Drizly shows favorable laws and the free market work
Yesterday’s announcement that Uber would acquire Drizly for $1.1 billion should be greeted with great applause by those in the liquor industry.
On a personal level, I am ecstatic for my good friends at Drizly, I hope they can cash in their equity for a great windfall.
Obviously, the pandemic and Drizly’s 350% increase in sales during the pandemic made them an attractive target for Uber.
The numbers game
Drizly’s growth is astronomical and something that is rarely seen, especially when compared to the rest of the industry. For example, when we look at the growth in direct-to-consumer (DTC) wine sales, we notice that although the growth is certainly robust, it does not meet the scale of growth achieved by Drizly.
The DTC sales volume growth according to the Sovos/ShipCompliant report for 2020 increased by 27% over last year. That is incredible news for the wine industry, but one must wonder why Drizly’s growth rate is nearly 1,200% higher than the wine DTC shipping number?
Obviously, people are more likely to order from the nearby liquor store versus getting wine shipped to them because it is quicker, more convenient, and lower in price.
This factor accounts for Drizly’s high growth versus accounting for the lower growth rate of wine DTC shipping. So, it must be asked why is the DTC wine shipping growth rate so low?
The answer can be seen in what the Sovos/ShipCompliant report does not include, it does not include wine retail shipments. The reason being is that interstate wine retailer shipping is prohibited in the vast majority of the country. If the laws were made more favorable to wine retailers across the country, a significant increase in DTC sales would occur or at least we could measure its progress more accurately.
The law game
Drizly benefited from favorable laws that allowed it to operate freely in the market place. Ironically, in one of the most regulated industries, Drizly was able to operate in a pretty much unregulated way. State laws were also favorable towards Drizly’s operations. For example, my home state of Illinois is making state liquor delivery legal. Under the current regime, local governments can ban delivery, under the law awaiting the governor’s signature, the locals will have no more power over whether to ban delivery. Essentially leading to a less regulated field for Drizly.
It is also ironic that one of the biggest shareholders in Drizly, the Wine and Spirits Wholesalers of America (WSWA), which clamors for the benefits of a highly regulated industry, did not apply that same principles to the Drizly business model. Ownership does have its privileges.
But what if for a second we suspended reality and adopted the regulatory framework applied to Drizly and applied it to interstate wine retailer shipping. We could all foresee a future where numerous online retailers would grow such a great presence and scale, that they would become attractive targets to buy.
We could foresee a burgeoning retailer expanding rapidly and becoming say a target for Amazon, which would allow their founders to cash in and reward them for hard work, ingenuity, and the risk they took.
Isn’t that what this country’s free market system is all about?
In Drizly’s case the system worked the way it should, and its founders got rewarded for their hard work, ingenuity, and risk.
Why the alcohol system does not allow an internet wine retailer the same benefits should be asked. Is the alcohol regulatory system setup to highly regulated the industry, or to pick winners and losers depending on who is backing them?