Uber Buys Drizly in Massive Deal: What This Means for Compliance and the Wine Industry
February 03, 2021
In just 9 years, Drizly turned its alcohol-delivery business from a startup into a 1,400-city giant built on a model that follows all local laws—a necessity with the thicket of state regulations in the U.S.
On Tuesday it agreed to be purchased by Uber for $1.1 billion—90 percent in stock, and the rest in cash. It's an interesting cultural fit because Uber has built its business into a global colossus by flouting local laws whenever they are inconvenient.
The deal does immediately give Drizly global reach, but it also raises questions about whether compliance will still be important to it.
Just last year, The Washington Post reported that Uber was delivering cocktails-to-go without checking IDs. The California ABC (Department of Alcoholic Beverage Control) investigated and reported that "third-party delivery services are routinely delivering alcoholic beverages to minors," though it declined to take action.
Then in November, a ballot initiative funded by $200 million from Uber and other delivery companies overturned a new California law that had classified drivers as employees. Uber's electoral win enabled it to keep treating even drivers with full-time hours as contractors, thus denying them benefits like health insurance. Uber stock went up 11 percent the day after election day.
In previous years, news media have reported stories like "Uber clashes with regulators in cities around the world" (The Guardian, 2017); "How Uber Deceives the Authorities Worldwide" (New York Times, 2017); "Why Uber Can Defiantly Flout the Law in Taiwan" (Forbes, 2016); "Uber flouts rules with San Francisco self-driving test" (Auto News, 2016). We could list many more, but let's finish with "Why Does Uber Keep Breaking the Law? Because They're Disrupting, of Course" (Inc., 2016.)
Neither Uber nor Drizly would answer questions about the deal on Tuesday. Uber's head of communications directed reporters to a press release.
Uber's press release read in part:
Drizly plans to innovate and expand independently in its fast-growing and competitive sector, while also gaining access to the advanced mobile marketplace technologies of the world’s largest food delivery and ridesharing platform. Merchants on Drizly will be able to benefit from Uber’s best-in-class routing technology and significant consumer base. Delivery drivers will have even more ways to earn. And Uber’s rewards and subscription programs will be able to deliver even greater value to consumers with new benefits and perks on Drizly."
Uber, which grew its food-delivery business by buying Postmates last year, previously tried to enter the alcohol delivery business as a competitor. It tested out an Uber alcohol delivery service in New Jersey. Jeff Carroll, partner in Wine Dad's in Hoboken, told Wine Business Monthly that Uber used a similar model as it does with Uber Eats, which usually does not offer a restaurant's entire menu. Carroll said the Uber alcohol delivery model limited his store to 100 items.
"We picked popular sellers," Carroll told WBM. "It just didn't work out. We dropped them after a few months."
In contrast, Drizly has been popular with retail liquor shops, which have gained incremental business easily. Drizly has helped stores to set up web pages and it manages sales and delivery. Drizly sales were up 350 percent in November 2020 compared to the previous year; wine made up 38 percent of sales on Drizly. (Liquor was 41 percent.)
Drizly built its business quickly through a partnership beginning in 2015 with the powerful entity most interested in enforcing every single local liquor law, the Wine and Spirits Wholesalers of America (WSWA).
"Drizly has been a strategic model, in that their business model was enabling local delivery from local, licensed alcohol retailers," said Michael Bilello, WSWA senior vice president of communications and marketing. "That meant that they could be three-tier compliant, but offer convenience. We think that was a model for the future. It takes the 21st Amendment into the 21st century."
When asked if WSWA is comfortable with Uber's scofflaw culture, Bilello said, "WSWA is about meeting consumer demand for alcohol delivery. That's something that Drizly has done very well. How do you provide consumer convenience in a regulated alcohol marketplace? The answer has been Drizly."
When asked the same question again, Bilello said, "What impressed Uber about Drizly is that, from the very beginning, they wanted to be regulated the right way. Uber spoke to Drizly about doing things the right way. Drizly has worked with local regulators and they built things the right way so they could be confident going to local merchants. Uber Eats and Drizly, they check IDs. They're using the same technology. The DNA of Drizly is to operate in a well-regulated marketplace, and that is going to remain."
Drizly's main competitor is Minibar, which does essentially the same thing, but the company is smaller.
"We are extremely bullish on the alcohol sector and this (Uber-Drizly) deal is further validation of our business model and the market's appetite for it," Minibar co-founder and CEO Lindsey Andrews told Wine Business Monthly. "Currently, only a small portion of alcohol sales are done online. There is still a lot to do and we are excited to continue the work to help our local store partners grow and increase their e-commerce presence while serving our amazing customers across the U.S."