Direct-To-Consumer And Traditional Wine Retailing Are Not Rivals, Says An Expert

The e-commerce company, Drizly claims it has produced the first-ever study of U.S. independent alcohol retailers of the bricks and mortar persuasion. The report says only 14% of independent retailers stock their beverage alcohol shelves based not on trends but on in-store sales activity.

One key finding of Drizly’s survey is that participants view short-term business health in a positive light but long-term health registered mixed results. Another finding is that the Millennial influence has social media marketing pushing aside “tried-and-true in-store events.”

In response to the Drizly statistics, Alex Koral, regulatory counsel at Sovos, the company that powers ShipCompliant, which facilitates Direct-to-Consumer (DtC) regulatory compliance for beverage alcohol producers says, “There’s no question that the retail landscape has changed dramatically in the last couple of decades, and the alcohol market is changing in kind. The “Amazon effect” has heightened consumer expectations even as apps like Instacart, UberEats and Drizly have democratized delivery.” 

Koral understands the survey finding: “…while older generations may have looked to a particular critic or publication for guidance on which items to purchase, Millennials and Generation Z tend to care more about the retail experience…they want to hear directly from the brand through social media to learn their backstory and what makes them special to develop a personal connection. In addition, they want that experience to extend both online and in-store, which has to shape how retailers market themselves.”

Drizly claims 70% of survey respondents see social media “…as the most effective marketing tactic for making and retaining customers.” In-store events are next in line (64%) and delivery service follows (62%)—beverage alcohol delivery is Drizly’s core business, via its website and mobile app.

Koral points out, however, that many states have laws and regulations to inhibit the alcohol industry from engaging in online retailing in the same way as other businesses. He offers as example, “…licensing requirements get in the way of certain delivery models; advertising restrictions limit interaction via social media; the direct-to-consumer shipping channel itself only works where states have carved out specific permissions for it. So while there are many aspects of the modern retail environment that consumers and sellers would like to take advantage of, it is not always — or even often — that they are available to the beverage alcohol industry.

When he looks at the two sales channels—DtC shipped wine and bricks-and-mortar retailer sales—Koral sees two separate retail models. He uses the cost of a bottle of wine as an example, “…$40 and $11 in DtC shipping and package stores, respectively.” He says, “This reflects a key difference in the consumers who engage in each retail channel and the products they purchase.” 

In Koral’s analysis, a DtC purchase is “invariably” more expensive and “requires more time than buying wine at a package store, because of shipping costs and delivery times.” In his view, consumers make a greater investment in online shopping; they are not casually perusing aisles and “…picking up a bottle for a dinner party.” He identifies them as primarily wine-club members taking advantage of limited allocations, or deeper wine consumers seeking a label not available at a local bricks and mortar store. “In many cases,” he says, “DtC shipping succeeds where the local three-tier system is unable to fulfill consumer demand, because the wines are coming from smaller wineries that struggle to get the attention of local distributors.”

ShipCompliant claims in the 15 years since the Supeme Court opened DtC to wineries, states have added more than $500 million to their coffers through sales and excise taxes, plus revenue from fees, licenses and permits. Koral says, the DtC channel has captured about 10% ($3 billion in 2018) of off-premise retail sales, and wineries in the small winery category (5,000 to 49,999 annual case production) dominated the winery shipping channel in 2018, to the tune of 43% of total cases shipped and 46% of the value of wines shipped. For these wineries, the DtC shipping channel may be their only chance at a national sales model.

Still, Koral points out that DtC and bricks-and-mortar retailing, “…should not be considered rival businesses…consumers will still go to local stores for convenience and cheaper prices, and they will still go to boutique shops to get expert advice directly…and while two-thirds of survey respondents told Drizly that 2018 beverage alcohol bricks and mortar sales beat 2017, they also acknowledge considerable room for DtC growth.