Posted on | April 22, 2015
Written by | Jeff Siegel
Using a smartphone to order food is one thing. Can hi-tech facilitate local delivery of alcohol?
Daniel Mensch, who owns the 1,000-square foot Pier Wines in Brooklyn, has no doubts about what the Thirstie liquor delivery app brings to his business.
“Any small business like mine is always looking for a way to drive sales,” says Mensch, whose store is four and a half years old. “You’re only going to get so much business from walk-in traffic. It’s a good way to increase your business.”
These apps, which have names like Drizly, Klink, Thirstie and Minibar, are the liquor equivalent of on-line restaurant delivery companies like GrubHub and Dining In, and harken back to the days of the FTD floral delivery system. Some, like Drizly, have big-time backers and deep pocket investor money, while others are less well-known but seem to be making inroads with retailers. Numbers for participating retailers are closer to three figures than four. So far, their growth seems to be mostly on the edges—New York, Los Angeles—with some larger cities in the middle of the country and, recently in Connecticut, Porter 21.
The selling point? Retailers sign up, and the app’s website or mobile app takes the order and sends it to the retailer, usually the one nearest to the customer. The retailer then fills the order and takes payment, satisfying the myriad laws that govern liquor sales in the U.S. Most of the time, the delivery prices are the same as those in the store, and delivery is supposed to take about 30 minutes.
The app firms handle promotion and marketing, reaching customers that the retailer might never find using traditional advertising or ever see, as Mensch notes, in his or her store. But can it be as simple waiting for the on-line orders to come rushing in? Perhaps, but before they do anything one way or the other, retailers should look at the process from every angle. Here are six questions retailers should ask to determine how to get the most out of a partnership with a delivery app:
1. Do you want to deal with delivery?
Delivery, as any pizza restaurant owner will tell you almost without being asked, is so much trouble that it wouldn’t be worth doing if it wasn’t essential. You have to hire drivers (and replace them when they quit in the middle of a shift), take and fill orders correctly, and deliver in a timely manner. One botched delivery could alienate a customer forever.
And this doesn’t include insurance and liability, which is much less onerous for food than it is for liquor. This is especially important with the liquor apps, since they don’t deliver the product. You do, which means you assume the liability for anything that can go wrong, including serving underage drinkers, violating dram shop laws, and the like.
Some of the apps offer services to help with some of that, like ID verification systems and real time credit card checks. But as Bryan Goodwin, the VP of retail partnerships and sales at Drizly, says, “The retailer owns the license, so they have the liability. But then they also understand that they need to use the same protocols they use in the store when they make the delivery.”
In addition, although pizza and food delivery is well established across the country, liquor delivery is not done much, and there is little understanding of whether consumers want the service. So, even before you worry about how to deliver, you need to consider if there is a demand for it.
2. Do you understand the requirements governing delivery in your area?
First, of course, is to find out if delivery is legal in your area, which can take on any number of permutations. If delivery is legal, are there special requirements—another license, certified drivers, and the like? If you’re in a wet area, are you allowed to deliver to a dry one? If you’re closed on Sunday, can you still deliver that day (and, if not, how will that play with consumers used to what seems like around the clock pizza delivery)? What happens if the delivery arrives after a state-mandated closing time?
3. Do you really understand the laws?
Gary Builder, who owns Lukas Liquor Superstore in suburban St. Louis, says his biggest concern was that the apps would bring him customers without sharing liability. As Kyle V. Hill with Martin Frost & Hill in Austin, Texas, points out, this is legal given the way the apps work (allowing for any variations in the law in each state). That’s because the apps take the order, but don’t accept payment or fill the order. In this, they’re not much different from other forms of advertising, Hill says, in the way they direct customers to the retailer.
That’s why Builder, whose liquor store has delivered for 15 years, says he’s more comfortable with the third-party delivery company he uses, which is inexpensive and accepts liability.
4. Will your costs allow app delivery to be profitable?
What’s the cost of the delivery, including the employee, gas, time out of store and credit card fees? What’s the cost of the app? Some charge a technology fee, others charge a marketing fee, and some take a commission on the sale, using various methods—sliding scale based on order amount or straight commission—that satisfy any legal requirements.
What’s your margin, and how big does an order have to be for you for delivery to be profitable? This is even more important than it seems, since “average” orders are still something retailers and the apps are figuring out. Talk to retailers, and orders can range from a six-pack of beer or a fifth of inexpensive blended Scotch to a case of wine for a corporate party order. Some of the apps, recognizing this problem, require minimum orders and charge delivery fees, depending on where the retailer is located. Drizly’s minimum ranges from $20 to $30, and some of its cities charge a $5 delivery fee (which is given to the retailer).
5. Do you want to trust another company with your brand?
You do the delivery, but the app takes the order. What if they screw it up? This, too, is something the apps recognize, says Thirstie CEO Devaraj Southworth. “We’re selective when talking to retailers,” he says. “We’re looking for technology savvy, who has a marketing platform, who already has delivery, good inventory and selection on their plate, and are willing to work with us.”
In this, the apps understand the importance of a website that doesn’t go down and making sure orders get from the app to the retailer every time. And, as several pointed out, ordering is meant to be as seamless as possible, so that the consumer usually doesn’t know which retailer is filling the order.
6. How does the app assign orders?
Most use territories, where orders are sent to the retailer nearest the consumer. Determining territories can vary, but the more orders in one area means more business for that retailer. The catch, of course, is when a new retailer signs up; how does the app divide the territory?