Why more retailers are raising a glass to alcohol delivery | Rabobank

Why More Retailers Are Raising a Glass to Alcohol Delivery
by Jessica Dumont, April 29, 2019

It takes just two clicks for shoppers to add six bottles of red wine from Thrive Market’s curated collection to their online grocery cart.

On Instacart, customers can pick a local store and load up their cart with craft beer or a few bottles of wine in two or three clicks.

As companies continue to expand their e-commerce offerings, adding adult beverages to their offerings can drive sales in a high-ticket category that’s conducive to home delivery — from stock-up trips to fill out the wine cabinet to last-minute orders before a party starts. It can also be an e-commerce entry point for consumers who haven’t yet tried online grocery shopping.

However, with various licensing requirements for beer, wine and spirits as well as drastic differences among local and state laws governing alcohol across the U.S., the alcohol delivery landscape has been a challenging one for retailers to navigate. In many cases, antiquated laws don’t address the on-demand delivery economy that exists today. 

As grocers figure out what’s permissible in their service areas and companies that streamline fulfillment and compliance spring up, alcohol delivery is picking up pace. U.S. online alcohol sales hit $1.7 billion in 2017, according to Rabobank. And though online grocery currently accounts for just 5% of all online alcohol sales, Rabobank predicts that online grocery could become the most important driver of alcohol sales in the coming years.   

What’s driving the increase in online alcohol? 

While it may be obvious that grocers should offer alcohol as part of their e-commerce efforts, figuring out the appropriate licenses and laws have made it a secondary addition as they ramp up online grocery. As e-commerce offerings become more robust and more shoppers move their purchases online, demand for alcohol delivery has increased. 

Competition has also driven grocers to expand into alcohol delivery. Amazon jumped into the game back in 2015, while alcohol startup Drizly, the market leader in booze delivery, launched same-day service in 2013 and now operates in more than 100 markets. Thirstie recently raised $7 million in venture funding. 

As the market expands, grocers have the advantage of being a one-stop shop for customers. According to Andrew Nodes, vice president of retail accounts at Instacart, alcohol accounts for almost 10% of online sales for grocers that have enabled it through the service. Basket size increases by almost 15% when alcohol is in an Instacart shopper’s basket, he said.​

“Consumers, if they’re going to order online, they want all their groceries available to them,” said Caleb Bryant, senior beverage analyst at Mintel​, in an interview with Grocery Dive. “Grocery stores sell alcohol, so it’s necessary for them to make that part of their offering.

From 2016 to 2018, Wine.com and Drizly were the leaders in alcohol delivery sales, with just over 19% market share each, according to Slice Intelligence. Safeway (2.8%), Harris Teeter (2.6%)  and Walmart (2.3%) were the only grocery retailers among the top 10 alcohol delivery providers in that time period.  

Instacart has made significant gains in the alcohol delivery space recently. In March, the e-grocer announced the expansion of same-day alcohol delivery to reach 14 states and the District of Columbia, with more than one-third of Instacart’s 300 retail partners now including alcohol in their grocery assortment on Instacart. The company is also working to add alcohol delivery with retail partners in Nebraska, Michigan and New York.

Getting there wasn’t easy. Reports show that Instacart tested alcohol delivery as early as 2012 in California, but encountered issues over liquor licenses. The e-grocer officially began alcohol delivery on a limited basis in a handful of markets in 2014. During that roll-out, Instacart faced regulatory hurdles in the state of Washington, and removed alcohol from its offerings as it worked through the issues.

With its latest expansion, Instacart has cleared these compliance hurdles and is working with grocers to integrate alcohol into their offerings. 

“It’s wanting to have that full grocery shop, which includes alcohol,” Nodes said.

Online natural grocer Thrive Market made a foray into alcohol delivery last fall, launching a collection of clean wines that are free of more than 70 additives and are either organic or biodynamically farmed. Last fall, Kroger launched wine delivery in 14 states with a range of selections priced below $20.

While focusing on wine alone could be limiting, according to Rabobank, online grocery is “well-suited to wine sales” because 44% of wine purchases are made at large grocery stores.

Nolan Green, chief of staff for Thrive Market, said Thrive plans to stay focused on wine for the time being, though it will look to expand into other alcohol as the team continues to understand the regulatory landscape.

So far, the response has been enthusiastic, with wine sales growing by 65% in the last month alone, according to Green. The company works with a master sommelier, one of fewer than 300 in the world, Green said.

“The order rates are crazy, the uptick has been insane,” Green told Grocery Dive in an interview.

While Instacart offers same-day alcohol delivery through its retail partners, Thrive’s wine delivery time varies by location, but shipping is free for all wine orders. Green said the goal is to focus on eco-friendly shipping, offering wine in four- or 12-packs. 

Compliance is key behind the scenes

The dynamics of alcohol delivery are complex as retailers — who already grapple with a patchwork of alcohol laws — must now grapple with another layer of regulations along with delivery logistics and product assortment.

Some states and counties that allow alcohol sales inside stores ban them from online sales. Retailers and service providers must also be able to verify customers’ age during delivery, requiring additional training, technology and compliance steps. According to the Rabobank report, more than two-thirds of the U.S. population lives in areas where the sale of spirits is restricted or prohibited in grocery stores.

At the same time, alcohol laws are changing, indicating the market can open up further for both store and online sales. Colorado just passed a new lawpermitting the sale of “full-strength” beer at grocery stores statewide, while Pennsylvania just recently began permitting the sale of alcohol at grocery stores.

The need to comply with varying laws and regulations is a hurdle to alcohol delivery for retailers, sources said.

“It’s a huge challenge,” Green said. “We’ve chosen to work with a fully licensed fulfillment partner who is able to ship to most of the contiguous U.S. There are about 14 states that we don’t ship to. Together, we take a pretty conservative approach to that.”

While Thrive curates all its wines and dictates the standards, Green said its fulfillment partner helps the company work through the logistics of compliance.  

To untangle challenges and capitalize on the opportunity, many grocery companies are, like Thrive, leaning on secondary services and e-commerce providers to help facilitate alcohol delivery, while maintaining the face of their brand to consumers.

H-E-B delivers alcohol throughout Texas via on-demand delivery company Favor, which it owns. Albertsons, Publix and Schnucks partner with Instacart for alcohol delivery as part of their larger grocery offering.

Meijer, which partners with Shipt for e-commerce fulfillment, has also added craft beer and wine to its online grocery offerings for customers in Ohio. Giant Eagle is trying out alcohol delivery on its own with the recent launch of its BeerVan, which will deliver beer within two hours to customers in the Pittsburgh area.

Instacart has a dedicated compliance team to navigate legal parameters and operations, Nodes said, which helps the company understand the complexities of alcohol delivery.

“We do a lot of diligence around compliance, around the local regulations, around understanding the different laws which are involved,” Nodes said. “We go through and do that very thorough diligence to understand where we can deliver alcohol, when we can deliver alcohol, how much alcohol we can actually deliver.”  

Kroger and Boxed have partnered with Drinks, a company that offers a compliance program that handles the logistics and regulations of wine delivery for retailers. Retailers can plug directly into Drinks for product curation, supply chain, compliance and technology requirements while still maintaining their specific footprint, store traffic and marketing power, CEO Zac Brandenberg said. 

“Everything runs through our compliance engine, which enables us to determine what products are available to be sold or to be promoted in different regions, in different states, in different consumer segments, however it needs to be restricted or categorized,” he told Grocery Dive.  

The company also handles all of the associated reporting, required identity checks, volume limits and the myriad details that go into beverage and alcohol compliance, which allows its retail partners to focus on promotion and marketing of their wines, Brandenberg said.  

The payoff: Rich data and higher sales

As they strengthen their online alcohol offering to keep customers spending with them, retailers are beginning to see a payoff. 

For one, selling alcohol online allows retailers to collect customer data and deliver a more customized experience than they can offer in store. According to Bryant with Mintel, retailers can utilize that data to personalize offerings, provide targeted recommendations and drive experimentation among shoppers. For example, Bryant said that recent research from Mintel found that only 9% of spirit drinkers have ever purchased a spirit online.

“With spirits in particular, it’s difficult to motivate consumers to try an unfamiliar brand because it’s at that higher price point,” Bryant said. “But if you have their purchasing habits, you can make much more targeted recommendations … to motivate them to try an entirely new type of spirit.”

Brandenberg agrees that data is important, but even more important is the customer relationships that precede an online alcohol purchase. He said he sees grocers succeeding in alcohol delivery because they have been in the space for many years, and they have relationships and an understanding of the supply chain, product quality and which products are going to work.  

“All the consumer data they have on their existing retail customers as to what sort of wines are going to sell at what price points, what varietals,” Brandenberg said. “These are things that give them an advantage, and if they can leverage that data, and those relationships with consumers to service them on wine, then they’re going to have success.”




Second, and ultimately the most important factor, is the boost that retailers see to their bottom lines when alcohol is available as part of their e-commerce efforts. 

“It’s a growth driver for our retail partners, and it’s one of the reasons that they do push to have more alcohol available and more states available,” Nodes said.

Thrive also reports seeing best-in-class reorder rates, and has started to lean into its wine offering even more aggressively, Green said. This is, in part, because of customers’ excitement about the curated product, and also because Thrive goes far up the supply chain to work directly with producers, which cuts down on middleman fees and allows the company to sell wine to members at a lower price point.

“Another reason why we’ve been able to see great reorder rates and great excitement is because we’re celebrating … the farmers and winemakers, and our members are excited about that,” Green said.