Home Wine Business Editorial DTC Third Party, Fourth Tier? How Delivery Services Are Changing Alcohol Sales

Third Party, Fourth Tier? How Delivery Services Are Changing Alcohol Sales

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The pandemic changed the way we shop.
This is both good and bad news for wine producers.

By Jeff Siegel

 

DrizlyHave third-party delivery services such as Drizly and Instacart ever been more in demand? Drizly, which was scooped up by Uber for $1.1 billion in 2021, just announced a tie-up with Gopuff, adding that e-commerce platform’s alcohol selection to 26 Drizly states. Meanwhile, Instacart recently told analysts it’s all but ready to announce its long-delayed multi-billion dollar IPO after 2022 results that included a 50%  jump in fourth quarter revenue and an 80% increase in gross profit.

“The pandemic changed the way we shop,” says Jason R. Canvasser, an attorney with Clark Hill in Detroit, Mich., who represents clients in the alcohol trade. “Things were shut down, and we couldn’t go to a restaurant or a retailer even if we wanted to. So we developed things like cocktails to-go, that had never been done before. Third-party [delivery] was going to come sooner or later. The pandemic just made it sooner.” 

This quick shift in accessibility is both good and bad news for wine producers. Yes, it’s another way to reach the retail market, but it’s also about as close as the three-tier system gets to being unregulated. As such, there remain a host of questions about what’s legal and what isn’t, as well as what happens to those involved if something illegal does happen.

This includes the question of liability.

Alex Koral
Alex Koral

“That’s one of the issues that developed during the pandemic,” says Alex Koral, regulatory counsel for ShipCompliant by Sovos, which offers cloud-based three-tier and DTC products. “What is a legal delivery? Who is selling the product? Who is acting as an agent for the retailer?”

What Is It?

For a traditional delivery, the retailer or restaurant uses its employees to deliver the order. Pre-pandemic in most states (and with the caveat that each state is different), a retailer license allowed alcohol delivery, while an on-premise license almost never did. Hence, before the pandemic, liquor stores delivered beer, while restaurants only delivered food.

In this, third-party delivery services have opened up an entirely new area of liquor law, say attorneys interviewed for this article. If they’re not exactly a fourth tier, they’re not exactly the same thing as a traditional third-tier licensee that delivers only in its market area. For one thing, they don’t have the same licenses that the on- and off-premise do. For another, they straddle the law between traditional delivery and something like cocktails-to-go, which many states allowed during the pandemic as a short-term exception. Some services, such as Drizly, only work with retail. Some, like GrubHub and DoorDash, work with both retail and restaurants.

“Drizly only operates in states and jurisdictions in which we are legally able to do so,” says Blaine Grinna, Drizly’s senior director of retail ops. “It’s important to note that rules can also vary state by state — often county by county — regarding who needs to own the delivery vehicle, what certifications are required to deliver alcohol, as well as regulations for hours of sale, amounts of alcohol to be sold and more.”

What’s Allowed?

So where are third-party services, in terms of what they can do and how producers can best use them, as the country eases out of pandemic restrictions?

Typically, they make money by selling software services, such as their e-commerce platform, or by taking a fee from something other than the retail or restaurant alcohol sale (a charge for each transaction, for example). That way, the third-party service doesn’t need to be licensed. 

They’re also different from DTC, in that they only deliver — or facilitate delivery — in local markets. Hence, they don’t ship across state lines as DTC does, and they usually don’t work directly with producers in a DTC manner.

It’s possible for producers to arrange marketing with third-party services. For many services, this could include highlighted placement on the website. Minibar, for example, has agreements with Veuve Clicquot and Stella Artois for website placement. But, says Canvasser, anything much more than that — such as asking a retailer or restaurant to feature a product — could run afoul of state tied-house laws. It’s also worth noting that only the biggest producers would likely attract the interest of a delivery service.

Who’s Liable?

What’s legal (and what isn’t) still isn’t completely clear. “If you look at the on-premise, delivery probably isn’t legal in most states because most on-premise licenses are only for that — selling on-premise,” says Koral. “Now, there were exceptions made during the pandemic, emergency provisions to allow cocktails-to-go, for example. But since the pandemic is over, a lot of the states are looking at this again, and asking, ‘How do we handle this now?’” 

Finally, liability. It would seem straightforward — the licensee is responsible for age verification and dram shop laws, and the third-party service is only a third party. But ask attorneys, “What happens if a minor orders alcohol using a third-party platform?” “Where does the liability begin and end?” Or “What if a third-party service delivers to someone who’s clearly intoxicated?”

These are issues that these services take seriously. Drizly’s Grinna, for one, says his company has several safeguards in place, including Internet ID verification as well as best practices training for retail delivery drivers.

Even so, says Canvasser, there remains ample opportunity for new law to be made, given the evolving regulatory environment. Which, given how new these services are, shouldn’t be surprising.

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Jeff Siegel

Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”

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