COVID-19 nearly crushed the restaurant and liquor industries. Stay-at-home orders and in-store customer limit restrictions were like taking a knife to butter – they instantly and drastically sliced away profits. Many restaurants tried to survive by turning to takeout.
Liquor stores felt the squeeze as well, with fewer people leaving their homes raising concern about lower sales. For liquor retailers, the answer was online sales. According to IWSR Drinks Market Analysis, global beverage alcohol sales in 20 key markets, including the U.S., declined about 8% in 2020, a far better performance than the consulting firm expected. The U.S. bucked that trend, with volume growth of about 2% in 2020. CEO Mark Meek said vaccines will help the alcohol market recover to 2019 levels by 2024, and perhaps sooner.
“The rise of e-commerce and the efforts by retailers and on-premise operators to adapt to this crisis, coupled with consumers expanding to new occasions, created a dynamic, albeit challenging, new environment for beverage alcohol,” he said.
States ease alcohol restrictions
States tried to help restaurants and liquor retailers survive by declaring them essential businesses and easing restrictions on delivery, including in many cases allowing restaurants to include alcohol in those deliveries.
According to the National Restaurant Association, only a handful of states allowed to-go (off-premises) alcohol sales prior to COVID-19. The pandemic changed that and 32 states plus the District of Columbia currently allow some version of off-premises sales. The group said that 89% of over 3,800 surveyed restaurant operators currently offer the option to order alcoholic beverages with takeout orders, and 90% said they would continue this offering if allowed post-pandemic.
The result has been a boon to on-demand delivery of food and, especially, alcohol. The continued growth of the on-demand delivery market for beer, wine and spirits is the underlying reason that on-demand marketplaces have blossomed in the past year. One of the largest, Drizly, has been able to take advantage of that by selling to Uber Technologies Inc. (NYSE: UBER).
Founded eight years ago, Drizly is an online marketplace for alcohol, providing 60 minutes or less delivery in over 1,400 cities in the U.S. and Canada. The company, founded by CEO Cory Rellas and Justin Robinson, partners with retailers and producers of beer, wine and spirits to deliver their products to customers through the Drizly app.
COVID-19 brought opportunity
“Drizly has spent the last eight years building the infrastructure, technology and partnerships to bring the consumer a shopping experience they deserve,” Rellas said. “It’s a proud day for the Drizly team as we recognize what we’ve accomplished to date but also with the humility that much remains to be done to fulfill our vision. With this in mind, we are thrilled to join a world-class Uber team, whose platform will accelerate Drizly on its mission to be there when it matters — committed to life’s moments and the people who create them.”
Uber is paying $1.1 billion in cash and stock for Drizly. Uber said Drizly’s marketplace will be integrated with the Uber Eats app. The current Drizly app will be maintained as a separate entity.
In a market study of more than 500 adults that own or manage an independent alcohol store released in December, Drizly found that not only did the stores survive, they thrived thanks in part of looser state restrictions that embraced e-commerce sales.
The study found that 78% of retailers reported higher online sales since March 2020. During that time, Drizly doubled the number of locations on its platform to more than 4,000 and saw 350% growth in sales. The study also noted that online sales had grown from less than 5% of total sales pre-pandemic to more than 11% of total sales after the outbreak started.
“It goes without saying that 2020 was an unprecedented year. We feel fortunate to have played a role in helping our retail partners continue to serve consumers during these times, and in many cases, actually grow their businesses,” Rellas said in a press release accompanying the study. “These retailers have a front-row seat to all the happenings in the beverage alcohol industry and have an invaluable pulse on its future. Their experiences this year and expectations for 2021 form the basis of this annual retailer report and are a meaningful barometer for what’s to come.”
According to Crunchbase, Drizly has raised $119.6 million in total funding among 30 investors, including lead investors Avenir Growth Capital, Tiger Global Management and Polaris Partners, across nine funding rounds. Its most recent round was a $50 million Series C closed on Aug. 20, 2020.
One app for food and drink
Following completion of the acquisition, which is subject to regulatory approval, Uber expects to integrate the Drizly marketplace into the Uber Eats app. The Drizly app will continue as a stand-alone product.
Drizly charges a $5 delivery fee for each order, with an additional $1.99 service fee on each purchase. While Drizly’s retailer base does not typically include restaurants, the integration with Uber Eats could open additional doors for expansion, allowing restaurants, where legal, to sell food and beer or wine through the Uber Eats platform.
A spokesperson for Uber declined comment at this time on the transaction, including fee structure and other related issues, citing the early stage of the acquisition. But in a press release announcing the acquisition, Uber CEO Dara Khosrowshahi noted the benefits Drizly’s customer base will gain by associating with Uber’s network.
“Wherever you want to go and whatever you need to get, our goal at Uber is to make people’s lives a little bit easier. That’s why we’ve been branching into new categories like groceries, prescriptions and, now, alcohol,” Khosrowshahi said. “Cory and his amazing team have built Drizly into an incredible success story, profitably growing gross bookings more than 300% year-over-year. By bringing Drizly into the Uber family, we can accelerate that trajectory by exposing Drizly to the Uber audience and expanding its geographic presence into our global footprint in the years ahead.”
There is a risk for Uber, although Wall Street liked the move, sending the stock price up 8% on Tuesday following the announced deal. The PYMNTS monthly Order-to-Eat Tracker found that 59% of Americans have been ordering online from restaurants; 83% said they are not eating in at restaurants as much as they would like; and 90% of baby boomers would like to eat at restaurants more frequently.
While Uber Eats business has boomed since COVID, it still lags DoorDash, which holds a 52% market share, according to Second Measure. Uber Eats held 22% of market share in December, the publication said, with its Postmates division adding another 7%. As more Americans return to restaurants, it has led Uber Eats, DoorDash and other delivery apps to look for more opportunities to grow revenue.
Drizly’s technology includes a proprietary app for ID age verification. App users can order on demand or preschedule deliveries for the future, as well as tip drivers.
Jaci Flug, Drizly’s vice president of regulatory affairs, discussed the on-demand alcohol market with BevAlc Insights – Drisly’s in-house blog. In the posting, Flug noted the complexities of alcohol delivery within the maze of state regulations.
“Delivery laws, in terms of spirits versus beer and wine, depend on if you’re in a control state or not,” she said. “In control states, the state actually sells spirits and private retailers can sell wine and beer. Most of them allow for the delivery of beer and wine from private retailers, but not the delivery of spirits. So in states like North Carolina, Ohio, Virginia and Oregon, you can have beer and wine delivered but you can’t have spirits delivered.”
At the time of publication, 35 states allowed alcohol delivery in some form, Flug noted. She added that e-commerce alcohol sales should continue to grow.
The IWSR research found that COVID accelerated the move to e-commerce, with the market growing 40% in 2020. The firm expects e-commerce alcohol sales to reach $40 billion by 2024.
“E-commerce alcohol sales are growing each year – and have jumped fairly significantly during the last few months. So the more awareness that is there, the more customers will keep turning to it,” Flug said.