Third-party delivery of beer, wine and spirits is happy hour for supermarkets
January 22, 2020
For supermarkets seeking to deliver beer and wine to their e-commerce customers, the glass appears to be less than half full.
Online alcohol sales from grocery stores have more than tripled in the last two years, according to a newly released report from Rabobank called “The 2020 Alcohol Ecommerce Playbook,” but the upside potential is still significant. The report estimates that 2019 online alcohol sales in the grocery channel totaled about $295 million, including $145 million for wine and $115 million for beer, with the remaining $35 million in spirits.
That indicates that alcohol represents only about 1% of total online grocery sales, compared with 5% to 6% of in-store sales, Bourcard Nesin, the Rabobank analyst who wrote the report, said in an interview with Supermarket News. Given those ratios, Nesin estimated that food retailers might have missed out on as much as $1.5 billion in online alcohol sales in 2019.
“Alcohol under-indexes significantly in online grocery,” he said.
The biggest players in online alcohol delivery are pure-play online liquor stores, such as Wine.com and BevMo!, with total estimated sales of $1.1 billion in 2019, according to the Rabobank report. That segment is followed closely by wineries that sell direct to consumers, including operators such as Winc, WineDirect and thousands of individual wineries, which tallied combined sales of about $950 million.
Local regulations pose challenge
Perhaps the biggest challenge facing grocers is the patchwork of state and local regulations across the country. Currently only about 30 states allow third-party home delivery of alcohol, according to the Rabobank report, and the restrictions on that delivery vary widely from state to state. As a result, grocery retailers have been slow to add alcohol to their online offerings, instead focusing on their core grocery assortments, Nesin said.
“Grocers have been saying, ‘Let me take care of groceries first, then I’ll bring alcohol online, which basically requires me to hire multiple lawyers for each state,’” he said.
Still, 2019 marked a year of significant expansion for online alcohol delivery through the grocery channel as several food retailers, including Aldi, Costco, Sam’s Club, Winn-Dixie, The Fresh Market and others announced alcohol-delivery partnerships with either Instacart or Shipt.
Shipt customers spend 16% more per order when alcohol is included in their purchase, according to the grocery delivery company.
West Sacramento, Calif.-based Raley’s has been offering its own grocery delivery service since 2017, but last year expanded delivery through a partnership with Instacart. Mike Molitor, Raley’s VP of e-commerce and loyalty, said local legal requirements have complicated the chain’s efforts to deliver alcohol to customers, however. Although Raley’s offers such delivery from its California stores, it does not currently offer that service in Nevada “because of the complex set of laws and regulations that vary between counties,” he said.
Another challenge involves validation of the buyer’s age at the point of delivery.
“This is hard to monitor, but we do everything we can to ensure that the driver does not forget and acquires the appropriate documentation,” said Molitor. “This gets complicated if the recipient is not of age or does not have a valid driver’s license, though.”
Currently, about 4% of Raley’s e-commerce orders include beer or wine, and the category continues to grow, he said.
“The large players in the beverage industry — like InBev, MillerCoors, Gallo, etc. — have taken notice,” said Molitor. “They are pushing for deeper partnerships with retailers to provide seamless alcohol delivery and pickup in order to keep up with the growing e-commerce demand.”
Shipt, the third-party delivery service owned by Target Corp. that now offers alcohol delivery for Target and other food retailer in 12 states and Washington, D.C., said its delivery personnel must take an alcohol certification course to ensure they understand local age restrictions on alcohol purchases. Customers upload their identification via the Shipt app upon ordering alcohol, and delivery workers scan the ID upon delivery.
Alcohol boosts order size significantly for grocers, a Shipt spokeswman told SN, noting that Shipt customers spend 16% more per order when alcohol is included in their purchase.
Instacart expands its service
Instacart, meanwhile, said it now offers alcohol delivery in 22 states and Washington, D.C., and last year it unveiled several enhancements to the service. A key initiative was establishing partnerships with CellarTracker and Distiller.com for content about wine and spirits, respectively. The services provide reviews, tasting notes and scores, among other information.
Greensboro, N.C.-based The Fresh Market, which offers alcohol delivery through Instacart in states where it is allowed, agreed that age verification can be a challenge, but said it is benefitting from the partnership.
Left: Instacart’s partnerships with CellarTracker and Distiller.com for content about wine and spirits provide reviews, tasting notes and scores, among other information.
“Instacart is bringing our brand and product to new guests who may have not shopped at one of our The Fresh Market stores before, and helps ensure we meet our guests’ needs, however they prefer to shop,” said Mary Kellmanson, chief marketing officer at Greensboro, N.C.-based The Fresh Market, operator of 159 stores in 22 states. “With beer and wine, it offers our guests a convenient way to browse our selection and learn more about the offerings, with ratings and tasting notes, so they are more likely to try a new brand or style.”
She said the chain sees an opportunity in the future to offer pairing suggestions for cheeses and for its meal offerings, such as its Market Meal Kits. Currently The Fresh Market promotes the availability of beer and wine delivery via email and in-store.
Batavia, Ill.-based Aldi U.S., which operates over 1,900 stores in36 states, also launched alcohol delivery through Instacart in 2019.
“We have been thrilled with customer response to our offering of online alcohol delivery,” said Scott Patton, VP of corporate buying at the hard-discount chain. “Our customers love the convenience of being able to add a few bottles of our award-winning wine or beer to their grocery order, and have it all delivered to their doorstep by an expert Instacart shopper.”
Content is king
Nesin of Rabobank said having strong online content is critical for the success of alcohol e-commerce, but that is an area where grocers have been deficient. In the report, he cited challenges that suppliers have faced in updating their content on grocers’ websites.
“Grocery retailers are treating alcohol like chopped liver. We mean that literally,” he said.
Food retailers have historically approached the category as largely transactional, Nesin said, while consumers in many ways view it as experiential. The evidence can be painfully obvious to consumers who search for wine on grocery websites and find the experience lacking, especially compared with the experience on the websites of some wine e-commerce specialists.
Another challenge for grocers, he said, is that many consumers have now established their online grocery shopping lists and habits, both of which often lack beer and wine. In addition, he said, there’s often a lack of awareness about the availability of alcohol delivery, even in states where it is permitted by law.
A work in progress
Drizly, which offers a digital marketplace that connects consumers with alcohol retailers, last year released a study of the online and offline alcohol markets, which illustrated the lack of consumer awareness, and also the potential of the category.
Digital marketplace Drizly’s retailer network has grown to more than 2,000 beer, wine and liquor retailers in more than 120 cities across North America.
“One of the more interesting findings showed that even as online shopping becomes more normalized across major consumer goods categories, alcohol e-commerce is still a work in progress,” Liz Paquette, Drizly’s head of consumer insights, told SN. “Believe it or not, 55% of consumers are not even aware that it’s legal to shop for alcohol online.”
Of those consumers who said they’ve bought alcohol online, 50% said they still visit local retailers to make the majority of their purchases, the research found, and 62% of those who purchase from a retailer for the first time ever using the Drizly app said they are likely to shop from the same retailer again in-store.
“More technology has entered the space in the last three years than the previous 30, and we believe this is just the beginning,” said Paquette. “When we study the various inputs resulting in the inflection point that led to the explosion of online restaurant and grocery, we see a very similar foundation within [alcoholic beverages].”
She said that as more players enter the alcohol delivery space, Drizly believes that 8% of all off-premise alcohol, or $12 billion in volume, will be sold online by 2025.
Since its founding in 2012, Drizly’s retailer network has grown to more than 2,000 beer, wine and liquor retailers in more than 120 cities across North America. It plans to add another 2,000-plus stores to its platform in the next year, Paquette said.
