In February 2021, Drizly may well have been the most prestigious name in the history of US alcohol delivery. Uber, the giant ride-hailing service, had just paid US$1.1 billion for it.
Drizly had pioneered the biggest trend in US alcohol sales: third-party delivery, in which someone other than the local retailer took orders for a wine, beer, or spirits purchase and then delivered them. Think Uber Eats, where the customer places the order, and somebody else picks it up and delivers it. Third-party delivery, thought many, was the first step in finding a legal way around the US’ notoriously restrictive alcohol regulation system.
Uber CEO Dara Khosrowshahi called Drizly “an incredible success story” and promised to “accelerate that trajectory by exposing Drizly to the Uber audience and expanding its geographic presence into our global footprint in the years ahead.”
Three years later, almost to the day, Drizly was dead.
Death of an app
Uber fired Drizly’s employees and didn’t even bother to merge the business into the parent company. Instead, it said it would continue to deliver alcohol as part of Uber Eats. Drizly’s customers found out from an email, while the rest of the world got a statement on X (formerly known as Twitter).
So much for that $1.1 billion.
“Even if third-party providers like Drizly have been successful, and there is no evidence that Drizly was successful, there are still roadblocks,” says Angelo A. Camillo, PhD, the F. Korbel and Bros. Professor of Wine Business at California’s Sonoma State University. “The marketplace is fragmented, and no one is quite sure about consumer demand. The margins are small. There are still liability issues. And, regardless of anything else, there is still the problem of regulation.”
It’s all about profit
Supermarket consultant Bill Bishop had a simple answer when a reporter asked him in 2015 if the three-year-old Drizly had a future.
“Over the long term, no one has been able to answer that question,” said Bishop, who died in 2022. “Can people make money doing delivery?”
This is not something that every delivery company is able to answer. But co-founder Nick Rellas, who left Drizly in 2018 to go into the legal cannabis business, told an interviewer in 2017 that delivery margins were so small that it affected almost all they did. By then, too, Drizly no longer had the field to itself; Rellas counted 13 competitors that included similarly-sized apps like Thirstie, Klink, and Minibar, as well as behemoths like Amazon and Uber.
Still, Drizly seemed to have a firm grasp on what it needed to do to outlast the rest. Rellas and co-founders Justin Robinson and Spencer Frazier knew that Drizly had to overcome two key obstacles – America’s restrictive liquor laws, which seemed to limit third-party delivery, and legal liability, so that Drizly wouldn’t be responsible if one of its customers was underage or drove drunk.
Delivery margins were so small that it affected almost all they did.
Its solution, said several attorneys, was ingenious: Drizly didn’t actually sell anything. It recruited retailers in cities across the country, and used its app to solicit consumer orders. The app matched the order with a retailer and forwarded it to the retailer, who rang up the sale and made the delivery. Drizly didn’t need a liquor license because it didn't sell anything, and absolved it of any legal liability, since it never “touched” the alcohol. It made its money by charging the retailer service fees for sending the orders to the store via Drizly’s software.
“I think, at first, it was an interesting idea and it certainly took audacity,” says Michael Correra, who owns Michael-Towne Wines & Spirits in Brooklyn and is the executive director of the Metropolitan Package Store Association trade group, which represents 3,300 liquor stores in New York City. “They were the pioneers in this, and you can see why Uber wanted their expertise.”
A promising beginning
For the most part, Drizly’s approach looked like it was working. It was the darling of the tech media, which saw it as a software company that facilitated alcohol delivery and not as something as quaint as a delivery company: its business was ‘digital alcohol services’.
It had little trouble raising money, despite the legal and liability issues and it was regularly featured in publications like TechCrunch when it announced another round of funding.
Perhaps its biggest achievement as a startup came in 2015, when a subsidiary of the Wine & Spirits Wholesalers Association trade group bought what was termed a ‘minority’ share of the business. The trade group saw Drizly as a way to capitalise on alcohol delivery that was firmly part of the three-tier system: ”technology can be the ally of mature, regulated industries like beverage alcohol — not a disruptor,” Rellas said in a news release.
At the time, according to one news report, Drizly was in fewer than two dozen US cities.
Enter the pandemic
Alcohol retailers were divided on whether Drizly was worth the effort. Yes, it brought in new business and new customers, but Drizly’s fees cut into already low margins. In addition, Drizly offered delivery guarantees – usually a 30- to 60-minute window – that placed a burden on many small retailers, says Correra. It was often difficult to find an employee to make the delivery to satisfy the guarantee if the store was busy.
Pricing started to get complicated. The price on the Drizly app might be higher than it was in the store or on the retailer’s website, as operators raised the Drizly price to cover the cost of using the app and to protect their margins. And, said several retailers at the time, this might irritate customers who were buying a bottle of wine for dinner or a couple of six packs to watch sports on TV. In their case, convenience wasn’t worth the extra cost.
And then the world changed in March 2020.
Yes, it brought in new business and new customers, but Drizly’s fees cut into already low margins.
“The Drizly model seems like such a natural fit for the three-tier system that, if Drizly didn’t do it first, it is likely that someone else would have,” says Alex Koral, the regulatory general counsel
for Sovos ShipCompliant. “Especially with how the industry reacted to the pandemic, it is nearly unthinkable that it and similar services wouldn’t exist in some fashion today.”
Uber trumpeted that Drizly was “profitably growing gross bookings more than 300% year-over-year” in the first year of the Pandemic, and there was likely more than just PR fluff to that boast. Correra says his delivery app income from Drizly and Minibar was “a nice little business” before the Pandemic, but that it doubled in that first year. “At times during Covid,” he says, “we were overwhelmed.”
Silly tech money?
Save for Uber and Drizly and its various investors, however no one knew whether the privately-held Drizly was profitable; Camillo doubts that it was. Drizly was in about half of the U.S, states and more than 1,400 cities in North America in February 2021. But not all cities are created equal; it had not been in Atlanta, with its half-million people, until the end of 2020. Even at the end, Drizly was only in 35 states. By comparison, online retailer wine.com sells to 41 states, and it took 25 years to get there.
There’s a feeling, says Camillo, that the Uber purchase may have had more in common with the way tech companies threw around money during the dot-com bubble at the turn of the century than with Drizly itself. As Koral points out, Drizly as a concept made sense. Add the pandemic to that, when delivery became an essential part of daily life, and maybe it did seem like a billion-dollar idea. But Pets.com had seemed like a good idea two decades earlier, and its stock was worth just 19 cents a share when it folded.
Two major challenges
Two other things play into this. The first, says attorney Jason R. Canvasser of Clark Hill in Detroit, was Drizly’s 2020 data breach, which affected 2.5 million customers. In 2023, the Federal Trade Commission ordered Drizly to delete all personal data that wasn’t required to provide service, as well as to upgrade its data security.
“It’s always difficult to come back from a data breach,” says Canvasser, “and it makes it even more difficult than it was in alcohol, which is so tightly regulated.”
Second, the demand for home delivery slowed as the pandemic petered out. Today, consumers are looking for a single service that can deliver groceries, restaurant meals, and alcohol, like Door Dash and Instacart. Camillo says it’s possible that a service that only does one thing, as Drizly did, wasn’t relevant, and that Uber didn’t feel it was worth the money or effort any more.
And that, in the end, that $1.1 billion was enough to spend.
