Big Tech, meet Big Alcohol
Plus: Fingers Regulatory Roulette!
Editor’s note: I originally published the piece below at , an excellent restaurant-technology newsletter by journalist. If you haven’t yet, I highly recommend subscribing to Expedite. I find it invaluable for staying up-to-date on how tech is reshaping the way we eat and drink (and vice versa.) Fingers readers get 25% off right here.—Dave.
The basic challenge of the United States’ beverage-alcohol industry is: people want to drink, and you want to sell them drinks, but you have to do it in highly specific ways that vary depending on where you’re doing the selling. 50 different states, 50 different regulatory thickets that must be carefully navigated—or brazenly bushwhacked, depending on your lobbying budget and/or appetite for line-stepping.
Such is the nature of the post-Prohibition “three-tier system” that dictates the terms of engagement in the American booze business. “Suppliers” make the drinks, “wholesalers” move the drinks, and “retailers” sell the drinks. A free market, this ain’t, and that’s by design.
I could bludgeon you with another 10,000 words on the pros and cons of this deliberately frictive scheme, but in the interests of your time and sanity, let’s instead focus today on where, exactly, third-party delivery platforms like DoorDash, alcohol-specific services like Drizly, grocers like Instacart, and insta-delivery darling Gopuff fit into the status quo.
These firms obviously aren’t making drinks. And they aren’t distributing them, either. At least, not in the industry’s definition of the term: receiving product from breweries, wineries, and distilleries, warehousing it, and then selling it to brick-and-mortar retailers.
In the first year and a half of the pandemic, delivery-everything surged in popularity. Gopuff, valued at around $4 billion at the time, acquired a pair of brick-and-mortar alcohol retail chains: BevMo, a 161-store chain in California and the Southwest, and Liquor Barn, a 23-store chain in Kentucky. The other three (which control most of the third-party delivery booze market nationwide, local and specialty players like Minibar not withstanding) fulfill orders for drink much like they do for food. Purchases made on the platform are routed to existing retailers, then shuttled to the end-user’s fridges by an army of gig workers. Ditto Gopuff, outside of its burgeoning retail footprint.
These firms run booze B2C (business to consumer) in states where it’s legal, layered atop the retail tier. Retailers themselves—your Walmarts, your 7-Elevens, your local bars—have mostly accepted tech’s value proposition, because it’s less annoying and expensive than building out their own delivery networks. Plus, as Instacart is finding out in real time, there’s a limit (for now at least) to how much grocery delivery customers are willing to pay for/deal with.
But even though delivery platforms are not presently taking aim at B2B logistics, that doesn’t make traditional wholesalers, collectively known as the “middle tier” in the jargon, any less wary of what they perceive as a potential threat to their existing business model.
When Motherboard broke the news earlier this year that back in 2020, Amazon had internally batted around the idea of “chip[ping] away at the three-tier system,” the middle tier minced no words.
Amazon hoped to team up with fellow-traveling retailers to lobby for looser legislation around booze delivery, licensing caps, and “central warehousing and the ability to transship in key states,” threatening the long-established model.
The National Beer Wholesaler Association (NBWA)’s president Craig Purser slammed Amazon’s plan as a gambit to “circumvent a safe and effective alcohol ecosystem,” put forth by “a special interest shadow group.” That’s the retroactive response for a potential plan that one of the most powerful companies in the history of the world told Motherboard was “never approved or implemented [and] no longer relevant.” The middle tier is that serious about protecting its lucrative, legislatively mandated gatekeeping role between supplier and retailer. It’s an existential concern.
Delivery giants like DoorDash and Uber (which acquired Drizly in 2021) haven’t gotten caught circulating internal documents titled “Third-Tier Modernization” that propose “central warehousing” and other frontal attacks on the entrenched and politically powerful middle tier. Nevertheless, they are creating new user behaviors and expectations among American drinkers, ones that implicitly erode the rationale for traditional brick-and-mortar retailers—i.e., wholesalers’ customers.
So what, right? Markets change, and companies that benefited from the status quo typically either adapt or fail.
But the booze business’s relatively conservative regulatory environment makes its status quo much more a) durable, and b) politically defensible. Wholesalers spend oodles of money on state-level campaign donations, far more than suppliers or retailers according to analyses by middle-tier critics. At the federal level, the NBWA’s head of government affairs, along with Purser himself, have made back-to-back appearances onThe Hill’s annual “Top Lobbyists” list, and both the org and its counterpart, the Wine and Spirits Wholesalers of America (WSWA) spent over a million dollars on lobbying last year alone, according to Open Secrets, a nonpartisan, nonprofit research group.
As DoorDash and Drizly et al., push further into alcohol delivery, they’re going to push up against this influential, entrenched policy apparatus. As the business model becomes more ubiquitous, expect industry watchdogs to gather more data on the breakage it creates. As wholesalers watch new logistics firms carve into their collective lane, expect them to call for increased regulatory scrutiny over the 3PD sector writ large—and expect lawmakers to listen.
None of that is to say that critics of delivery booze do not have some good points. They do! The three-tier system, for all its anti-competitive and cartoonishly corrupt ills, has mostly warded off vertical integration in the American bev-alc market. There’s a case to be made that it shouldn’t be yet another victim of the “move fast and break things” doctrine.
Speaking of things that maybe shouldn’t be wantonly sacrificed at the altar of for-profit #disruption: one of the strongest critiques 3PD firms face as they try to get in where they fit in to the three-tier system is how they handle (or don’t) illicit orders from underage drinkers. In at least one college town this year, DoorDash is going to extraordinary new lengths to sidestep that pitfall. Expedite’s Kristen Hawley examined that move, and the broader stakes for delivery platforms’ booze-shuttling ambitions in a recent column for ye old boozeletter. Check it out right here.
📬 Good post alert
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