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A rough ride for direct-to-consumer spirits shipping

With Uber’s culling of Drizly, we examine the state of direct-to-consumer shipping in the US, and find there is much work to be done.

One of Speakeasy’s warehouses
One of Speakeasy’s warehouses

Later this month, US alcohol delivery service Drizly will shut down just three years after Uber acquired it for US$1.1 billion. Founded in 2012, Drizly rose to prominence during the Covid-19 pandemic, when buying at home was at a premium. Though that has slowed, in 2023 Drizly still led all alcohol retailers in purchase intent clicks, or in-market traffic, with 41.2%, says e-commerce service MikMak.

While Uber may have always intended to phase out Drizly, migrating its customer base to its own delivery channels, the manner in which it is doing so came as a shock to Josh Jacobs, founder and CEO of Speakeasy, a direct-to-consumer spirits platform that specialises in craft and premium offerings.

“Uber could have certainly acquired a smaller company, or invested its own resources to build out similar infrastructure for significantly less,” Jacobs said, attributing the apparent change in course to a 2022 data breach that exposed 2.5 million customers. “Drizly had such an incredible brand name, that, ultimately, this was a surprise in my mind,” he adds.

Business decision

Derek Correia, CEO of ReserveBar, which, like Speakeasy, focuses on premium products and consumer education, calls it a business decision specific to Uber. “I don’t think it’s indicative of the death knell for beverage alcohol e-commerce,” he said. “There’s always been a product-market fit. Why wouldn’t you want to be able to order alcohol online and have it brought to you like everything else in this day and age?”

Yet, even if Drizly’s sudden shutdown is case specific, there are still strides to be made to make direct-to-consumer spirits shipping, as Correia puts it, a more frictionless experience. One primary obstacle is the way that different states regulate alcohol delivery. While the pandemic saw some states relax their spirits shipping laws, others are less lenient.

“There are some states that, for whatever their reasons, just tend to be much more focused on regulations and certain limitations and guardrails relative to alcohol, that have not embraced e-commerce at all,” Correia says, noting that there is far more leniency in wine e-commerce than there is for spirits. Part of the challenge, he notes, is destigmatising spirits, which are legislated differently as a result of Prohibition-era ideas.

“Over the past few decades wineries lobbied, and they enjoy the luxury of shipping true supplier-to-consumer,” Jacobs added. “For spirits consumers, since e-commerce is so nascent and it’s not as built up, there’s not as much marketing and investment into the space. We as consumers aren’t trained to go online first, at least not yet.”

According to Chris Swonger, CEO and president of the Distilled Spirits Council of the US, 11 states, including the District of Columbia, permit direct-to-consumer shipping for spirits, while 47 allow the same for wine. “It wasn’t really until the past three or four years, with the pandemic, the rise of e-commerce, and the rise of 2,600 craft distilleries, that direct-to-consumer shipping has become more of an imperative to meet consumers needs,” Swonger said.

Logistical hurdle

Another, albeit necessary, logistical hurdle is requiring a legal-age adult to sign for the package. This year, Jordan Tepper, co-founder of Apologue liqueurs, took to LinkedIn sharing a photo of multiple UPS slips indicating he had not been at home to receive a delivery. “E-commerce in bev-alc is broke as a joke, and no one has cracked the nut on how to do it really well,” he wrote, feeling frustrated with the inefficiencies of the system, and the lack of consumer knowledge about its flaws.

“Consumers want spirits shipped directly from the craft distilleries and brands they support, but the three-tier system does not currently allow for that in the vast majority of states,” he said. “A cottage industry of fourth-tier facilitators has popped up to give the appearance of DTC, but adds layers, costs, and inefficiencies to the marketplace, without any noticeable benefit outside of essentially creating an expensive workaround to spirit shipping.”

Tepper agreed that all delivered alcohol should have an adult signature, and said there were ways to arrange for deliveries to go to offices or PO boxes. Yet he alluded to a separate issue of being able to purchase spirits directly from craft distillers, which is a different proposition than the one Drizly, Speakeasy, and ReserveBar provide, pulling bottles directly from store shelves or curating inventory in a manner that remains compliant with the three-tier system of suppliers, distributors, and retailers.

Oregon-based Westward’s Whiskey Club started with two members in 2019, and boasts more than 2,200 today. Kelly Woodcock, who is a partner and vice-president for Westward’s guest experience and whiskey club, says that before Covid-19, they struggled to grow membership because state law required products be purchased in-person and shipped in state. “The law completely lacked common sense,” she said. “Our state regulating body took really swift action, it was almost overnight, where they changed the laws to allow for direct-to-consumer shipping. And that became our lifeline to stay afloat, and allowed us to maintain a relationship with our consumers.”

She says that about 47% of club members live out of the state, and that while reception has been mostly positive, she occasionally gets a customer who becomes angry when their order is delayed. “Because the state-to-state laws are so complex and varied, the consumer doesn’t understand why it’s going to take three, four weeks to get a package.”

Woodcock said that Westward has ambitions to grow beyond Oregon, and that direct-to-consumer shipping remains critical for small and mid-sized spirits companies, but as Tepper notes, it will ultimately be on state legislators to “get with modern times”. Correia, meanwhile, says that ReserveBar is in conversation with regulators and legislators on a monthly basis.

While there may be some resistance to true supplier-to-consumer shipping, the general consensus is that a better e-commerce landscape will benefit all. “There are factions within all tiers that see the writing on the wall, and want to support it and ensure that they’re playing a part in this brighter future,” Jacobs said.

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