Liquor Distributors Invest in Tech Firm to Boost E-Commerce in Alcohol

Wine & Spirits Wholesalers of America buys into Drizly, a startup with a delivery app

By Tripp Mickle May 12, 2015
The largest liquor distributors in the U.S. are investing in a startup technology company, hoping it can accelerate e-commerce in the alcohol industry. The Wine & Spirits Wholesalers of America, a trade association representing more than 350 distributors, said it acquired a minority stake in Boston-based Drizly Inc., a tech company started in 2012 to enable consumers to place orders for alcoholic beverages from their phones. The 72-year old association declined to disclose the size of its investment but said it gets a seat on Drizly’s five-member board of directors. Wine & Spirits Wholesalers will encourage retailers nationwide to use Drizly and help the startup company navigate local laws, as it tries to increase the number of cities in which its app provides door-to-door delivery. Drizly said it now plans to increase the number of cities it adds to its network this year to 18 from 12, putting it in more than 30 cities nationwide and boosting total retail sales it handles to more than $100 million by year’s end. While home delivery of alcohol has been legal in many states for years, most retailers have chosen not to offer it. Online ordering remains relatively uncommon. That partly reflects issues like the need to verify that people placing orders are legally old enough to purchase liquor. Drizly has solved that problem, it says, by equipping deliverymen with iPhones carrying software that can scan an identity document and determine it is valid. Trade association members said they took the unusual step of investing in the startup because consumers increasingly expect to be able to use their phones to order products and have them delivered, said Danny Wirtz, president of Wirtz Beverage Group, the nation’s sixth largest distributor by sales. Mr. Wirtz said it was time for the alcohol industry to innovate, and Drizly offered a “great solution to retailers, to buyers and to users to get product responsibly to consumers” on demand. But the Wine & Spirits Wholesalers’ investment isn’t just about getting alcohol to consumers when and where they want it. It is also about protecting wholesalers’ position in the alcoholic beverages industry from potential market disrupters like Amazon. Wholesalers exist in part because laws after Prohibition required producers sell alcohol to distributors who, in turn, sell to retailers. Distributors say they serve as a buffer to prevent suppliers from owning retailers, a common practice before Prohibition that limited consumer choice and was blamed for excessive drinking. E-commerce disrupted that chain in 2005. The Supreme Court that year struck down laws in New York and Michigan preventing direct shipping of out-of-state wine. About 40 states now allow consumers to order wine directly from wineries. Wine-to-consumer shipments topped $1.82 billion last year, according to Ship Compliant, a software company that helps facilitate direct wine shipments. Wholesalers, who still handle more than $35 billion in wine, say they don’t want a similar disruption coming to the liquor business. Investing in Drizly allows them to head that off by giving them a stake in a delivery service that preserves the supplier-wholesaler-retailer chain known as the three-tier system. Wine & Spirits Wholesalers’ President Craig Wolf said a “socially sensitive product” like alcohol “needs to be properly regulated and controlled” as the three-tier system currently does. He said his organization evaluated more than 60 companies delivering alcohol and found Drizly’s “business model to be three-tier compliant and not disruptive but complementary.”