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FEATURED STORY May 04, 2022

The Expanding Landscape of Alcohol Delivery Services

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Following consumer trends and fueled by the pandemic and related loosening of restrictions on in-state retailer alcohol delivery regulations, the marketplace for alcohol delivery services has expanded exponentially over the last several years and shows no signs of slowing down. Industry forecasts predict double-digit growth year-over-year until at least 2025 for alcohol-focused e-commerce platforms. However, like anything in the alcohol beverage space, various avenues of penetration for new or existing companies come with certain restrictions that need to be balanced against opportunities for delivering customer convenience through alcohol delivery services.

Available Models

As alcohol delivery has grown and expanded in nearly every US state, numerous delivery models have developed to bring alcohol to a consumer's doorstep. Of the various models, three have emerged as the most dominant go-to-market approaches to service this new industry sector.

The first are purely e-commerce platforms that connect consumers directly with a wide variety of licensed alcohol retailers but are themselves unlicensed (such as Drizly). The second are unlicensed white-labeled alcohol delivery services which appear as a branded website but integrate with a network of licensed retailers (like Thirstie). And the third are delivery platforms that themselves hold alcohol licenses (such as Gopuff).

Regulatory Opportunities and Impediments

While each of these models presents growth opportunities to service consumers' desires to receive alcohol at their doorsteps, they also come with a host of restrictions that entities—and any investors in these companies—need to understand. Chief among these considerations are:

  • "Sale of Alcohol": If the alcohol delivery service is itself unlicensed, the "sale" of alcohol must be between the consumer and the ultimate retail license holder. This means that the service cannot itself first receive the funds for the sale, take its fee and then pass the monies forward to the license holder. In some states, the provider may, however, be able to direct funds in the first instance to an escrow account or other independent account if the licensee retains a degree of control over the account. The licensed retailer should also always maintain control over the "sale" of alcohol, including setting pricing and accepting or rejecting orders.
  • Fee Structure: While state regulators allow for platforms to charge for their delivery and hard costs related to their services, how that fee is derived can be of particular significance if it is or can be correlated with alcohol sales. This restriction is premised on the fact that only a licensed entity should receive the benefit or privilege of the sale of alcohol. Accordingly, certain states like New York have suggested that if the fee structure is not a "flat fee" for services, receiving more than 10% of the revenue from a retailer as part of the sale of alcohol renders the platform a "Co-Licensee" and subject to the state's authority and licensee vetting process.
  • Supplier Advertising: The ability of alcohol suppliers to pay to advertise on alcohol delivery platforms is of particular focus to alcohol state regulators. First, if the platform is itself unlicensed, the platform may allow supplier advertising, but it must rigorously assure the money it receives for supplier advertising does not benefit a retailer either directly or indirectly. Alternatively, if the platform is focused on a single retailer-branded website or is itself a licensed retailer or owned by a retail licensee, it will be important to analogize the supplier advertising in the digital space to allowable supplier advertising at the physical retail premises. This would include drawing parallels to allowable "signage" or other physical displays to avoid a finding that the supplier advertisement is a means to induce the retailer to purchase the alcohol of the supplier.
  • Safeguarding and Unlocking Value in Personal Data. Consumer privacy is no longer an issue limited to international operations. California, Colorado, Connecticut, Utah and Virginia all have recently passed consumer privacy laws that impact how companies collect and use the data of their consumers. These changes are important for alcohol delivery companies as the data collected from their platforms is, at times, its own source of current or future revenue. In addition, how this data is shared, sold or paid for between the tiers has ramifications not only for alcohol beverage laws but for privacy, consumer protection and antitrust.
  • Variations by State: As with everything in the alcohol space, each state approaches alcohol delivery differently. Much care and due diligence should be given to developing a model that can be scalable as different states provide unique opportunities and limitations on those retailers seeking to deliver their alcohol (versus potentially unlicensed third-party providers). Furthermore, there will be variations regarding the allowance of delivery of different categories of alcohol—beer versus wine or spirits, and even licensing, permitting, training and reporting requirements that should be taken into consideration—depending on the jurisdiction.

Alcohol delivery is here to stay, and consumers will push for its convenience and access as they do for other types of consumer goods. However, which model (or combination of models) is preferable from a business perspective will continue to develop as alcohol regulators make room for this new market approach to the sale and delivery of alcohol. With the success and attention these services are experiencing, state regulators are likely to continue to focus on areas of compliance in connection with delivery. As such, platforms should do their due diligence to ensure that their current models are compliant and closely monitor and adapt their models based on state regulatory updates and changes.

ALM expressly disclaims any express or implied warranty regarding the OnPractice Content, including any implied warranty that the OnPractice Content is accurate, has been corrected or is otherwise free from errors.

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