Posted on | March 21, 2016
Written by | Jeff Siegel
Now may be the perfect time to see if delivery apps are right for you.
The battle between the companies that want to help liquor retailers set up customer delivery is becoming more intense than ever, thanks to a confluence of seemingly unrelated events. The upshot? If you want to try delivery by using one of the on-line apps, this may be the best time to do it.
That’s because the apps—the dozens of companies with names like Drizly, Klink, Lash, Thirstie and Minibar, which are the booze equivalent of on-line restaurant delivery companies like GrubHub and Dining In—are increasing efforts to add retailers and cities to their lineups.
The apps work by recruiting retailers to their system, where the app’s website or mobile gizmo 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, in the process satisfying the myriad laws that govern liquor sales in the U.S. Delivery prices mostly approximate those in the store, though some apps tack on a delivery charge based on the size of the order.
Over the past six months, these app companies are adding services, doing deals with beer producers, and scrambling to attract retailers—big and small. The idea is that this gives them leverage if and when a shakeout in home delivery takes place. In addition, Instacart, the leader in home grocery delivery, has added liquor to its services, signing Costco, Target and Whole Foods, as well as Binny’s, the 31-store Chicago chain. Meanwhile Uber, the car service app, and Amazon, through its Prime Now feature, are testing liquor delivery services.
“Sooner or later, the pendulum is going to swing,” says Chicago retail consultant Bill Bishop. “So far, there doesn’t seem to be a huge rush to consolidate, but it is going to happen.” (New York-based Thirstie recently acquired Chicago-based DrinkFly, bringing Thirstie’s coverage to 22 cities.)
Bishop says home delivery, not just for liquor but for groceries, remains a mostly unproven concept, and that no one is quite sure how it will eventually evolve in terms of format or who will be left after any consolidation. One telling point: Delivery accounts for just five percent of Whole Foods’ sales, and it may be the most successful with app delivery. The tech press, meanwhile, is reporting that venture funding—crucial for the apps’ growth while they expand and look for market share—started drying up last fall, and some companies, including Instacart, have announced layoffs. The latter did not respond to several request for an interview for this story.
Until the shakeout, Bishop says, retailers who want to add delivery through the apps have “the best of all worlds” for several reasons:
£ The perception that consumers want delivery services more than they ever have, which seems to offer retailers an opportunity that may not have existed a couple of years ago. “If you’re a retailer looking for growth, you can’t afford not to be part of that niche,” says Bishop.
£ Retailers doing delivery can take sales away from the competition. Again, there’s a sense that this is the case, but whether anyone actually cannibalizes sales from other retailers or does it from themselves is still largely unknown.
£ Low gas prices, which not only cut costs but make even smaller deliveries more affordable for retailers.
Having said all this, retailers should understand that adding app delivery requires some hard decisions, the most difficult of which is legal. Can you do it where you are? Francois Guillox, a retail liquor consultant in Little Rock, says Arkansas regulators are trying to make it more difficult for retailers to deliver in his state.
Know, too, that delivery is a notoriously low-margin business, even with lower gas prices. Can a retailer make it work financially given his or her costs, plus what the app service charges? Some call it a fee for using their technology, while others charge for marketing. Still others take a commission on the sale. Binny’s for example, isn’t giving Instacart its larger and more profitable orders, keeping them for itself.
Bishop says that’s part of the other key to success: Will delivery be profitable on its own, or will retailers have to subsidize it, accepting the loss as a marketing tool to reach more customers? That depends on the retailer’s cost of each sale and whether delivery will add enough sales to make delivery worthwhile.
“Over the long term,” he explains, “no one has been able to answer that question.” Can retailers make money doing delivery?” Now, may be the time to find out.