This week, an interesting article landed in my inbox from Beverage Daily. In it, the author comments on the benefits of being a digital native brand and some of the challenges (primarily regulatory) that alcohol brands face in adopting that model. All in all, the author posits that drinks companies are behind the curve when compared to the adoption of digital branding efforts by other similar consumer products companies not involving alcohol.
Certainly there can be tremendous benefit in being digitally relevant to the consumer. And it is obviously also true that regulatory requirements imposed on alcohol brands can make it difficult for booze companies to market directly to their consumer, let alone to sell directly to their consumer. And it is that DTC sale that allows a brand to cut out the middle-man, achieve higher margins, etc. It is for this reason that many of our smallest spirits brands rely so heavily on tasting room sales to stay in the black.
But while it is difficult for spirits to be sold online (particularly across state lines), it is worth noting there are two moves afoot that may change the overall online booze dynamic considerably.
First, note that for some time now there has been a meaningful (albeit fairly ineffective so far) movement to expand the Granholm ruling to cover spirits. Simplified greatly, if this movement were successful, then a state that permits in-state DTC sales of spirits by producers within its borders would be unable to prohibit in-state DTC sales of spirits by producers outside its borders. The original Granholm ruling related only to sales of wine – but it was that 2005 decision which spurred significant growth in interstate sales of wine through the mail. To the extent that this ruling were extended to spirits, it is reasonable to assume that similar growth in interstate sales of spirits through the mail might occur. That would mean a decrease in producers’ reliance on distributors – and therefore less business (and profit) for those same distributors. So it isn’t much of a surprise that the middle tier would prefer that Granholm not be extended – and would lobby against any such change.
Second, perhaps the largest single disruptive force in our economy today has begun dipping its toe in this water. I’m speaking of Amazon – which acquired Whole Foods in mid-2017. As a result of that acquisition, the largest online retailer in the U.S. acquired physical stores that are currently selling alcohol (of one type or another) in 40+ states. Amazon previously dabbled in grocery delivery. So it seems only natural that following the Whole Foods acquisition it would once again take up that challenge. And once it does, it seems reasonable to think that they will make every effort to include alcohol among the items that they can deliver.
Those efforts might actually include efforts to shore-up Granholm. After all, if Amazon (through Whole Foods) wants to establish a beachhead for the online sale and delivery of alcohol, it probably doesn’t want spirits brands being able to sell directly to consumers online (at least until they find a way for Amazon to fulfill those orders). And there’s the irony: the most disruptive force in the economy might actually want to prevent further disruption in the industry as it establishes itself in the space.
HoochLaw 