Drizly: Drinking the Pandemic to the Top
As we have been for the most part locked up over the past year some of our vices have been exacerbated through the idleness resulting from confinement. One such behavioral change is our consumption of alcohol. According to the Global Drug Survey COVID-19 Special Edition, 36% of those comprehensively surveyed to represent the global population have increased the amount of alcohol they consumed during the pandemic and 33% have increased the frequency of times in which they consume alcohol[i]. Moreover, as our overall consumption of alcohol has changed, the channel through which we traditionally consumed it has also significantly changed as safety precautions limit us from attending crowded bars or energy filled music festivals with free-flowing alcohol all around. During its peak cautionary measures, we were really limited to venture off to the supermarket, where at time alcohol sale was limited. As the world has opened up a bit, we have some option outside of our home to consume alcohol, such restaurants that have been severely limited in their ability to maximize the utilization of their space. We are far from living the outward facing social lives we lived a year ago outside our home. Today more than ever we are drinking at home, and we are drinking more than what we once did as we face the uncertainty of these unprecedented times.
As these parallel trends of increased alcohol consumption and reduced activity outside our homes have been fueled by the pandemic a clear has surged, Drizly. Drizly is a technology company powering the fastest, most convenient way for consumers of legal drinking age to buy alcohol and have it delivered right to their door[ii]. Riding on the previously described tailwinds, the company founded in 2012 out of Boston has had a meteoric rise in 2020. During the summer of last year the company was able to raise $50 million in funding by Avenir, Tiger Global, and other existing investors as a result of 350% growth year-over-year with sustained profits and its ability to double the retail partner count during the first half of the year[iii].
On Tuesday February 2 of this year, less than two weeks ago, it was made public that Uber acquired Drizly in a $1.1 billion deal. The New York Times reported that the acquisition was part of Uber’s aggressive push to expand its booming delivery business during the pandemic and that the deal, a mix of stock and cash, followed Uber’s recent acquisitions of Postmates, a food delivery service, and Cornershop, a grocery delivery company[iv]. It was also reported that Uber is planning to incorporate alcohol delivery into its Uber Eats service and continue to operate Drizly as a stand-alone app, and Lantern, a cannabis delivery service owned by Drizly, is not included in the deal[v].
The Uber acquisition comes at a timely window for Drizly. Uber has purchased the company at the all-time high resulting from the unprecedented consumption paradigm shifts that have resulted from the pandemic. This unique context, while having some signs of potentially outlasting the pandemic are by no means sustainable as they are rooted in behavioral changes such as increased overall alcohol consumption due to extra time, decreased in-store alcohol purchases due to safety issues, and increased home alcohol consumption driven by the closure of bars and restaurants. While the comfort of alcohol home delivery will survive beyond this unique context, the current growth rates were by no means sustainable as people will get busier and have less time to drink, it will feel safer and less regulated to go shop for alcohol yourself, and bars will open up again. The bright times for Drizly were most likely about to end as the pandemic starts to be contained through increased vaccination, thus decreasing COVID safety parameters that have been generous to Drizly’s business model. The company had been existing for some time, but the current COVID context as discussed has truly put it in the spotlight, and its founders couldn’t have timed their exit any better. As the world normalizes, the ability for Drizly to justify the current growth rates that backed its $1.1 billion valuation would have gotten increasingly difficult to believe. Now under Uber and its vast coffers, it doesn’t really matter if Drizly was just a COVID winner positioned in the right consumer space at the right time and under the sight of the right strategic buyer that stagnates and can’t grow at its current rate as we go back to a context that is closer in nature to that we lived before COVID.
[i] Global Drug Survey COVID -19 Special Edition URL: https://www.globaldrugsurvey.com/gds-covid-19-special-edition-key-findings-report/
[ii] Drizly FAQs URL: https://drizly.com/how-it-works
[iii] Drizly grabs $50M as growth surges during pandemic, Pitchbook, August 24, 2020. URL: https://pitchbook.com/newsletter/drizly-grabs-50m-as-growth-surges-during-pandemic
[iv] Uber Buys Drizly, an Alcohol Delivery Service, for $1.1 Billion, New York Times, February 2, 2021. URL: https://www.nytimes.com/2021/02/02/business/uber-buys-drizly.html
[v] IDEM
As a frequent user of Drizly, I really enjoyed reading your blog. I would argue though that the success of Drizly will extend beyond the pandemic. I often find myself with no time to go shop for alcohol last minute and Drizly’s deliveries are very timely. Another great feature of Drizly is your ability to compare between different liquor stores and getting the best deal on your purchases that justifies the delivery fees basically. Additionally, in places such as Boston, where the weather can force you to stay at home (even without a pandemic), Drizly’s value proposition is very strong for end customers.
From a business model perspective, I believe that their asset-light and flexible model also sets them up for success:
1. Scalability: they are only an intermediary – they do not hold any inventory and so adding new liquor stores is relatively easy and straight forward
2. Liquor Store Retention: the fees they charge the liquor stores are based upon the value of the delivery, zone served, etc. ensuring loyalty from liquor stores and fair charges to accommodate for shifting demands
I think the value proposition of Drizly for both customers and liquor stores is quite strong. The change in people’s habits already happened and I think the change is here to stay.
Sources:
https://www.appsrhino.com/how-drizly-works-business-model-revenue-model/
I found it interesting that Uber decided to exclude Lantern, the cannabis delivery platform, from the deal. My guess is that cannabis delivery could provide a very attractive avenue for growth post-Covid, as alcohol delivery returns to pre-Covid levels (which I agree with you Francisco will happen). After digging a bit deeper (see articles below), I found that Lantern is quite small (14 employees) and operated as an independent subsidiary of the Drizly Group. Uber could’ve probably included the subsidiary as part of a package deal in the acquisition, but maybe they just didn’t want to deal with any potential negative press fallout. Uber CEO Dara Khosrowshahi said in an interview with CNBC that “the company currently isn’t interested in marijuana delivery” but indicated that “the sentiment could change.” Lantern currently has cannabis delivery services in Massachusetts and Michigan, and is positioned to expand into new legal markets.”
https://mjbizdaily.com/cannabis-delivery-platform-lantern-on-its-own-after-uber-drizly-deal/
As a user of both Uber and Drizly, I celebrated the news of the acquisition. There is definitively a synergy between the company’s strategies and target customers: whenever bars open and I can get together with friends to have a beer, I will take an Uber; if I need to stay home because of the pandemic and quarantine restrictions, I know I can always get my drink of choice on Drizly. My main concern is rooted on the potential social and health care implications of “taking alcohol mainstream”. According to a recent report by the CDC, the cost of excessive alcohol use in the United States reached over $250 billion in 2010. These costs are mainly due to loss of work productivity, increased health care expenses, and other criminal justice costs. While Drizly can be the solution for “casual” alcohol users like ourselves, this technology could also exacerbate some of these problematic behaviors and alcohol abuse. Implementing appropriate technology safeguards could mitigate some of these negative side effects.
Source: https://www.cdc.gov/alcohol/features/excessive-drinking.html
So interesting! I wonder how you think Drizly will hold up to more full service competitors like Instacart (that is what I wrote my blog post on 🙂 ). Without having exact pricing numbers to compare, I’ve found Drizly to be more expensive than alcohol orders on Instacart. I also wonder if the fact that you can get more than just alcohol in one order is more attractive for people with Instacart (though that depends on local liquor laws and most grocery stores do not have the expansive selection of a liquor store). I think this concept is totally here to stay and will be interesting to see who the winners are!
I agree strongly with Karl’s comment. And would like to add that now that Drizly has Uber backing it, it can expand aggressively to other areas around the US and they world. One problem they might face is varying regulations as they approach new geographies. As for diminishing demand post pandemic, Drizly sells a product that is addictive by its very nature. And convenience is something that people do not want to let go of once they get used to it. They just redefined the paradigm on alcohol consumption. Their access to a wider array of stores also gives them an edge as if you are looking for something particular, it’s probably better to shop for it on Drizly as your local liquor store might not have it. This is similar to amazon being the best place to shop for something like books as they would have access to a much wider collection than a physical store.
It’s very interesting to see how Drizly has evolved and navigated the “3 Tier” system in alcohol beverage distribution. I was in sales in the industry when these type of platforms emerged. They initially struggled from a lack of scale, as most of the retail accounts who agreed to partner with them were small bottle shops with limited inventory. Customers weren’t pleased with the selection, service, or increased pricing. Big suppliers had to work hand in hand with Drizly to help them reach a critical mass where the value proposition was enticing enough to customers to actually utilize the platform. I think they were just reaching that point when the pandemic hit.