Online Boom Behind Uber’s Drinks Push

It’s an app-eat-app world out there these days, as drinks delivery app Drizly discovered this week when it was swallowed whole by an unlikely competitor.

“There are obvious synergies for both organizations,” said Bourcard Nesin, a beverage analyst at New York’s Rabobank, talking about Uber’s purchase of Drizly. Monday’s purchase was no surprise given Uber’s tendency to constantly add new services, such as Uber Eats, to its ride-share platform, however the price paid by Uber certainly was. The sale dinged in at $1.1 billion, 90 percent of which will be paid in stock and the balance in cash.

What the deal does indicate is that “retail platforms and tech companies in the food and beverage space are leveraging beverage alcohol ecommerce to find growth, improve margins and attract high-value customers”, Nesin said. He goes on to note that “all these investments from retailers and tech platforms demonstrate that they are realizing that beverage alcohol is a critical component of people’s routines”.

In typical tight-lipped Uber style the company declined to comment on the purchase, instead highlighting a press release that notes that: “Drizly plans to innovate and expand independently in its fast-growing and competitive sector, while also gaining access to the advanced mobile marketplace technologies of the world’s largest food delivery and ridesharing platform.”

The release went on to say: “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.”

When questioned about how the deal might impact Drizly’s wine selection in the future, Scott Braun, the Boston-based chief marketing officer of Drizly – which serves more than 180 markets according to its site – said: “We expect our relationship with Uber will only increase the amount of selection consumers are able to view and buy on Drizly both from more stores on the platform and improved technology to surface what is on the retailers’ shelves.”

A clean slate

Observers say that the stay-at-home orders of the pandemic have spurred close to decade of growth and change in consumer buying patterns in the arc of just one year.

“Clearly it is a strategic opportunity,” says wine industry consultant Steve Raye, president of the consulting firm Bevology. “It is indicative of the rapid evolution of ecommerce in the beverage industry and the rapid escalation, expansion and acceleration of ecommerce in the drinks industry.”

Some analysts think the purchase will provide additional clarity about profitability and trends within the ecommerce world of alcoholic-beverage sales. Drizly previously only released information that it cared to share, notes the Napa-based Jon Moramarco, the managing partner of bw166, a drinks industry analyst.

When the deal closes, Uber having been public company since 2019, will have to report all its financial activities. “So we will actually have more info on what Drizly has been doing,” adds Moramarco.

The move is also likely to be a good one for the Washington, DC-based Wine & Spirits Wholesalers of America (WSWA), as the organization wants to make sure that all beverage alcohol ecommerce platforms are three-tier compliant, said Stephen Rannekleiv, Rabobank’s global sector strategist for beverages. During the pandemic, he notes, wineries have been ramping up their direct-to-consumer (DtC) sales forces; unlike DtC sales, “Drizly still goes through the three-tier system”.

Michael Bilello, WSWA’s senior vice president of communications and marketing, heralds the deal as being a positive factor in helping to enforce the three-tier system. “The Uber and Drizly deal signals a bright future for local licensed retailers to deliver consumer convenience on demand, with a wide product offering that is three-tier compliant,” he said. This will also make state regulators’ ecommerce work managing issues like underage access, tax evasion and counterfeit product far more manageable given their limited resources, he added.

New services and negatives

As Uber already has the delivery services in place it will likely encourage customers to order wine with their food on the Uber Eats platform. “They will tag team food and wine,” says Moramarco. When you order Thai food the Uber Eats app will then ask if you would like a bottle of Gewürztraminer with it; it is a no-brainer.

© iStock
| The acquisition of Drizly should dovetail nicely with the Uber Eats platform.

Whether that will help or harm regular operators has yet to be seen. Whatever wine sales restaurants were making, along with their delivery food orders at on-premise pricing, will likely come to a screeching halt. However local wine retailers will stand to make a profit as they will suddenly be presented with an opportunity to sell into – and alongside – food orders from their neighboring restaurants without having to do the consumer marketing.

The skew to online purchasing of everything during the last year of the pandemic may abate as more people are vaccinated this year and next and become more willing to shop in person. However, many of the new buying patterns are likely to stay in place.

The Uber acquisition is “one more step in changing how people buy wine”, adds Raye. It is one he bets that is likely to “ultimately hurt the retailer and help Uber and Drizly”. It is also likely to continue to skew the market towards larger brands, a trend that has been part of the ongoing pandemic shopping patterns, he says.

This purchase does signal that “retailers can no longer own the customer”, adds Raye. Online sales platforms, Drizly included, offer consumers the opportunity to price and brand shop at different stores. So retail loyalty may become a thing of the past.

Raye also notes that the selection available should not diminish, as “Drizly offers the equivalent of what retailers have in their inventory in terms of brands”. However, as consumers make use of the new purchasing platform the burden is now on the owner – in this case the wine brand – to market it, he adds.

While many analysts believe that bottom-line consumer pricing for wine may not change, Moramarco cautions that the sales pie is only so big. “Someone is going to have to eat that extra cost,” confirms Rannekleiv.

It is not clear if Uber will just absorb Drizly’s markup or if the company will add additional fees to the service as it has with Uber Eats, where customers pay for not only the food, but the tip and an Uber Eats’ fee. Sometimes restaurant delivery fees come out of the restaurant’s bottom line and organizations like the Golden Gate Restaurant Association – which represents Bay Area eateries – have encouraged the public to order directly from their local restaurants in to better support them over the past year.

Not everyone agrees that prices may increase with this acquisition. “The more retailers there on the platform the lower the prices will be for consumers,” says Nesin. Drizly’s Braun confirms that the company expects “no impact on pricing”.

Many also wonder if Drizly will continue with its previous shenanigans such as initially offering its services to retailers for free and then starting to charge a fee, as was reported on Wine-Searcher in June of 2017. Drizly did not respond to a request for comment on this previous business practice.

What lies ahead

Uber’s press release notes that “the acquisition is subject to regulatory approval and other customary closing conditions and is expected to close within the first half of 2021″. WSWA will receive their Uber share in stock, according to Barkley J. Stuart, an executive vice president of Southern Glazer’s Wine and Spirits of America. “”WSWA has agreed to the acquisition of Drizly by Uber. WSWA will receive stock in Uber when the deal closes.” Stuart is a past WSWA chairman and served on Drizly’s board of directors.

The logical next move, according to Raye, “is for someone to acquire Minibar”. The New York-based ecommerce platform is considered to be Drizly’s biggest rival. Minibar CEO Lindsey Andrews would not directly comment about being a possible target for acquisition but noted that “here are very few independent players in the on-demand alcohol delivery space and now, with this acquisition, there is one less”.

She went on to say: “This is great moment in time for our industry, further validating the alcohol delivery market as well as the marketplace business model as a whole.”

Only time will validate that perspective.