cult Cabernet brands like Screaming Eagle, Opus One, Hundred Acre and Realm. These premium wines are difficult to secure, so Underground Cellar would purchase them from auctions like Premiere Napa Valley, where wineries auction off small lots of wine before they’re released.
These rare bottles were used as a carrot; users would purchase an offer and Underground Cellar would then upgrade them with some bottles of higher value. “It’s kind of like gambling,” said Brad Bader of San Jose, who became a customer after seeing a targeted online ad for Underground Cellar. (Shaw, Underground Cellar’s founder, has competed in the World Series of Poker tournament in Las Vegas.) “You’d pay $25 or $50 per bottle, and you had a chance — and they listed the odds on the site — of getting upgraded to something worth more,” said Bader, who has $2,400 worth of wine tied up in the Napa warehouse.
The more bottles a customer purchased, the higher their chance of nabbing a bottle that’s worth hundreds more than they paid. Jim Helmers, the Vallejo customer, said he received a Spanish Tempranillo valued at $7,900 through one such upgrade. That bottle is now stuck in the CloudCellar.
Underground Cellar also offered an unusual gift card model, which Bader now also views as a gambling-inspired element of the business. “They would run gift card promotions that worked really similar to the bottle sales — ‘if you buy six gift cards for $50, we’ll upgrade four of those’” — promising some of the gift cards might now be worth $100 or $200, he said. The catch: The gift cards had to be used to buy wine from Underground Cellar.
This week, as Bader attempted to recoup his $2,400 by disputing the charges with his credit card company, he realized that anything he’d bought with an Underground Cellar gift card would not be eligible for dispute. “The skeptic in me says, what if they did that to get around chargebacks from the credit card company?”
Much of Underground Cellar’s offerings came from direct partnerships with wineries, like Napa’s Antica, looking to clear out extra inventory. The partnership structure was especially attractive because unlike most online resellers, Underground Cellar didn’t sell the wines at a steep discount. Wineries could keep a much larger margin than what’s typical. But with the sudden closure, these producers may not get paid at all.
这也是叔叔ar what will happen to the wines that customers had stored in the CloudCellar. As storage is one of the biggest challenges for budding wine collectors, free space in a temperature-controlled cellar was one of the company’s biggest perks. When Bader was recently visiting Napa Valley with his wife, he asked Underground Cellar if he could come by the warehouse to pick up some of his wines there. “I thought, I’m right here, I could save them some money on shipping,” he said. But he was informed that he could not see the warehouse, for security reasons.
At the time, it didn’t raise a red flag for him, but now Bader wonders: “Are the bottles on hand and accounted for somewhere?”
At least 15 complaints against Underground Cellar have been logged with the Better Business Bureau since 2021, with several customers reporting that their wine shipments never arrived and that they were not refunded.
Some claimants also disliked the fact that the wine they received was not what they’d agreed to purchase — but then again, that mysterious “upgrade” possibility was Underground Cellar’s fundamental premise.Terms and conditionslisted on the website make clear that wines may be substituted at the company’s discretion.
This is not the first time that a Bay Area wine company has left its customers in the lurch. In 2016, the owner ofBerkeley wine merchant Premier Crupleaded guilty to wire fraud and admitted he had sold or attempted to sell more than $20 million worth of wine futures that the company had never actually possessed.
With no word from the company, Underground Cellar’s customers and suppliers said they had no choice but to wait for answers.
“I’m a positive and optimistic person,” said Bader. “I keep thinking maybe they’re just trying to figure out how to ship it to all of us.”
This story has been updated to include further details of the class action lawsuit and comment from Underground Cellar customer Jim Helmers.
Reach Esther Mobley: emobley@sfchronicle.com
Reach Jess Lander: jess.lander@sfchronicle.com; Twitter: @jesslander
