The transportation of alcohol across the US has long involved adventure and innovation.
Fans of car chases and product placement will recall Burt Reynolds paving the way for mustache-based ridesharing as a disruptive business model in Smokey and the Bandit. Escorting an 18-wheeler packed with Coors across states lines in his kickass Pontiac Trans-Am, he pulled out all the stops to stay a step ahead of the federally mandated “three-tier” (producer, distributor, retailer) liquor distribution laws, as represented by a jowly, cigar-chewing sheriff played by Jackie Gleason.
Till now the Internet hasn’t done much to shake up the alcohol business, though hundreds of millions of dollars have been spent towards that goal. Wine.com is among the biggest and most familiar in the field, but is just finding its feet again after a decade of restarts.
The uncertain regulatory environment doesn’t bode well for scaling, at least so conventional wisdom tells us. States and cities decide many of the parameters themselves, so there’s huge variance across the country with regard to who is allowed ship from, ship to and sell within a particular region.
Things have started to change, slowly, in the last decade. As of last summer, home brewing is legal in all 50 states, and specific amendments have been made to the three-tier structure to allow for brewpubs and direct shipments from wineries in many states. But the regulatory structure is still piecemeal and variable, causing trouble for would-be disrupters.
The stakes are high. Alcohol is one of the biggest, and fastest growing, industries that remains almost completely offline. In 2011 US alcohol sales totalled more than $19 billion, up 4% on the year before.
Nick Rellas, founder and CEO of mobile alcohol delivery app Drizly, is among a growing cohort of new entries into the space. And he’s stumbled on a head-smackingly simple formula for an alcohol delivery business.
Instead of transporting alcohol itself, Drizly partners with local liquor stores, who in most states are already able to deliver directly to customers’ doors. By offering access to the offerings of a network of local stores, the company is able to satisfy delivery orders in less than an hour, with very few regulatory hurdles to clear. “Essentially we’re just a fax machine,” Rellas tells me.
Thats true, but Drizly a pretty smart fax machine, built around a mobile ID-verification system developed with Massachusetts-based Advanced ID Detection, which verifies the cryptographic elements of ID’s from all 50 states and Canada, including holograms and raised signatures. Rellas, 24, a Boston College graduate, tested the technology in Boston, a city with a vast undergraduate population and an established fake-ID marketplace.
He estimates that, in addition to his 11 employees, Drizly has attributed for a hundred new liquor store delivery jobs, and generated profits for its partner stores, due in part to users’ preference for higher-margin, higher-shelf party supplies compared to the purchases of an average in-store customer.
The company raised a $2.25 million seed round early this year led by Atlas Venture and other Boston-based investors, and since then has expanded its services into Manhattan and Brooklyn, with more cities slated soon.
Revenues are derived from licensing fees paid by partner-stores, rather than a cut of the bottle, so users get their liquor at the normal store price-point. In Boston users pay a $5 delivery fee, which has been waived for New York.
One big question is whether this is something consumers really want. Liquor stores have had delivery services for some time, but it’s never really cracked into most drinker’s habits.
Rellas say’s he is courting the “informed drinker” crowd, for whom cocktails are a matter of character and panache. He says use trends towards afternoon and early evening party planning rather than last-minute resupply. For now he says the company is focusing on predicting and troubleshooting the sorts of peak-time logistics issues that have proven difficult for companies like Uber and Lyft as they expanded and grew.
The idea does seem to have an obvious appeal among younger drinkers who might expect an app for everything, restless internet natives for whom alcohol delivery, encrusted with the regulatory residues of the 21st Amendment, seems a glaring hole in a frictionless lifestyle.
It’s easy to root for Drizly. It not only hacks a highly-regulated sector of the economy, it also avoids a major danger of the venture-based economy: old business models getting disrupted into obscurity by one or more well-funded startups, leaving pockmarks in the local retail economy where there used to be jobs, livelihoods, commerce and face-to-face interactions. If Drizly does prove sustainable, it will succeed alongside local shopkeepers and help secure their place in the neighborhoods that love them.