The Important Question: Interview with DRINKS Co-Founder and CEO Zac Brandenberg
According to Nielsen, alcoholic beverage eCommerce has seen ten consecutive weeks of triple digit year over year growth since the beginning of the Coronavirus crisis. While it is growing from a relatively small share dominated by smaller beverage alcohol retailers, this crisis could well be the catalyst to change that forever.
“The big retailers who are mostly responsible for the $70 billion of wine sales have been abdicating the digital market to the others, which are mostly smaller players,” says Zac Brandenberg, DRINKS Co-Founder and CEO.
“If you were to add up the aggregate revenue of all the internet only retailers out there—be it Wine.com, WSJ Wine, and even the DRINKS direct to consumer properties, Wine Access and anybody else—you’re looking at roughly a billion dollars in eCommerce sales. But that’s because merchants haven’t really gotten into the market yet. When they do, it’s going to change very, very rapidly, and I think that’s what we’re starting to see now.”
DRINKS is a marketing technology company founded in 2013 and at its beginning focused exclusively on leveraging technology to disrupt the direct to consumer segment of the wine market with their Wine Insiders marketplace. “Wine Insiders was originally founded in 1982. We acquired the business in 2014 and really continued to grow it. Now, we’ve put wines in more than 2 million households around the United States, and are continuing to introduce our value proposition to consumers,” says Brandenberg.
Wine Insiders is a closed third party marketing service, operating an online consumer marketplace for premium and superpremium wine that markets on behalf of licensed entities. They are focused on $8-$20 SRP wines and work with a select number of licensed entities to ensure the right product mix for their consumers.
“Being DTC, we’re really reinforcing the three major tenets; curation, convenience, and value. So Wine Insiders and its celebrity partners are all about curation,” explains Brandenberg. “We have a couple of hundred SKUs for customers; it’s about the convenience, about shipping to your home, and it’s about the value of being able to buy it at a better price, a more competitive price than you’d get it in a traditional retail store.”
However, fundamentally a marketing technology company and not a wine company, DRINKS early on had their eye on the larger $70 billion retail market for wine, and in 2018 they launched their enterprise Wine as a Service (WaaS) platform to power retailers to sell wine online.
“We’re really proud of what we’ve done on the direct to consumer side with Wine Insiders, but we’ve always felt that the market is not going to be left to brands like WSJ Wine or Wine Insiders or Winc or even Wine.com. The customers are with Walmart, they’re with Kroger, with Costco, with Trader Joe’s, and when those big retailers finally enable their properties to service customers with the product they want, it’s where they’re going to go back to. The fact that they’ve abdicated the space so far to other digital-first players is not an indication that they are never going to play. When they do, they’re going to be dominant,” says Brandenberg.
So far, however, most large retailers have been slow to enter the alcohol eCommerce space, likely due to the many regulatory complications involved. Having an alcohol license in a state associated with a physical store does not necessarily mean you also have the right to ship out of that store in the state, much less across state lines into another state. So the utility of an existing license structure likely will not accommodate a nationwide ship-to-home program.
As DRINKS grew their direct to consumer business, they realized that the technology and infrastructure they had built to support Wine Insiders, specifically components like the compliance engine, the integration between the front-end eCommerce, and the ability to coordinate fulfillment and manage last mile, as well as segmented products for customers in different states, were all components of a toolset that could be used to enable other marketers or licensed retailers to add wine as a ship-to-home category.
Among the large retailers, Kroger is one of the early movers into the alcohol eCommerce space powered by DRINKS’ WaaS platform. “The expansion we did with Kroger Wine in November brought the program to 19 US states and Washington, D.C., representing 58 million households, both inside and out of their banner footprint. So customers are able to access Kroger Wine in the states where Kroger has a physical location,” says Brandenberg, “but those in the states of New York and Florida, for example, can also access Kroger Wine now. We’ve worked with them on enabling customers outside of their banner footprint, where they don’t have physical alcohol licenses associated to be able to access the value proposition that Kroger provides.”
While consumers had previously been slow to adopt buying alcoholic beverages online from brands that they were less familiar with, the coronavirus pandemic accelerated behavioral change bringing new customers into the eCommerce space.
“Demand is way up. Overall, we’ve seen a sustained 3x demand spike on our direct to consumer business, Wine Insiders,” says Brandenberg. “On the WaaS side of the business, our partner volume has seen equivalent if not greater spikes ranging from 3x to 12x.”
Though Brandenberg believes that the big retailers will become the dominant force in wine eCommerce that won’t change how they approach their direct to consumer unit. “We think of Wine Insiders as an opportunity to continue to develop a very loyal customer base. There are longer-term opportunities there in terms of how we see Wine Insiders, it’s curation, convenience, and value evolving.”
Martha Stewart Wine Co. is one of DRINKS’ other direct to consumer properties and an illustrative example of how smaller DTC brands could continue to thrive in the eCommerce marketplace that might soon be dominated by big retailers by relying on brand connection and exclusivity, and avoiding channel conflict. The majority of the wines in the collection are either exclusive or private label curated by Martha Stewart and served up with her pairing advice.
For DRINKS, operating their own direct to consumer properties also has the added benefit of informing the continued improvement of their Wine as a Service platform by feeding datasets and information from the direct to consumer unit and utilizing it to make their retail partners more successful in the eCommerce space.
“We want to empower retailers. That is what our Wine as a Service unit is all about, that is where the massive opportunity to bring access and convenience to consumers around the United States lies,” says Brandenberg. “It’s going to help change their access to wine, it’s going to benefit the macro wine ecosystem and the consumer population at large because it’s what consumers want.”
By Kim Badenfort