On-demand drinks delivery sector booms
Source: The Spirits Business
by Amy Hopkins
27th November, 2015
On-demand alcohol delivery services are taking the US by storm. But how could they impact the future of the drinks industry?
When Uber expanded into international markets in 2012, it radically changed the world’s transport industry for good. The app, which allows users to submit taxi requests to “sharing economy” drivers at the touch of a button has raised billions of dollars in funding and now operates in 58 countries. A number of enterprising start-ups have attempted to imitate Uber’s cutting-edge business model, capitalising on modern consumers’ insatiable desire for speed and convenience.
Even one of the world’s oldest, most highly regulated industries – alcohol – has sought what many are calling “Uberfication”.
“This is the beginning of this industry’s move into the technology age,” says Nick Rellas, CEO and co-founder of Drizly, the app-controlled on-demand drinks delivery service that has been rapidly gaining pace across the US. “The idea of on-demand is almost ubiquitous these days. There’s certainly an opportunity for the drinks trade here and we are starting to see companies taking advantage of this.”
Founded in 2012, Drizly is a service that connects users to their nearest alcohol retailer, allowing them to receive orders at their doorstep in 20-40 minutes. Backed by angel and institutional investors, the firm has raised millions of dollars in seed funding and re-launched earlier this year with a new brand identity and platform designed to emulate the user experience of Amazon, Netflix and Spotify. While its users do not pay any more for their beverages than the prices listed by retailers, the stores themselves must cough up a variable, monthly “license fee” to Drizly.
Other on-demand drinks delivery services, including Thirstie, Minibar Delivery and Swill, have sought aggressive expansion, but Drizly continues to dominate the sector, growing at 20-25% each month. Rellas says of the company’s genesis: “My co-founders and I had a thesis, which subsequently became an obsession, about why technology could not mix with highly regulated industries such as alcohol. Then we started using Uber and experienced an ‘ah-ha’ moment.”
For Rellas and other innovators in the sector, until now the alcoholic drinks industry has been left in the dust when it comes to technology-focused marketing and distribution, perhaps due in large part to the immovable three-tier system in the US. Introduced in the wake of Prohibition, the producer-wholesaler-retailer model means that only licensed retail stores can sell alcohol to consumers.
However, innovative platforms such as Drizly allow the system to remain unchallenged and indeed “uphold the laws and the spirit of the three-tier system to its most stringent practice”. Such companies are able to do so by functioning simply as a third party software platform, connecting retailers to consumers but never actually delivering goods themselves. One of the most ardent supporters of the model, the Wine & Spirits Wholesalers of America (WSWA), even acquired a small minority interest in Drizly earlier this year, enabling it to expand into more states.
Rellas says the “strategic partnership” shows that “technology can be an ally of mature, regulated industries like alcohol – not a disruptor”.
“The vision for Drizly has always been to accelerate wholesalers, suppliers and retailers through the consumer’s shift to more digital and mobile commerce,” he explains.
Jeffrey Solsby, spokesperson for the WSWA, adds: “For wholesalers, the alliance provides an opportunity to unite decades of wine and spirits wholesaler experience with the dynamic technological changes that are reshaping the beverage alcohol industry.”
While the three-tier system exists across the United States, the country’s liquor laws vary greatly state-by-state, presenting another level of complexity for such firms. “Some states prohibit certain aspects of the alcohol industry, but I saw this as an opportunity, not a barrier,” states Eric Wong, co-founder and CEO of Swill, an on-demand service that focuses on New York and is now available on the iWatch.
“Technology and the alcohol industry will come together whether people like it or not, so we wanted to accommodate demand within the law and not disrupt it. We want to work along the grain and not against it.”
While the US has some of the most complex and stringent alcohol regulation laws in the world, the country has witnessed the fastest growth of the on-demand drinks delivery sector than any other. Wong explains why he believes this is the case: “There’s a huge tech movement in the US and millennials do not pay attention to the same channels as older generations. It is much more inherently viral here and trends catch momentum easily.”
On-demand has even extended to the mixed drinks sector with the launch of DIY “cocktail kit” companies. Cocktail Courier provides packages curated by mixologists on the online bartending community ShakeStir, complete with instructions on how to shake or stir the serve. “The company has exceeded our expectations and our orders continue to grow,” says Cocktail Courier co-founder Scott Goldman. “We are up 100% month-on-month. Cocktails generally follow the trajectory of the food industry, and on-demand is huge here.”
Meanwhile, SaloonBox – a weekly cocktail subscription service – is planning to launch this autumn following its listing on crowd-funding website Kickstarter earlier this year. “We’re creating an exciting opportunity for retailers,” says founder Samantha Spector. “Our retail partner will be able to reach a much larger audience than is currently possible. This is the tide that will lift all boats and get more people excited about making cocktails.”
Nevertheless, as with most market-changing innovations, on-demand drinks delivery services are not without critics. Following the launch of New Zealand food and alcohol delivery service Quenched in May this year, lobbyists slammed the alleged effect such firms could have on the health of consumers.
According to Stephen Child, chair of the New Zealand Medical Association: “[Alcohol is] a toxin and an addictive drug. Controls on its sale are there for a purpose – to try and reduce alcohol-related harm. Making it easier to access – such as with on-demand alcohol delivery services – works against this and does nothing to encourage responsible consumption.”
Yet David Loveridge, co-founder of Quenched, claims that the company is a “leader” in the “safe and responsible supply of alcohol”, with ID checks and verification controls that “go beyond what might otherwise be used in a supermarket or liquor retailer”. His thought is echoed by a number of on-demand alcohol providers who claim to take an active role in promoting responsible consumption.
For Loveridge, the key task is to ensure his business model can meet soaring demand. “The main challenge for us going forward will be building a scalable model that consistently delivers on its promise.” With their eyes set on expansion, this will be a problem facing other companies, in addition to the nuances of alcohol legislation and an increasingly competitive market. But who said Uber’s road to success was easy?