Is there any industry that Amazon won’t seek to disrupt and dominate? The e-commerce and brick-and-mortar powerhouse dominates one industry after the next. That’s partly reflected by Jeff Bezos’ reported net worth ($110.2 billion) and the company’s gigantic stock price ($1,761.33/share). Amazon’s prior attempts to dominate the alcohol industry have not been so successful. A recent Supreme Court (SCOTUS) and government support is changing the alcohol landscape. Amazon is getting back in the alcohol game and, this time, it will succeed in becoming a dominant industry player.
There’s a reason “too big to fail” companies have yet to spring up in alcohol. To start, the 21st Amendment of the U.S. Constitution ended Prohibition in the United States. Regulation of alcohol was left to the states pursuant to the Amendment’s language: “The transportation or importation into any State, Territory, or Possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.”
States largely adopted a “three-tier system” of alcohol distribution. Alcohol producers could only sell to distributors, who could only sell to retailers, who could sell direct to consumers. Furthermore, an alcohol manufacturer could not also be a retailer (e.g., liquor or grocery store) and could not provide anything of value to a retailer (with limited exceptions). This separation of manufacturer, distributor, and retailer was aimed at keeping each tier independent. It also created three levels of taxation (nothing certain in this life, except death and a ton of taxes, right?). Violators of this separation are subject to heavy penalties. Just look to what happened to Joe Bastianiach when it was discovered that Eataly Wines also owned several wineries in Italy — a big no-no.
Even so, strict separation of the tiers has been eroding over the years. Many states now allow breweries to distribute their own product (e.g., sell directly to retailers, like grocery stores). These breweries may also sell direct to consumers (e.g., consumers can buy cans, crowlers, growlers, etc. directly from a brewery). So, while limitations apply, these breweries may now operate as a manufacturer, distributor, and retailer. Further deregulation is occurring because craft businesses provide a significant amount of jobs and taxes. This has placed state and local governments in a proverbial arms race to create more hospitable environments for craft alcohol producers. That means less regulation.
Amazon has tried three times to enter the alcohol industry. After all, there is a large human population that enjoys a nice adult beverage from time to time. Why wouldn’t Amazon want to deliver that directly to your door? Amazon was not deterred by its failed attempts, but it did lead them to reformulate strategy. Amazon’s latest attempt at selling wine online ceased at the end of December 2017, but the decision to end the business was communicated to consumers as early as October 2017. Guess what? Amazon purchased Whole Foods just two months.
Purchasing Whole Foods was part of Amazon’s new strategy to reenter the market. Currently, you can buy wine online from Whole Foods, but there are limitations that you don’t encounter on Amazon.com. For instance, you must use the local Whole Food’s website and are limited that store’s inventory. Not quite the same 1-click, seemingly endless inventory that you find on Amazon.com. The next step was waiting for the legal landscape to change. Amazon did not need to wait long.
On June 26, 2019, in Tennessee Wine and Spirits Retailers Assn. v. Thomas, et al., several Justices were concerned that their decision could lead to an “Amazon of wine”. Still, the majority struck down a Tennessee law that required retail liquor license applicants to reside within the state for 2 years. The decision rested on finding that such a requirement unlawfully discriminated against out-of-state residents.
Since that decision, there have been legal challenges to 21 state laws allowing in-state alcohol manufacturers to self-distribute their product, while not allowing the same right to out-of-staters. If these challenges are successful, out-of-state producers will be able to self-distribute across state lines, further weakening the traditional system. It’s also worth mentioning that Tennessee Wine left states between a “rock and a hard place” because they will now need to think twice about supporting their local alcohol industry through improved laws. Those improvements will likely need to apply to out-of-state competitors, such as Amazon.
Since Tennessee Wine, Amazon launched its first premium spirits brand in the United Kingdom. Amazon also began posting job ads for positions that “help lead state and local engagement and public policy activities related to alcohol regulation [and] … manage consultants, trade associations and coalition partners”. You mean individuals who can assist in continuing to change the three-tier system, right?
Currently, there are alcohol delivery services, such as Drizly and Minibar Delivery, that portray themselves as the “Amazon of Wine” or “Amazon of Liquor”. They do advertise Amazon-like delivery times, including within just hours of order time. However, these services are limited to delivery of product from retailers in your local area. As such, if you live in an area where the local retailers have limited stock, you’re out of luck. Amazon has its sights on creating a platform that has no limitations in product availability. Time will tell whether this next attempt will be successful.