When Amazon decided to buy Whole Foods in June 2017, there were a wide range of theories from Wall Street Analysts and retail experts around the rationale for the acquisition - data, private label products, omni-channel retail, etc. Based on our recent in-class discussions around the 21st Amendment, I decided to dig into how recent shifts in the alcohol-related regulations could lead to Amazon (after numerous unsuccessful attempts in the past) finally disrupting and dominating the wine industry in the US.
History of Amazon's Foray into Wine
Amazon had tried to enter the wine market much before its acquisition of Whole Foods. Through the Amazon Wines marketplace, it acted as a third-party marketing agent that offered Wineries and importers the ability to list products on the Amazon platform for a fee - consumers could buy wine on the platform and the transaction and delivery was handled by the producer/importer.
Post the Whole Foods acquisition, Amazon also became a brick-and-mortar retailer. Given tied-house laws in most states that prohibit producers of alcohol from paying a retailer directly for selling its wares, Amazon had to shut down its Wine marketplace as it was essentially charging producers small fees on the online platform, which would be in violation of tied-house laws
Recent Favorable Trends for Amazon
Many states now allow retailers to work with online third party marketers like Drizy to deliver alcohol to local customers' doors. Through Whole Foods, Amazon has gotten access to a large portfolio of private label alcohol (including beers and wines), which it can push through its online sales engine. Wine startup Vivino has grown in popularity from 12,000 app users in 2011 to 35M in 2019 to become the "Shazam for Wine".
However, the above positive developments are not the reason Amazon why Amazon could end up dominating the US wine industry.
It was a very positive Supreme Court ruling that was a further dent to the 21st Amendment and would break down discriminatory bans on interstate shipping for retailers like Amazon - the Tennessee Wine and Spirits Retailers Assn. v Thomas et al. case. This ruling struck down a Tennessee law that required retail liquor license applicants to reside within the state for 2 years, based on finding that such a requirement unlawfully discriminated against out-of-state residents. Similar to the impact of the 2005 Granhold v Heald case that applied to producers, this ruling could lead to upwards of 20 states modifying their retailer shipping laws.
This opening up of interstate shipping and potential to create a national marketplace for wine e-commerce could be the perfect opportunity for a progressive retailer like Amazon to take advantage of at scale.
Around the time of the Tennessee v Thomas Supreme Court ruling, Amazon started looking to hire a Manager of Alcohol Public Policy - surely that is no coincidence!
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Sources:
https://www.forbes.com/sites/gregpetro/2017/08/02/amazons-acquisition-of-whole-foods-is-about-two-things-data-and-product/#5be15303a808
https://techcrunch.com/2017/10/23/amazon-wine-is-shutting-down/
https://finance.yahoo.com/news/how-the-vivino-app-grew-its-user-base-by-29000-by-helping-people-find-the-perfect-wine-120329338.html
https://www.wine-searcher.com/m/2017/09/amazon-dealt-a-distribution-blow
https://fermentationwineblog.com/2019/04/amazon-is-coming-for-wine-and-thats-a-good-thing/
https://medium.com/swlh/1-click-1-day-alcohol-delivery-the-impending-amazon-of-wine-an-opinion-17b6dff36ca3
https://www.thrillist.com/news/whole-foods-amazon-alcohol-delivery
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