Liquor stores in the U.S. were deemed essential businesses during the global pandemic, kicking off not only the rise of alcohol e-commerce, but setting off a domino effect of recent venture capital investments, M&A and companies entering the public markets.
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Experts say this activity gives credibility to an industry still gaining traction: The share of alcohol sales made online was just 1 percent in 2019, compared to groceries at 3.4 percent and 38 percent of apparel sales during the same time.
However, that all changed in 2020, according to Johan Brenner, general partner at early-stage venture capital firm Creandum, an investor in San Francisco wine app and online wine marketplace Vivino.
“In early 2020, due to COVID-19, all online categories took off,” Brenner said via email. “At Vivino, for example, growth was more than 100 percent in 2020. It seems like people were not drinking more, just shifting consumption to home and enjoying the convenience of home delivery while restaurants and bars were closed.”
International Wine & Spirit Research now expects the total value of alcohol e-commerce across 10 global markets, including the U.S., to exceed $40 billion by 2024. That’s after the figure reached about $5.6 billion in 2020, up from around $3 billion in 2019.
‘Owners of big retail sat on sidelines’
Although COVID-19 fueled a rise in e-commerce alcohol sales, venture capital investment dollars and deals into the space were down across the board between 2019 and 2020, according to Crunchbase data.
Experts say much of that is driven by poor e-commerce strategies, while investment may have lagged as investors didn’t want to pay higher valuations for companies temporarily boosted by the pandemic.
Alcohol companies are able to advertise online, but not everyone knows how to effectively develop online strategies, so there is still limited exposure, Zac Brandenberg, the CEO of DRINKS, told Crunchbase News.
His company, based in Los Angeles, developed a wine-as-a-service platform for companies or brands to launch their own ship-to-home wine program. It has raised $28.3 million in total known funding since its inception in 2013, according to Crunchbase data.
“Owners of big retail sat on the sidelines and didn’t get aggressively involved in online shopping,” Brandenberg said. “As we get in control of how to meet customers outside the typical retail footprint, this will become more omnichannel.”
Meanwhile, Catharine Dockery, a founding partner at Vice Ventures, said in an interview that her firm hasn’t been super active in the space in the past few months due to inflated company valuations.
“We don’t want to pay a higher valuation because someone did well in COVID,” she added.
Within the first quarter of 2021, the alcohol e-commerce market saw some major company activity, including:
- Uber agreed to acquire alcohol marketplace Drizly;
- Vivino raised a $155 million Series D;
- Vintage Wine Estates, a wine and spirits company, announced it would go public via a merger with special purpose acquisition company Bespoke Capital Acquisition Corp.; and
- Gopuff, an instant delivery platform for everyday items, fresh off of its acquisition of alcoholic beverage seller BevMo, raised $1.15 billion in Series G funding, led by D1 Capital Partners and Fidelity Management and Research Co.
Since 2016, global alcohol e-commerce startups took in $2.06 billion in funding spread over 608 investments, according to Crunchbase data. In the U.S., investors poured $1.06 million into 285 transactions over the same period.
Buoyed by Vivino’s raise this year, funding in 2021 is already nearing 2020 levels globally and exceeding investment dollars in the U.S.
‘Lots of margin, value to be captured’
Wine and spirits is a large market, and one that is heavily regulated in many places, but startups are creating opportunities in e-commerce, digital experience and better logistics to change the industry, Brenner said.
“If you look at the value chain, there are lots of margin and value to be captured for new players,” he added.
The acquisitions announced in the past year were of companies whose usage was boosted by the pandemic, Dockery said. She also expects investors to keep pumping money into e-commerce and delivery, as well as for more alcohol companies to enter the public markets if it looks like they will do well there.
And, after bars and restaurants open fully again, Dockery believes it will be a good time for companies to introduce new brands and craft cocktails.
“In the future, there is going to be a lot of delivery because people have found it easier,” Dockery said. “I think alcohol delivery will continue to grow and receive more investment. Ready-to-drink cocktails are expected to represent 20 percent of the market by 2024, and I am very bullish on that.”
When Vivino founder and CEO Heini Zachariassen saw the company’s sales figures go up last summer, he said investors began calling.
The San Francisco-based company’s February round gave it a total of $221 million in known funding since Vivino was founded in 2010, according to Crunchbase data.
“With the Series D, it became a different conversation with investors, and more numbers driven,” Zachariassen said. “The key for us was growth, but also economics — we reached scale two out of four quarters in 2020 and were profitable.”
Even with the growth investment, Zachariassen still considers Vivino a small company of 200 people selling wine in 17 markets. As a result of the adoption of alcohol e-commerce, more companies will invest in product engineering, technology and marketing to get ahead of new entrants attracted by the investor attention and shift in consumer buying habits, he said.
“Wine is sexy and fun, so we always have inbound business, but this market is getting interesting, and having a big war chest is going to be important,” Zachariassen added.
‘This industry is one to watch’
The alcohol and spirits category was one of the last product categories to shift online despite being a more than $167 billion market and quite popular, Brandenberg said.
He attributes the slow embrace of e-commerce to tight regulations that deterred companies, such as Amazon, from gaining a proper foothold.
“The patchwork of federal, state, county and city regulations stood to stifle customers’ ability to get products, creating a huge impediment that needed change,” he said.
Putting U.S. liquor stores in the essential business column enabled retailers, delivery platforms and direct-to-consumer brands to expand the way they reached consumers, including by curbside, speedy delivery and ship to home, he added.
Alcohol e-commerce companies will continue to leverage those channels to capture as much market share as possible, as well as lean in on the online buying habits that consumers became accustomed to over the past year, the experts said.
In addition, this large market will be a magnet for new players and innovation, especially when the online business is growing fast and companies can leverage convenience, Brenner said.
“Incumbents are moving online, and we’ll see new players utilizing data and digital user experiences to create better products and more sticky services,” he added.
Brandenberg expects to see big retailers generate more online and curbside transactions as they work to keep up with the Instacarts of the world. There will also be more major alcohol e-commerce announcements down the road as the industry continues to mature, he said.
“The concept of a Drizly wasn’t something people expected outside of California, where liquor stores typically deliver,” Brandenberg added. “Now it is a normal thing to do. In one to two years from now, it will be typical to see someone shop online for toilet paper, while also putting wine in the shopping cart. This industry is one to watch.”
Illustration: Dom Guzman
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