Drizly and the Three Tier System
After our last class, I was curious about how startups like Drizly and Minibar managed in the three tier regulatory environment. From what I understood, Drizly used the Tier III license of the liquor stores they partnered with to deliver alcohol. It was started in Massachusetts (a state so Puritan you can’t have happy hours) so I had assumed that they must be above board from a regulation perspective. But, I wanted to dig in more to see what was going on.
For those who aren’t familiar, Drizly is an on-demand alcohol delivery service. Notably on their website, they call themselves “world's largest alcohol marketplace.”[1] This is in contrast to previous industry coverage of them that describes Drizly as “the East Coast-based Uber for liquor.”[2] In their terms, they are very quick to state, “Drizly does not sell, offer to sell or solicit sales of alcohol: our Service enables you to search online for alcohol and other products available for sale by licensed alcohol retailers that use Drizly’s e-commerce service ("Retailers").”[3] In fact, it’s the very first clause in their Terms of Service. On their website and in press reports, they’re quick to emphasize that Drizly 1) doesn’t touch the alcohol directly (it’s the retailers that fulfill the orders) and 2) they don’t make money of alcohol sales, but through the monthly license fee to liquor stores (retailers).
There isn’t a lot of press on the legality of Drizly, beyond their very carefully worded public statements. Looking closer, I found that Drizly has an exclusive partnership with the Wine & Spirits Wholesalers of America trade group.[4] The Wine & Spirits Wholesalers of America are part of the distributor tier (II) of the three tier system. Relative to their original descriptions of legality (using the Tier III licenses and not touching the alcohol themselves), it sounds like maybe they’ve moved up to Tier II through this partnership. It’s a little unclear from the press they’re getting -- but they brought the former NY State Liquor Authority General Counsel on as a VP last year, so it sounds like Drizly is strengthening ties to the industry and the tier system overall, rather than disrupting it. [5]
Sources:
[1] “Who We Are,” Drizly <https://drizly.com/about-us/e-594c4a6ff3342911>
[2] Crook, Jordan. “Drizly Booze Delivery Service Drinks Up $2.5M In Seed Funding,” TechCrunch. <https://techcrunch.com/2014/05/21/drizly-booze-delivery-service-drinks-up-2-5m-in-seed-funding/>
[3] “Drizly Terms of Service,” Drizly <https://drizly.com/terms/US>
[4] DelRey, Jason. “This startup is racing to build the Amazon for alcohol before Amazon does,” Recode. <https://www.vox.com/2016/5/4/11634222/drizly-adds-next-day-alcohol-delivery-beat-amazon>
[5] “Drizly Names Former NY State Liquor Authority General Counsel As VP Of Legal, Regulatory And Industry Affairs,” <https://www.prnewswire.com/news-releases/drizly-names-former-ny-state-liquor-authority-general-counsel-as-vp-of-legal-regulatory-and-industry-affairs-300814556.html>
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Thanks for digging deeper into this issue - I find it super fascinating to see the start-up ecosystem that has been able to grow in this space, notwithstanding the burdensome three-tier system.
ReplyDeleteAs someone who travelled quite a bit for work, and frequently used Instacart/Postmates/Drizly/Minibar for delivery, it always struck me as odd that there are such strict regulations on alcohol sales in many states, but for these mobile app based companies, someone would just come to my door and hand me wine/beer/liquor (not infrequently without checking or scanning an ID).
While it seems like the legality is not entirely transparent (per your research), I have to believe that the sum total of Instacart/Postmates/Drizly/Minibar's alcohol sales is large enough that it would warrant intervention from regulatory authorities by this point. I continue to see their biggest risk as delivery of alcohol to minors. There are plenty of stories about how Instacart/Drizly have delivered to minors (in some cases as young or younger than 13): https://www.wcnc.com/article/news/investigations/more-smartphone-apps-delivering-alcohol/275-557319767.
However, it strikes me that the popularity and convenience of mobile-app based alcohol delivery might be too strong to legislate away. Similar to the way ride-sharing apps skirted local regulation, while simultaneously gaining a huge user-base (and fan-base), even with the issues mobile delivery services face (like delivering to minors), it seems like they are here to stay (given their current popularity).
I would be very curious to hear from a speaker who worked with/at/for one of these companies to hear how they are thinking about the regulatory landscape going forward. Thanks again for the research on this; it's super fascinating!