Is COVID-19 slowing our alcohol consumption? Hardly; it’s only changing how we get it. In so doing, COVID-19 is forever changing the business of alcohol by forging new habits. Anyone who would argue whether we are creatures of habit need only ask their father to try something different and see if they get any response other than, “This is the way I’ve been doing it for 40 years and I’m happy” – yes, I already see this tendency growing in myself. Ask my wife the difficulty she had when asking to rearrange my office for our home office.
Before all this pandemic stuff, the U.S. population overwhelmingly purchased alcohol from brick-and-mortar retailers. This was in spite of the massive rise in e-commerce. That’s thanks to the U.S.’s complicated regulation of the alcohol industry. However, online alcohol sales have exploded at an exponential rate since the COVID-19 pandemic. The longer social distancing lasts, the stronger habits will become in ordering alcohol online. Although it’s not an easy road, alcohol businesses slow to adapt an e-commerce platform will miss out on billions.
As we start the 2020s, more and more of our lives are conducted in front of screens. COVID-19 is changing our lives, like working remotely becoming the norm and turning parents into teachers. Shopping is taking place increasingly online, not in browsing the aisles. One report from Quantum Metric found a 52% revenue growth rate in online sales for U.S. companies with both brick-and-mortar and e-commerce channels. Some companies, like Nike, are reporting that online sales in China have made up for the stand still in brick-and-mortar sales in that country. The company expects a similar trend in the U.S. and Europe.
Certain parts of the country will be spending the next couple months inside. Based on that alone, the online purchasing trend is unlikely to change. What’s that old adage about habits? Oh yeah, they die hard. “Downloads of Instacart, Walmart’s grocery app, and Shipt increased 218%, 160%, and 124% respectively [on one day] compared with a year prior.” New segments of the economy, including those over the age of 60, are learning how to make online purchases. A survey by Gordon Haskett Research Advisors found that 41% of online grocery buyers in the last 7 days were buying groceries online for the first time.
Due to laws governing the industry, growth of online alcohol sales has been sluggish in comparison to other industries. The three-tier alcohol system in the U.S. generally requires that alcohol manufacturers (e.g., distilleries) sell to distributors/wholesalers who then sell to retailers who then sell to consumers (that’s me!). Not easy to follow, right? There are both federal and state laws to comply with, too. To make matters worse, the state laws and regulations often differ from one state to another. This makes compliance not only within your state costly, but multiply those efforts, if you want to move business across state borders.
To illustrate the slow movement in alcohol e-commerce, according to a 2018 report from IWSR, only 1.8% of the value of all alcohol sales were through e-commerce. In other words, 2018 online alcohol sales were around $4.5 billion when the total market was over $253 billion. This is a huge disparity when you consider that ecommerce is generally overtaking brick-and-mortar in a lot of industries. Even with legal roadblocks, a report by Rabobank showed that online alcohol grocery sales grew over 115% in 2019. This dwarfed the growth of alcohol sales at brick-and-mortar locations. Slow movers toward adopting an e-commerce platform were already poised to lose out on a pie of $7-$15 billion per year over the next few years.
There are several companies in the alcohol e-commerce business already, including Drizly, Boxed, and Whole Foods/Amazon. For example, Drizly works with retailers in 30 states and connects the retailer with consumers via a delivery service. Boxed is the new kid on the block offering a “Costco for millennials” model where alcohol is ordered and delivered in bulk straight to the consumer. The elephant in the room is Amazon. Amazon, through Prime Now, sells alcohol through its retail locations, which includes Whole Foods and others. They now serve at least 30 cities, including New York City, Los Angeles, and San Francisco, as well as smaller markets, like Richmond.
Favor fortunes the bold. Companies in the alcohol e-commerce, such as those mentioned above, are reaping the rewards of early entry into the field. Drizly’s sales recently increased 300% over sales from earlier in the year, with each order being an average of 25-50% larger than normal. Winc, a direct-to-consumer wine club, reported a 578% weekly increase in new members and over 20,000 new members added daily. Once the bars were closed in New York City, Minibar saw a 131% increase in sales.
These big increases may not continue at the same rate when restrictions resulting from COVID-19 relax. Still, not all those customers who have shifted to online are going back. Even if half of them remain, it will cause a seismic shift in the balance between brick-and-mortar and online sales. The longer we stay at home, the greater the shift there will be in the market. The once $4.5 billion piece of the pie that represented e-commerce sales will get much closer to the $253 billion pie.
The numbers reported in the wake of COVID-19 mean it’s time for sellers to develop an e-commerce strategy and to invest in establishing one. That could mean working with an existing platform, such as Drizly, or determining how to do it on their own. Either way, alcohol is going online in a big way. Time to get to work!