NCSLA 2019 New Orleans, Part III: Alcohol Delivery

 

ALCOHOL DELIVERY

Introduction

A great panel on learning the in and outs of the alcohol delivery world. Although alcohol makes up a small percentage of delivery revenue and often times is a loss leader, it plays a major role for delivery companies. Consumers demand this service and without it, they will not shop with a delivery platform.

All the delivery services made clear that they follow the letter of the law and that they spend heavily on compliance with the law, and they send heavy to assure that the laws are followed by delivery personnel.

In fact, the cost of complying with laws in some jurisdictions is so high that some companies will not turn on their services there.

Also making life more difficult for delivery services are ridiculous pronouncements like New York’s proposed rules that would limit a delivery services from collecting more than 10% of transaction fees, even though the delivery labor cost may exceed 10%. Problematically, laws that may require delivery companies to deliver at a loss, could become commonplace and leave only the most well capitalized platforms as the standing survivors.

As a developing and fast changing industry, delivery services face many challenges. Their industry is growing rapidly and present law can’t keep up with the changes. So, they have the challenges of operating in a vast gray area. But what is more troubling are the trends from places like New York that impose a financial burden on these growing businesses.

Takeaways

Unfortunately, the regulatory environment is not kind to delivery services. All these services would love to be in every state. However, either expense or government regulations restrict access to the marketplace.

The consumers demand alcohol delivery and not providing this service could result in a lost customer base.

These companies seem to be swimming against the current. Their technology develops faster than the law which sometimes leaves them in legal limbo. They try to comply with the law and maintain a profitable business. And further causing dilemmas are governments such as New York which are proposing policies that will hurt profitability.

Delivery is here to stay and will increase rapidly every year, this is foreseeable. What is unforeseeable is whether government will allow this model to flourish or will we have companies that continue to be shut out of marketplaces.

Moderator

Michael Halfacre – Executive Director, Beer Wholesalers Association of New Jersey

Panelists:

Jaci Flug-Senior Vice President of Legal and Industry Affairs, Drizly

Angela Minckler-Compliance Counsel, Instacart

David Toomey-Senior Corporate Counsel, Shipt

Vignesh Ganapathy-Head of Government Relations, Postmates

 

Vignesh (Postmates):

Postmates is an online delivery platform which looks at things differently. Big box retailers have a model where they have a warehouse outside the city and deliver in. Postmates looks at all retailers from mom and pops to 7-11 convenience stores as the warehouses in the city from which they deliver. Postmates gives customers the ability to invest locally, while getting their stuff on demand.

In a historic context, Postmates started out as a platform where you could order anything from anywhere, over time they developed as a lead generator. When a consumer goes online, they enter into a merchant area and see everything the merchant has. 70% of what is sold on Postmates is prepared food, roughly 30% is health and wellness products.

Over the last two years there has been significant growth potential in the alcohol delivery space. Consumers are looking for ways to receive beverages at home. Postmates does both on and off premise delivery. They are not in every state, whether they deliver alcohol depends on the state regulatory environment.

Jaci (Drizly):

Drizly does not deliver, it is a technology platform that connects retailers with consumers. Retailers can offer products and consumers can purchase the product and retailers perfect the sale and deliver the alcohol.

Drizly works when the consumer enters their address, they discover what products are available and the retailers that maintains these products. Generally, delivery is under 60 minutes. Presently Drizly is in 26 states.

Under Drizly’s system, the retailer has autonomy and selects the products and prices on the web site and how it is delivered. The money from the transaction goes straight to funds only accessible by the retailer. Drizly can’t touch these funds. Drizly sends the retailer a bill at the end of the month for their services.

Also, the retailer choses when they want to be on the platform. They have the choice of turning themselves off and becoming unavailable for a specific time period.

David (Shipt):

Shipt is a delivery and ecommerce hosting company where everything goes through the three-tier system.

Hosted Solutions

Shipt has two types of Hosted Solutions

  1. Marketplace Solution which is an ecommerce hosted site, operated by Shipt, they host and handle all the transactions, for nonalcohol products. In these transactions the the money flows thru Shipt.
  2. White Label Solution-Shipt partners with a specific retailer and the web page is branded with the retailer’s name.

Fulfillment Solutions

Shipt has two options for fulfillment solutions:

  1. Delivery only-the customer goes to a retailer owned storefront and there is the Shipt Courier Delivery service.

Platform solution which is a retailer owned website storefront where Shipt pick, packs, and delivers.

Shipt also operates an independent contractor model­. Dave Toomey addressed the independent contractor model and sought to dispel certain myths surrounding this model.

According to Dave, there is a controversy that there is no accountability with independent contractors.

However, Shipt ensures accountability in several ways: it works with retailers, and is accountable under their license, if the independent contractor delivers to a minor, Shipt is accountable. They are also accountable to the market. Membership is $100 a year and mistakes could cost them members and revenue.

Another myth is that independent contractors are not serious and not the best members of society. Dave presented stats on Shipt’s independent contractors.

Shipt only works with only 8% of contractor applicants, 85% of contractors are female, the Average age is 32, 92% have college degrees. The top three main jobs of independent contractors: teacher; nurse; and stay at home mom. These are the people that are bringing alcohol from point A to point B, are these people are responsible members of the community.

Dave also discussed Shipt’s vetting process. All the independent contractors are background checked. All the independent contractors are certified, and Shipt can geomap alcohol deliveries. If the alcohol is not delivered timely, Shipt is on the phone to the representatives.  In fact, Shipt’s safeguards are so strict that they pay independent contractors an extra $10, if the independent contractor doesn’t make the delivery of alcohol based on hazardous conditions or the party ordering the alcohol does not have ID.

Shipt loses money on alcohol. How Shipt operates on alcohol sales is the retailer controls the sale, Shipt does not touch the money that goes towards alcohol sales.

Angela (Instacart):

Customers use the Instacart app or website to shop from their favorite local retailers. An independent contractor acts as a personal shopper for the customer and buys the products. Customers schedule a delivery; in many cases they receive groceries in as little as an hour.

82% of Instacart customers are women, primarily between the ages of 25-44. More than 50% are moms and are heads of households

Instacart offers alcohol delivery where permissible which is 20 state currently.

Shoppers who wish to handle alcohol orders must be at least 21 and must complete an Instacart Alcohol Training Module.

The retailer has exclusive control of the alcohol transaction. Instacart ensures that the control rest with the retail licensee. The retailer includes alcohol product offered on the platform and they control the pricing, any payment for alcohol is routed from the consumer to the retailer.

There is an age gate and alcohol agreement the customer must agree to. Once it is delivered there is an alcohol check, scan id and signature collection and based on the environment of the place of delivery, the independent contractor can refuse delivery.

Profitability

Michael Halfacre asked if any of these companies are profitable.

Shipt-The labor cost for independent contractors to deliver alcohol is very high. The point is not making a profit off of that specific transaction but delivering overall profit to our parent company Target.

Postmates- the delivery may not be profitable but there is a back end with commission structure ranging from 5-30%.

Drizly- delivers to a certain demographic, late 20s early 30s and those living in an urban area.

Instacart- covers 80% households. But regulations of certain states make it very difficult to deliver alcohol. So not all of the households have the delivery option.

Dave (Shipt) indicated that even though Shipt and Drizly are competitors, they are also serving different demographics, the overlap between Drizly and Shipt is about 8%. Dave stated that they want to figure out how to forge ahead together, so they are all compliant and not beating each other up.

Vignesh (Postmates) pointed out that Millennials are an aging demographic, the target demographic is becoming part of a community and becoming parents.

 

Problematic Government Policies

The New York State Liquor Authority (NYSLA) issued a proposed rule about commissions and percentage fees on everything from delivery commissions to landlords receiving a percentage amount of liquor sales in a lease agreement.

Shipt: Drizly’s lego brick is eCommerce hosting, Shipt’s lego brick is also eCommerce hosting but there is a delivery piece, if there is 10% limit, Drizly can get the 10% maximum that we get.

Dave posed the question, how is Shipt supposed to pay people to get off the coach as independent contractors when fees are capped at 10%. If I need to pay labor $50 an hour for deliveries, then I need a $500 delivery to break even. The math does not add up, what needs to be discussed is what is tied to the sale, is getting the product from Point A to Point B tied to the sale? We need clarity.

Postmates’ concerns are 2-fold, they currently try to scale commissions based on whether they are sharing data with the merchant. For example, the merchant may consider opening a restaurant in a certain part of town. They may not know that many customers are ordering their food in that part of town. Postmates shares that data with the customers. This feature is built into the commission rate, along with advertising. It isn’t a directly one to one sales issue.

Second, if a third-party provider needs to be listed on the liquor license, if there is bad behavior, they would need to amend the liquor license or get a new liquor license to have a new provider.

Postmates indicated that the lessons are we need to take collaborative approach and have more conversations with stakeholders.

New York is supposed to come back with a new proposal.

Problematically NY SLA’s Chairman’s view is that if a company does not want to comply with the rule limiting income to no more than 10% of the liquor revenue, and this rule results in them going out of business if they do comply, so be it, there will be companies that want to step up and comply.

Dave indicated that Shipt can’t afford to be in New York because of the cost, even though they would love to be in the market.

What do these companies want from regulators?

Drizly: Consistency

Instarcart: Collaboration

Postmates: Developing model rules could help.

Shipt: Continued partnership, technology moves faster than regulation.

 

 

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