Traditionally, direct-to-consumer (DTC) alcohol sales have been severely constrained by the three-tier system. But recently, and spurred on by COVID-19’s effect on the industry, legislative reins have begun to loosen a bit. Some new players on the scene are helping to make the DTC dream a more actionable reality, particularly for smaller companies, who have not usually had the benefit of a large distribution cohort.
As products move through each realm of the three-tier system for alcohol distribution and sales in the US, taxes and markups are added. Each tier is also regulated and licensed separately. These tiers include:
- Producers that initially sell their products to wholesale distributors
- Distributors that sell these products to retail stores (e.g. bars, restaurants, liquor stores)
- Retail stores, bars, and restaurants that ultimately sell these products to consumers.
The services that are helping to modernize the DTC space are designed to work within the three-tier system and maintain compliance at both the state and federal levels. But, the companies that are changing the landscape are doing so by slightly modifying the role of the distributor in a variety of ways.
The Emerging DTC Landscape
Online marketplaces like Drizly and ReserveBar operate as digital liquor stores. Consumers visit the site and enter their address to find the same-day delivery (or 2–5 day delivery if out of market) options nearby. These platforms are essentially a virtual shelf for the distributors who opt into their platform, with robust search functionality that allows consumers to shop by category, brand name or store location.
Who this approach is for:
Typically, larger brands that already carry large enough recognition to hold their own on shelf perform best on these platforms. While there are inbound ways brands can link to their pages on these platforms, many consumers arrive here as a first-stop – at which point, there are few opportunities for any individual brand to stand out against the rest with the exception of discounts or cost-based promotions.
Startup-sized brands will likely have a tougher time converting among a sea of big players. In addition, brands that rely more heavily on narrative, history, or uniquely differentiated offerings may have a tougher time connecting with consumers through these platforms as there is very little room for content-based marketing beyond product descriptions.
Many brands are increasingly choosing to host a storefront on their own website, sometimes in addition to other DTC channels. These storefronts are operated by third party companies, such as Cask and Barrel Club, Thirstie, Speakeasy or Spirits 360 which fulfills the “distributor” role. Typically these experiences allow enable a holistic customer experience as well as varying levels of customization and branding opportunities through every touchpoint of the ecommerce journey.
Who this approach is for:
This approach can help smaller brands with a compelling product or narrative to convert sales by offering the product when a potential customer is most interested—when they’re already on your site and learning about your offering. The primary hurdle is driving traffic to your brand site in the first place. Pairing this approach with a robust social media, paid media and/or influencer strategy can help mitigate this challenge.
Companies like LibDib are reimagining the role of the distributor by replacing “trucks and warehouses” with “the power of the internet.” These kinds of services aim to streamline the traditional distributor role by enabling a brand to have a direct connection to the retailer. These companies take in orders and handle shipping while focusing on compliance and taxes along the way, offering a more hands-on approach than traditional distribution methods.
Who this approach is for:
This solution is ideal for brands that want to be involved in every step of the process and already have relationships within the industry. For example, industry veterans who are bringing an innovation brand to market for their first time could greatly benefit from this approach.
Factors To Consider
While the entire DTC alcohol landscape is in flux at the moment, with both new legislation and innovative offerings cropping up regularly, there are a few key factors you’ll want to prioritize before making any major decisions about your brand’s strategy.
Location, Location, Location
Almost every state has its own take on legal requirements, which can be difficult terrain to navigate. Determine your key markets and then opt for DtC partners that are already operating here or soon-to-be expanding into these markets.
There are a variety of factors at play here, as many of these businesses are currently solidifying their relationships with common carriers like UPS and FedEx, which can affect everything from international availability to negotiated shipping rates, packaging design and discounts, and even responsibility when the bottle leaves the distillery. For example, Spirits360 became a UPS certified company in early October. In addition to ensuring you’re compliant with shipping regulations, choose partners that maximize availability while minimizing overhead costs.
Some companies, like SpeakEasy, handle warehousing—while others notify brands when an order has been placed. This means brands are then responsible to retrieve the appropriate product or work with another third-party partner who can own this responsibility.
Brands are only as smart as the real-time data they can validate. Fortunately, a lot of these DTC providers have caught on to the importance of this fact. For example, Cask & Barrel Club provides “full access to Google Analytics, customer data and sales reports,” enabling brands to track and cater to everything from abandoned carts to retargeting ads. Many of these services provide dashboards filled with data that allow brands to optimize their growth strategy with more agility than ever before.
With alcohol DTC sales up as high as 27% during the COVID-19 crisis, many of these companies are finding themselves in high demand. Recently, DTC businesses like Thirstie have had a queue of up to 8–10 weeks for new partners. With that in mind, now is the best time to start planning your approach in order to stay ahead of this ever-changing landscape.
All signs point to the alcohol DTC market gaining greater access and facing fewer limitations moving forward, with progress being made every day. As brands look to the future, the need for a strong DTC strategy increases as the commerce and entertainment habits of the spirits industry continue to be local or home-based.
To learn more about how we’ve helped brands navigate this new market dynamic and how we can help you contact us today.