Why Alcohol Delivery Is Harder Than It Looks

The headlines last week were all abuzz with the news: Amazon, via the magic of its Whole Foods acquisition, was getting into the burgeoning world of alcohol commerce.

“There’s little doubt that the [spirits] industry will feel the impact of the largest online retailer expanding into grocery,” Coors wrote in a blog post following the news announcement of the Amazon/Whole Foods merger.

And, as it emerged that Amazon was planning to use Whole Foods stores as hubs for alcohol delivery, the market quaked – particularly for the legions of startups who’ve entered the space in a number of different ways. Surely, various new outlets speculated, this latest move by Amazon would only spell certain doom and gloom for anyone not operating at the eCommerce giant’s scale.

The CEO of one of those startups isn’t nearly as worried for his firm as the tech press is.

“This is very much ‘us versus Amazon’ in the way it’s ‘InstaCart versus Amazon’ in grocery. We’re the largest liquor-store network in the country – in North America, frankly,” Drizly CEO Nick Rellas said. “Even in Amazon’s backyard, we sell more alcohol than they do. I like our odds.”

Though that sort of enthusiasm might be expected of Drizly’s CEO, he is quite importantly not alone in feeling and sharing it. Bill Simon, who served as chief executive officer of Walmart’s U.S. operations from 2010 to 2014, joined Drizly’s board of directors earlier this week. And, he told Karen Webster, the reason he joined can be summed up quite simply: Drizly has managed to do something that no other player in the industry has achieved: Find a way to make alcohol delivery work at scale.

“Until you can figure out how to be at least a regional or a better national player, you’ll always be nipping at the edges, but never really getting to scale,” Simon said, adding that Drizly has built a brand and a platform that complies with the three-tier system and can actually reach everyone in the country.

The “three-tiered system” Simon refers to is the structure that governs the production and sale of alcohol in the United States. Products (or importers) sell to distributors, distributors sell to retailers and retailers sell to customers. Only retailers can sell to customers and only distributors can buy from producers (except in the state of Washington).

And while Amazon is a very powerful player, Simon pointed out, the alcohol industry is unlike any other in the U.S. – a fact that he knows from his years with Diageo plc, the world’s largest distiller. Though the terrors Amazon may inflict loom large, he noted, the reality is that it’s now one tier of the system – a retailer – but it still has to function at that level. Plus, he added, alcohol regulations only get more complex and confusing all the way down, as one has to abide by all of the individual state laws.

“To comply with the law – that varies by jurisdiction. In some states, you only get one or two licenses to vend alcohol, even if you are a chain with a lot of locations. So, unless you want to handle all the delivery in Georgia from one of the two locations with a license, there is an issue,” Simon explained. “As the owner of a retailer, they are part of the three-tier system, which means they have rules and obligations that Drizly does not have because they aren’t in it, they are using it to deliver to their customer.”

Maybe, Simon noted, they can build out a reasonable liquor delivery radius around certain stores – but that is still nipping at the edges and not getting scale, which he predicted Amazon isn’t going to much like. “If they can figure out how to extend that – they would need some changes in legislation, but maybe they could, but it would be difficult,” he noted, as the entrenched players are entrenched and have every reason not to want it changed. “They have the status quo pretty well locked up, and have for the 15 or 20 years I’ve been in the business.”

Which doesn’t mean the business can’t change – in fact, he noted, one of the great appeals of Drizly is that it’s now changing the business by giving the brands something they’ve never had: a way to directly communicate with the buyers that their legally mediated relationship doesn’t well accommodate.

In the pre-Drizly model, Simon pointed out, they couldn’t really provide incentive or discuss prices. In effect, the best they could do is provide glassware at Christmastime as part of a package set. With Drizly, they actually find a way to talk to their customers about the brand and tell them what to do with it, or how they can learn more about it. And, it return, the brands get a much clearer, unmediated picture of who is buying their product.

Customers, Simon noted, have become incredibly ambidextrous about shopping in the digital age. They don’t think online shopping or offline – they think about what they want.

“When you order a pizza from your phone, you don’t think about whether that is an online transaction because of how you placed it, or an offline one because you had to go pick up the order,” he said. “What the consumer thinks is that it is a pizza.”

Or a beer. Or an anything. The point, he noted, is that the customer isn’t thinking about a channel, they are thinking about an outcome they want – and looking for the method that gets them there fastest. In a competitive field, Drizly stands apart because it can do that – and can do it more often and in more places than anyone else in the race.

“The more we can provide the customer what they want, the more what we are doing is all for the good,” said Simon. “The winners in retail will be the ones who get their stores enabled to help the consumer pretty much wherever they are.”