Liquor stores in the United States have been viewed as critical businesses during the global pandemic, not only triggering the rise of alcohol e-commerce, but triggering a domino effect from recent venture capital investments, mergers and acquisitions and companies entering public markets.
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Experts say this activity lends credibility to an industry that continues to gain ground: the share of alcohol sales made online was only 1% in 2019, compared to 3.4% for grocery and 38% of clothing sales during the same period.
However, that all changed in 2020, according to Johan Brenner, general partner at early stage venture capital firm Creandum, an investor in the San Francisco wine app and online wine market Vivino.
“In early 2020, due to COVID-19, all online categories took off,” Brenner said via email. “At Vivino, for example, growth exceeded 100% in 2020. It seems people weren’t drinking more, just shifting their consumption to their homes and enjoying the convenience of home delivery while dining out. and the bars were closed. ”
International Wine & Spirit Research now expects the total value of alcohol e-commerce in 10 global markets, including the United States, to exceed $ 40 billion by 2024. That’s after the figure reached about $ 5.6 billion in 2020, up from about $ 3 billion in 2019.
“The owners of large retail outlets have been left on the sidelines”
Although COVID-19 fueled an increase in alcohol sales in e-commerce, venture capital investment dollars and transactions in space generally declined between 2019 and 2020, according to data from Crunchbase .
Experts say this is largely due to poor e-commerce strategies, while investment may have lagged behind as investors were unwilling to pay higher valuations for companies temporarily boosted by the pandemic.
Alcohol companies can advertise online, but not everyone knows how to effectively develop online strategies. Exposure therefore remains limited, Zac Brandenberg, CEO of DRINKS, told Crunchbase News.
His Los Angeles-based company has developed a wine-as-a-service platform for businesses or brands to launch their own home wine delivery program. It has raised $ 28.3 million in total known funding since its inception in 2013, according to data from Crunchbase.
“The owners of large retail outlets have sat on the sidelines and not aggressively involved in online shopping,” Brandenberg said. “As we master how to meet customers outside of the typical retail footprint, it will become more omnichannel. “
Meanwhile, Catharine Dockery, founding partner of Vice Ventures, said in an interview that her company has not been very active in the space in recent months due to inflated company valuations.
“We don’t want to pay a higher assessment because someone has done well in COVID,” she added.
During the first quarter of 2021, the alcohol e-commerce market saw significant business activity, including:
Since 2016, global alcohol e-commerce startups have received $ 2.06 billion in funding spread across 608 investments, according to data from Crunchbase. In the United States, investors paid $ 1.06 million in 285 deals during the same period.
Building on Vivino’s increase this year, funding in 2021 is already approaching 2020 levels globally and outpacing investments in the United States
‘Lots of margin, value to capture’
Wine and spirits is a large and heavily regulated market in many places, but startups are creating opportunities in e-commerce, the digital experience, and better logistics to change the industry, Brenner said.
“If you look at the value chain, there is a lot of margin and value for new players to grab,” he added.
The acquisitions announced last year were in companies whose use was boosted by the pandemic, Dockery said. She also expects investors to continue to pump money into e-commerce and delivery, as well as more liquor companies to enter public markets if it appears they are. will succeed.
And, after the bars and restaurants have fully reopened, Dockery believes it will be a good time for companies to introduce new brands and craft cocktails.
“In the future there will be a lot of deliveries because people have found it easier,” Dockery said. “I think alcohol delivery will continue to grow and receive more investment. Ready-to-drink cocktails are expected to represent 20% of the market by 2024, and I’m very optimistic about that. “
When Vivino founder and CEO Heini Zachariassen saw the company’s sales figures increase last summer, he said investors started calling.
The February round of the San Francisco-based company gave it a total of $ 221 million in funding known since Vivino’s inception in 2010, according to data from Crunchbase.
“With Series D it became a different conversation with investors and more focused on the numbers,” Zachariassen said. “The key for us was growth, but also the economy – we hit two out of four quarters in 2020 and were profitable.”
Even with the growth investment, Zachariassen still sees Vivino as a small company of 200 people selling wine in 17 markets. As a result of the adoption of alcohol e-commerce, more and more companies will invest in engineering, technology and product marketing to stay ahead of new entrants attracted to investor attention and change market trends. consumer buying habits, he said.
“Wine is sexy and fun, so we always have business coming in, but this market is getting interesting, and having a big war chest is going to be important,” Zachariassen added.
“This industry is one to watch”
The liquor and spirits category was one of the last product categories to move online despite a market of over $ 167 billion and very popular, Brandenberg said.
He attributes the slow adoption of e-commerce to strict regulations that have dissuaded companies, such as Amazon, from establishing a proper foothold.
“The patchwork of federal, state, departmental and municipal regulations threatened to stifle the ability of customers to obtain products, creating a huge barrier that required change,” he said.
Putting American liquor stores in the essential business column has enabled retailers, delivery platforms and direct-to-consumer brands to expand the way they reach consumers, including curbside, fast delivery and home delivery, he added.
Alcohol e-commerce companies will continue to leverage these channels to capture as much market share as possible, as well as build on the online shopping habits that consumers have become accustomed to over the past decade. past year, experts said.
In addition, this large market will be a magnet for new players and innovation, especially when e-commerce grows rapidly and businesses can take advantage of the convenience, Brenner said.
“Incumbents are moving online and we will see new players use data and digital user experiences to create better products and more loyal services,” he added.
Brandenberg expects large retailers to drive more online and curbside transactions as they strive to keep up with the Instacarts of the world. There will also be more significant alcohol e-commerce announcements as the industry continues to mature, he said.
“The concept of a Drizly wasn’t something people expected outside of California, where liquor stores typically deliver,” Brandenberg added. “Now that’s a normal thing to do. In one to two years, it will be common for someone to buy toilet paper online, while putting wine in their basket. This industry is one to watch.
Illustration: Dom Guzman
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