The Technical and Legal Challenges of Alcohol Commerce

Brittany Blackman
Oct 4, 2021

Alcohol Commerce is a sector that is not only rapidly growing but changing and evolving at the same pace. Alcohol used to be difficult to obtain via delivery since in the United States, liquor laws were fluctuating but strict. Consumers could only purchase wine and spirits from exclusive alcohol sellers. But things have changed. 

Interestingly enough, the pandemic was one of the main catalysts that led to the changing. Liquor stores in the U.S. were deemed essential businesses during this time, triggering not only the rise of alcohol eCommerce, but setting off a domino effect of recent venture capital investments, and more DTC companies entering the marketspace. 

Furthermore, the share of alcohol sales made online was a measly 1 percent in 2019, compared to groceries at 3.4 percent and 38 percent of apparel sales during the same time. Fast forward to spring of 2020, and alcohol sales were up a staggering increase of almost 20 percent and 18 percent compared to the same period. International Wine & Spirit Research now expects the total value of alcohol eCommerce 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.

The Current Space

2020 changed everything for booze eCommerce. Restaurants, bars, tasting rooms, and brewpubs either closed completely or had severe restrictions imposed, as local governments scrambled to rewrite the rules. Cocktails to go became a staple in cities to ease the financial burden that many restaurants were experiencing. 

However, most people at that time were opting to stay inside. The natural next step would be to just head to the grocery or liquor store and grab some bottles. But even that became daunting, thus opening the opportunity to optimize alcohol delivery. 

Since 2016, global alcohol eCommerce 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.

Before alcohol eCommerce took off, the first companies that noticed the demand for effortless alcohol delivery were Drizly and Vivino. Recognizing the vast growth potential for eCommerce from a shaky standing point, Uber announced they would acquire Drizly for $1.1 billion, and Vivino announced a record investment round of $155 million. This decision was aided by the fact that while eCommerce represented just 1% of off-trade retail alcohol volume in the U.S. in 2019, it will grow to 7% by 2024, according to IWSR. A risky yet worthwhile investment. 

For more perspective on how much of a shift the industry was experiencing, Bloomberg Tax highlights the tiers of alcohol distribution: 

The three-tier system of beverage alcohol regulation established a traditional sales model where suppliers (wineries, breweries, distilleries, and importers) sell to wholesalers, wholesalers sell to retailers, and retailers sell to consumers. Delivery apps and marketplaces represent a new “fourth tier” of the industry. Delivery apps usually facilitate sales from retailers after products have traveled fully through the three-tier system, whereas marketplaces typically facilitate sales from manufacturers or retailers that ship across state lines direct-to-consumers using carriers like FedEx and UPS. 

The rapid growth of sales originating from this fourth tier forces lawmakers to establish new frameworks and policies for regulating these unlicensed entities that solicit on behalf of different types of licensees.

However, with such a quick industry switch-up it’s inevitable that tribulations and legal issues will persist as the pandemic continues and heavyweights in the industry join the game. 

The Changing Nature of Alcohol Commerce

Since the days of Prohibition, legal matters surrounding alcohol have been murky and ever-changing. To this day, alcohol companies have to leap through many hoops. Breweries and distilleries are recognizing the increasing importance of DTC sales during the pandemic. Many plan to expand the roster beyond the “fewer than 12 states” to which they can currently ship. Wine retailers are also coming off a 2019 victory in the Supreme Court, and are actively pursuing litigation and legislation to allow out-of-state retailers the same opportunity to ship to consumers that in-state retailers exercise. 

There’s a lot of confusion surrounding the extent of these laws. Lawmakers approved carryout cocktails in certain states yet governors approved them in others. Nevada hadn’t passed a whole statewide measure, but individual cities like Las Vegas and Reno allow them. In Pennsylvania, only restaurants and bars that lost 25% of average monthly total sales can sell cocktails to go. But how do regulators even track this on such a large scale? 

Not to mention, most carryout cocktail regulations last summer required customers to buy food with their mixed drinks. Lids or seals are generally required, but some states say drinks also need to be transported in the trunk. 

Recently, the Supreme Court made an important decision regarding Tennessee Wine & Spirits Retailers Association v. Thomas, finding Tennessee’s “durational residency requirement” unconstitutional. The requirement stated that applicants for a liquor license must reside in Tennessee for at least two years. 

The case highlighted the issue of whether a state’s authority to regulate alcohol sales under the 21st Amendment outweighs the rule that only Congress can regulate interstate commerce. The Court explained that while states have the power to regulate alcohol, they may not discriminate against out-of-state interests trying to do the same. 

Wineries, who already have access to 46 states, will probably look to preserve the status quo because they have fought for decades to get access to 97% of U.S. adults via DTC shipments.

On that note, one of the more significant changes to the US’s legal system for alcohol has been the approval of DTC spirits sales in strict states, like Kentucky and Virginia. 

DTC sales may be common in the US wine industry, but legislative red tape has long prevented spirits from moving into the sector. Moving forward, distillers would like to see the measure made permanent. Trade bodies aren’t exactly advocating the dismantling of the three-tier system, rather an evolution of it.

If the move is made permanent, it will mark one of the most significant changes to US alcohol law since Prohibition.

Major Drawbacks

Let’s dissect more specific legal hurdles. Many legal advocates perpetuate that alcohol is not an ordinary commodity and should not be treated as such. Which, if you’re keeping up, is the opposite of recent wins for alcohol eCommerce. 

Furthermore, scientific research shows that the more readily alcohol is available, the greater potential for widespread harm. excessive alcohol use is responsible for approximately 88,000 deaths every year, including 4,300 deaths among underage youth. Alcohol use is associated with motor vehicle crashes, violence, crime, and more.

As stated in the Amici Curiae brief submitted by the U.S. Alcohol Policy Alliance, et al.,  the experiment with Prohibition and Repeal demonstrates that “alcohol, unlike most other consumer products, could not be left to the ordinary rules of the marketplace without triggering a host of public health harms, from death and injury associated with excessive drinking to increased crime, violence, poverty, and other forms of social destabilization.”  The 21st Amendment “endeavored to minimize alcohol-related harms by delegating primary regulatory powers to the states, since they were more attuned to the specific problems that alcohol misuse engendered within their borders and could be more nimble in responding to them than the federal government.” 

That’s a lot of legal jargon that essentially says that the wide availability and ease of purchase of alcohol could have dangerous consequences. 

Additionally, while California extended alcohol-to-go through 2026, New York ended its program all of a sudden after 15 months even with support for the program’s continuation. Oddly enough, New York is still included on DoorDash’s participating venues. 

This brings us to the present day. 

Alcohol Delivery and the Future

The DoorDash delivery app will now bring wine, beer, and other alcoholic beverages to customers. Prior to this, alcohol was purchased as kits and pre-made cocktails as an addition to food. Now it has its own tab on the app. 

The option for alcohol delivery will be available in California, New York, Washington, Idaho, Arizona, Texas, Minnesota, Ohio, Illinois, Massachusetts, Connecticut, Virginia, Florida, Kentucky, Tennessee, Michigan, Iowa, Oregon, Missouri, and Nebraska,  AKA the states that don’t have legal barriers around alcohol delivery...yet. 

Loosening legal constraints and the increase in online alcohol purchases was driven by necessity and it’s safe to assume this shift in consumer habits won’t be going anywhere anytime soon. This means alcohol brands and vendors need to adapt.

Furthermore, the growth in alcohol eCommerce in the U.S. shows major upward momentum, and the U.S. is today on track to become the biggest alcohol eCommerce market by the end of 2021. Research also shows that almost half (44%) of the people in the US who purchased alcohol online this year were first-timers. And that’s only going to grow. 

While the legality of alcohol eCommerce will most definitely fluctuate, the way we consume and purchase alcohol has changed forever on the tails of the pandemic. There is no question that while many challenges will persist, alcohol eCommerce is only going to grow, and innovations within the sector will continue apace.

Download our case study on how SUMO Heavy helped get one of the early Alcohol Commerce sellers online

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