Why Uber Will Not Be Challenging How Alcohol is Sold and Distributed
Since the Uber purchase of local alcohol sales platform Drizly for $1.1 billion earlier this month, there has been talk and speculation that the food and people delivery service will be in a position to disrupt the three-tier system of alcohol distribution. While this would be a nice and welcome development, there is virtually no chance of this kind of disruption occurring as a result of this merger. Here’s why.
First, it’s essential to appreciate the “three-tier system” for what it is. While often the term “three-tier system” is used as a euphemism for the totality of a state’s alcohol regulations and laws, in reality, the most important elements of a three-tier system is how it 1) separates ownership among the three tiers (producer, wholesaler, and retailer/restaurant) and 2) how it mandates by law that producers sell to wholesalers and that retailers only purchase their inventory from wholesalers.
The three-tier system describes how alcohol is legally and physically routed to retail outlets, not how consumers purchase it.
Drizly’s business model (taking orders via its app then forwarding those orders to liquor stores that then deliver the contents of the order to nearby customers) doesn’t care how alcohol retailers buy and receive their inventory. Drizly’s model doesn’t care if retailers are mandated by law to only purchase inventory from local, state-based wholesalers. It only cares what products retailers have in stock.
The integration of Drizly into the Uber Eats platform will serve to expose Drizly users to the food delivery options offered via Uber Eats, while Uber Eats gets to expose its users to the inventory of local liquor stores. It’s a matter of local delivery consolidation.
What does seem likely is that Uber will, where it needs to, work to change laws to allow non-employees of liquor stores (Uber drivers) to deliver wine, beer, and spirits from liquor stores to consumers. In nearly every marketplace where Drizly operates it is an employee of the liquor store that delivers the alcohol to customers who placed orders via Drizly. However, this kind of legislative and regulatory changes in no way impacts how retailers obtain inventory or from whom they obtain inventory.
But the larger point here is that Uber’s purchase of Drizly does nothing to widen the diversity of product choices for a consumer whether they use Uber/Drizly or not. The merger does not bring more, diverse, craft or hard-to-find products into a marketplace. The only way this happens is if wholesalers begin to represent more small producers (this is not happening and has not been happening for years), if state laws are changed that allow consumers to receive shipments from out-of-state retailers who have access to products not available locally, or if state laws are changed to allow retailers to purchase inventory directly from producers and importers located both inside and outside their state.
Nothing about Uber’s purchase of Drizly will lead to these changes.
It’s worth noting here that early on in Drizly’s existence it took an investment from the Wine & Spirit Wholesalers of America (WSWA), a national trade association for the country’s dwindling number of, but powerful, middleman wholesalers. WSWA has and continues to be a primary opponent of consumer access to alcohol products that are not first sold through wholesalers and to the interstate shipment of alcohol to consumers.
Moreover, upon its investment in Drizly and ever since, WSWA has touted Drizly’s facilitation of local sales and retailer delivery of alcohol as the future of alcohol e-commerce. This is a head fake of an argument. Real e-commerce occurs when consumers can access products via the internet that may or may not be located and shipped from a location in the consumer’s state. Drizly is a delivery facilitation business, not so much an e-commerce facilitator. From its earliest days, Drizly never threatened the state-mandated use of a wholesaler or aspired to open alcohol shipping laws and this was glaringly apparent by WSWA’s investment in the company. Uber has no incentive, business or ideological, to pursue changes to the three-tier system.
What’s almost certainly true about the Uber purchase of Drizly is that the original ride-sharing company overpaid for the privilege of acquiring Drizly’s delivery facilitation service that up to now has yet to make a profit. Drizly was purchased by Uber after a gigantic increase in Drizly’s business due almost entirely to the COVID-19 pandemic and consumers’ need and desire to not venture out in public. That desire to avoid crowds is going to wane eventually and Drizly/Uber will not be able to sustain the kind of growth it saw in 2020. In fact, its transactions are going to contract over the next 12 months.
So, no. The Uber purchase of Drizly will do nothing to help reform the “three-tier system”. On the other hand, it will work to expose more people to the fact that they can remain firmly ensconced in their pajamas and still get more Bud Light delivered to their door. That’s something.