Growth of alcohol-focused e-commerce platforms

Following consumer trends and fueled by the pandemic and related easing of restrictions on the regulation of alcohol delivery by retailers in the state, the market for alcohol delivery services has grown exponentially. over the past few years and shows no signs of slowing down. Industry forecasts predict double-digit year-over-year growth through at least 2025 for alcohol-focused e-commerce platforms. However, like everything in the beverage alcohol space, various entry routes for new or existing businesses come with certain restrictions that must be balanced against the opportunities for customer convenience through alcohol delivery services. ‘alcohol.

Models available

As alcohol delivery has grown and expanded in nearly every state in the United States, many delivery models have evolved to bring alcohol to the consumer’s doorstep. Among the different models, three emerged as the most dominant marketing approaches to serve this new industry sector.

The former are purely e-commerce platforms that connect consumers directly to a wide variety of licensed but unlicensed alcohol retailers (like Drizly). The second are unlicensed white label liquor delivery services that appear as a branded website but connect directly to a single retailer (like Thirstie). And the third are delivery platforms that hold alcohol licenses themselves (like Gopuff).

Regulatory Opportunities and Obstacles

While each of these models presents growth opportunities to meet consumers’ desires to have alcohol delivered to their doorsteps, they also come with a host of restrictions that entities – and any investors in these businesses – must to understand. Foremost among these considerations are:

  • “Alcohol Sale”: If the liquor delivery service itself is not licensed, the “sale” of liquor must be between the consumer and the ultimate retail licensee. This means that the service itself cannot first receive the funds for the sale, collect its fees, and then pass the funds on to the licensee. In some states, however, the provider may be able to direct the funds first to an escrow or other independent account if the licensee retains some control over the account. The authorized retailer must also always maintain control over the “sale” of alcohol, including setting prices and accepting or declining orders.

  • Fee structure: While state regulators allow platforms to charge for their delivery and fixed costs related to their services, how those fees are derived can be particularly important if it is or can be correlated with alcohol sales. This restriction is based on the fact that only a licensed entity should receive the benefit or privilege of selling alcohol. Thus, some states such as New York have suggested that if the fee structure is not a “flat rate” for services, receiving more than 10% of a retailer’s revenue from the sale of alcohol makes the platform a “co-licensee”. and subject to state authority and licensee verification process.

  • Supplier advertising: The ability of liquor providers to pay to advertise on liquor delivery platforms is of particular concern to state liquor regulators. First, if the platform itself is unlicensed, it can allow vendor advertising, but it must rigorously ensure that the money it receives for vendor advertising does not directly or indirectly benefit a retailer. Alternatively, if the platform focuses on a single retailer-branded website or is itself an authorized retailer or owned by a retail licensee, it will be important to draw an analogy between supplier advertising in the digital space and authorized advertising of the supplier in the physical retail premises. This would include drawing parallels with authorized “signage” or other physical displays to avoid concluding that the supplier’s advertising is a means of inducing the retailer to purchase the supplier’s liquor.

  • Save and unlock the value of personal data. Consumer privacy is no longer an issue limited to international operations. California, Colorado, Connecticut, Utah, and Virginia have all recently passed consumer privacy laws that impact how companies collect and use consumer data. These changes are important for alcohol delivery companies, as the data collected from their platforms is sometimes their own source of current or future revenue. Further, how this data is shared, sold, or paid for between tiers has ramifications not only for liquor laws, but also for privacy, consumer protection, and antitrust.

  • Variations by State: As with everything in alcohol, each state approaches alcohol delivery differently. Considerable consideration and due diligence should be given to developing a model that can be scaled, as different states offer unique opportunities and limitations for retailers looking to deliver their alcohol (compared to potentially third-party vendors). not approved). In addition, there will be variations regarding the authorization to deliver different categories of alcohol – beer versus wine or spirits, and even the licensing, permitting, training and reporting requirements that must be considered – depending on the jurisdiction.

Alcohol delivery is here to stay, and consumers will push for its convenience and access as they do for other types of consumer goods. However, the commercially preferable model (or combination of models) will continue to develop as alcohol regulators make room for this new market approach to the sale and delivery of alcohol. alcohol. With the success and attention these services are seeing, state regulators will likely continue to focus on delivery-related compliance areas. As such, platforms should do their due diligence to ensure their current models are compliant and closely monitor and adapt their models based on state regulatory updates and changes.

© 2022 McDermott Will & EmeryNational Law Review, Volume XII, Number 124

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