Where Is Alcohol E-Commerce Going and Where Has It Been?
Rabobank’s latest report on Alcohol e-commerce shows that such transactions reached $6 Billion in 2021, a 131% increase in just two years.
Now, this $6 billion figure includes e-com sales of wine, beer, spirits and everything else. But the question that goes unanswered is to what degree do e-com sales of alcohol help increase the total sales of alcohol?
In the press release announcing the new Rabobank report (2022 Alcohol E-commerce Playbook) the report’s author, Bourcard Nesin, answers this important question this way:
“E-commerce will be the number-one driver of industry growth over the next decade and a critical component of brand building, awareness, and trial, both online and in-store,” said Bourcard Nesin, a RaboResearch F&A beverages analyst and author of the report. “Companies that fail to proactively invest in their e-commerce teams will struggle to remain relevant and retain market share.”
Does “industry growth” mean organic growth—growth that would have happened whether or not consumers had access to online sales channels? Or does it mean that consumer access to online sales channels will motivate more alcohol sales beyond what would have occurred organically?
I’m going with the latter.
However, Nesin’s more important point is that given the continued acceptance of online alcohol sales by consumers, those sellers that don’t embrace the channel “will struggle to remain relevant and retain market share.”
This is unquestionably true. However, embracing the channel means different things to different sectors. For example, local delivery driven by marketplaces like Uber/Drizly or grocery e-com sales and delivery might give retailers a leg up on competitors in the same geographic marketplace. But what’s notable about this dynamic is that it is nearly impossible for these local stores and groceries to separate themselves by product diversity since they are all purchasing their inventory from the same local wholesalers. Put another way, the online marketplace and grocery online channels are largely a fight over price and convenience. And who doesn’t like a race to the bottom of the pricing column?
In the Rabobank report, Nesin notes that over the past 2 years, online grocery sales and online marketplace sales together grew 271%. This enormous growth is primarily due to pandemic circumstances and increased promotion of the channels, not to mention a more and more crowded field of competitors.
The Case of Independent Alcohol Sellers
But then there are what the Report calls Licensed Specialty Retailers. These are the brick-and-mortar specialty stores (largely focused on wine) that have an online presence and the pure online plays such as Wine.com, WineBid.com, and others. The Rabobank report shows a 151% increase in sales in 2020. That figure is far less in 2021 for the obvious reason that we aren’t talking about lockdowns.
But what is significant to understand about the “Licensed Specialty Retailers” (which is an odd way to name them since all entities that sell are licensed) is that these stores have the largest upside potential where online sales are concerned.
It’s first important to note that the upside potential of which I speak involves selling outside their home geographic region and using common carriers rather than local drivers, to deliver the product. By selling outside their local region and particularly outside their state, they have the opportunity to compete on selection. In an age where alcohol products seem to be expanding exponentially and where the expansion of alcohol media allows for more frequent discovery, inventory diversity can be a key growth driver.
But selling and shipping outside one’s local region will require changes to the shipping laws. Currently, retailers may only legally ship into 15 -16 states. That will have to change based on lobbying efforts and litigation. But when it does and when more states open up, look for a significan’t (beyond organic) change in online sale by these independent stores.
The Slow Adoption of Alcohol E-Commerce
As the Rabobank report notes, online alcohol sales represent a mere 4% of total alcohol sale in the U.S. Compared with all the 13% of total retail sales that occur online, this is a fairly pitiful adoption rate. This low adoption of online alcohol sales can be attributed primarily to the fact that alcohol is treated differently under the law than carrots and books. Moreover, the most powerful political force in alcohol (wholesalers) have spent millions and spewed hundreds of lies to stop laws from being changed to allow DtC shipping by retailers, wineries, brewers and distillers.
This year (2022) will be fascinating to watch with regard to alcohol e-com. We are very likely to see ourselves recover nearly completely from the impact of the pandemic. Moreover, this coudl be a pivitol year for litigation aimed at overturning discriminatory laws preventing direct shipment of wine by retailers. And I won’t be surprised if both brewers and distillers increase their paths to market via legislation allowing them to ship alcohol interstate.
I think your count of 15 or 16 states is an optimistic number for shipment. It seems the number has been dwindling over time, due to Wholesaler pressure. KLWines.com lists only 8 states to which they can currently ship.
FedEx lists 16 states, however several states require licenses that are largely prohibitive and sales tax must be included.
Currently, AK, CA, OR, NM, ND, NH, CT, FL, VA, WV, LA, WY, NE and possibly ID and NV allow shipments. Lawsuits are ongoing in IN, IL, OH, KY, NJ, RI, AZ and NC.
AK – Wine only, Anchorage area only. The rest is mostly dry. UPS and FedEx do not serve.
OR – Wine only. From CA and WA only.
ND – All liquors. Permit fee, sales tax and reporting. Limitations. Discriminative and unconstitutional. UPS and FedEx do not accept spirits and beer.
NH – All liquors. Permit fee, 8% of retail price fee. Limitations and monthly reporting. In-state retailers aren’t required any of above, plus no sales tax. Discriminative and unconstitutional. UPS and FedEx do not accept spirits and beer.
CT – Wine only. Permit fee, excise tax, sales tax, registration, limitations and reporting. Discriminative and unconstitutional. Illegal excise tax.
WV – Under WV law wine is not alcoholic liquor. The rest is state monopoly.
NE – Permit fee, excise and sales tax, limitations and reporting. Discriminative and unconstitutional. Illegal excise tax.
Discriminative because in-state retailers are not limited to only wine and quantities, don’t need to buy permit, pay fees, taxes and do reporting.
Unconstitutional because interfere with or discriminate against interstate commerce.
I grew up in CT which had no alcohol sales after 20:00 weeknights and Saturdays and no sales at all on Sunday.
You would think stopping alcohol purchases at 20:00 would be a hindrance to sales, but somehow, we all learned to plan our evenings by 18:30 or 19:00 at the latest if we were planning on buying Alcohol.
I remember reading a study about Germany’s deregulation of Sunday shopping. The theory was that opening Sunday sales would lead to increased sales (and Tax) revenue.
What the German’s found was that Friday and Saturday night sales went down…. only to seemingly have this same volume of sales appear in the now Sunday sales window. Revenue didn’t drastically increase….it just moved.
E-commerce may allow for greater access to purchases of Alcohol….whether or not it will significantly add to revenue growth I’m in a wait and see mode
It will be also interesting to see the growth of specialized shipping companies that take on the permitting and licensing to enable local wineries to ship nationwide. I’ve seen a couple here in Texas that are enabling wineries to expand much faster and cost-effectively than doing it on their own.
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