Coronavirus Spurs ‘Massive Shift’ In Alcohol Supply Chain Not Seen Since Prohibition

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With people across the U.S. facing orders to remain in their homes, and bars and restaurants closed as part of the ongoing effort to quell the coronavirus outbreak, alcohol sales have gone through the roof.

And at least one service is reaping the benefits of that increased demand.

Alcohol delivery app Drizly says it saw sales explode in the last week of March, climbing 537% above the company’s expectations, which it calculates based on sales from the previous 8 weeks.

What’s more, 42% of those orders came from new accounts. In fact, the company says new buyers on the platform jumped 900% year-over-year. (The company, however, wouldn’t provide its exact revenue or user numbers.)

“This is a supply chain that hasn’t changed a whole lot in the 90 plus years since Prohibition was repealed,” Drizly CEO Cory Rellas told Yahoo Finance’s “On The Move” last week. “What we’ve seen is just a massive mix shift from drinking at bars and restaurants, to home.”

‘We need to lean on technology’

Drizly, which is available on Android, iOS, and the web, works with more than 2,200 retailers across the U.S. to deliver beer, wine, and other alcohol to consumers via in-person drop-offs. The company says it’s working with its retail partners to come up with new ways to provide contactless deliveries amid the coronavirus pandemic.

“We’ve used technology as well as partnered with our liquor stores on the other side to effectively make them e-commerce distribution centers to keep up with demand,” Rellas said. “As in-store traffic falls, we need to lean on technology to bring all of this together and be able to provide deliveries to the house within two hours.”

Drizly isn’t the only game in town, though. The company has to contend with competition from DoorDash and Postmates, which are offering alcohol from restaurants in states that have relaxed their regulations to help keep impacted businesses afloat.

And it’s not just Drizly that is reporting a massive increase in alcohol sales amid the coronavirus. According to research firm Nielsen, sales of alcoholic beverages in the U.S. were up 22% year-over-year in the final week of the March.

Online alcohol sales, meanwhile, jumped 291%, as more cities and states allow for restaurants and bars to offer alcohol deliveries, Nielsen’s data shows.

Software as a service for booze

Alcohol listed in the Drizly app isn’t marked up from in-store prices — it just includes a $4.99 fee that goes to liquor stores to pay for delivery costs. Users are able to tip drivers, as well.

Drizly, the CEO explained, makes its cash by charging retailers a licensing fee for the use of its software. Fees range from state to state based on alcohol regulations. Some states may require a percentage fee, a fee for each transaction, or a tiered fee structure.

“There’s no built-in margin into this supply chain. It’s more about enabling liquor stores to come online, accessing consumers where they are, and providing a platform to do something they really haven’t done prio,” Rellas said.

Of course, the extended lockdowns coupled with an on-demand alcohol delivery service raise fears of alcohol abuse, and the potential long-term effects increased consumption can have on consumers ranging from heart to liver problems. To that end, groups like Alcoholics Anonymous have taken to Zoom to help members stay in touch during the ongoing lockdowns

Rellas, for his part, says Drizly is providing a consumer good that is in high demand.

“I think that needs to come with awareness, I think that needs to come with education, and some messaging on our side to imbibe healthfully and think how it can complement the good times in your life, and bring this to the social aspect when we’re largely distanced from each other rather than than something as a coping mechanism,” he said.

In for the long haul?

While the increase in demand for services like Drizly may be soaring due to lockdowns, there is bound to be a drop-off when bars and restaurants reopen, and people can go about their daily lives again. So where does that leave the firm?

Rellas says he’s not sure.

“I think one thing is for sure, awareness for the legality of e-commerce has grown, awareness for Drizly the platform and why it’s potentially opening up avenues you couldn’t do within a liquor store has grown,” he said.

Where that puts the company when the country opens up for business again, is anyone’s guess.

— Bloomberg

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