Price comparison ups the game for alcohol delivery startup | Crain's Boston

Price comparison ups the game for alcohol delivery startup

  • Cory Rellas, Nick Rellas and Justin Robinson co-founded Drizly in 2012. | Photos courtesy of Drizly.

  • The Drizly iPhone app and online platform allows users to shop local liquor stores from home.

  • Gaurav Mehta (left) and Gaurav Tanna (right) co-founded Buttery in 2015. | Photos courtesy of Gaurav Mehta.

  • Buttery focuses on highlighting liquor stores' offerings rather than price comparison features.

As its on-demand alcohol delivery empire grows around the United States, Drizly is setting its sights on a different sphere: creating the go-to online marketplace for booze.

Since it was founded in Boston in 2012, Drizly has expanded to 40 markets around the country, connecting consumers with their local liquor store for quick deliveries. Rather than focus solely on expansion, however, the company is betting on price comparison features — like those offered by travel fare aggregator Kayak.com — as the ticket to domination.

Last fall, the company announced that it had expanded its offerings to allow users to search from a wider variety of products online, giving them the ability to choose the cheapest possible bottle, even if that meant a longer delivery window.

While other services largely remain focused on offering the fastest delivery, Drizly’s chief operating officer and co-founder, Cory Rellas, said his team puts more emphasis on the range of products available to the customer, leaving delivery as just one of many order fulfillment options, including mail and pick-up.

“[Drizly is] … empowering consumers to have the choice in a way that they don’t in the physical world to choose what’s most important for them when they are shopping for alcohol,” Rellas explained.

So far, Drizly's founders said they have seen positive consumer reaction to the added price-comparison feature.

"We hear it first-hand in the customer interviews we do, and we see it in the much larger number of customers we now have and their increasing spend on Drizly," Rellas says. "The most dramatic evidence we see is the drop in product prices we often see in cities after we roll out the marketplace functionality. Once alcohol prices are transparent, stores are willing to reduce prices to win customer business."

Buttery builds another model altogether

In contrast to Drizly, fellow Boston booze delivery startup Buttery focuses on empowering liquor stores to brand and merchandise themselves through Buttery’s online marketplace — while intentionally downplaying price comparison.

“What we saw was that local retailers in general are facing a tough time when they are trying to compete with big chains that are coming in closer to the city,” said Buttery co-founder and CEO Gaurav Mehta. “It’s very hard for these local stores to create an online storefront for themselves because they carry thousands of products.”

He added that the technology company’s initial idea was to create a platform that could put any retailer online in the quickest possible way, and he and his co-founder, Gaurav Tanna, realized that the wine and liquor industry was far behind others from that technology standpoint.

The co-founders began with about five partner stores in the greater Boston area last year and have expanded to partner with nearly 30 local stores. They originally attempted to create individual online storefronts for each liquor store, but Mehta said they instead created a more unified online marketplace after realizing that customers had a difficult time finding the various online storefronts and felt disconnected with separate websites for each physical store.

Buttery is currently based solely in Boston, but Mehta said the company would like to expand to other states soon.

“We have had retailers from other geographies approach us to use our platform and we are in the process of evaluating those opportunities right now,” he said.

A test search of the two sites illustrates the storefront vs. price comparison approach. Say, for example, you live on Cedar Street in Beacon Hill. Type your address into Buttery, and you’ll see two stores that deliver, Brother’s Wine & Spirits and Norfolk Wine and Spirits, followed by a list of 16 other stores that offer pickup.

In contrast, type the same address into Drizly and you’ll be greeted with a range of search options broken down by category, rather than seller. You can choose from beer, wine, liquor or “extras.” Clicking into each category reveals a shopping experience that’s similar to Amazon, with delivery options ranging from “now” to “tomorrow or later.”

Even as Drizly channels the internet behemoth Amazon, partnering with local stores has been critical to its ability to grow. As for the local liquor stores? They say there are upsides and downsides to the platform.

Delivery apps mean more convenience—and more competition

Working with Drizly has given Newbury Street’s Bauer Wine & Spirits a greater presence online than the staff could have established independently, said Shelby Chase, marketing and sales director. Chase said the store had previously been delivering alcohol locally for at least 20 years, and had tried to build its own e-commerce app. When technical issues arose, however, it was easier to start fresh with Drizly's online platform than try to re-market the app to customers.

"We wanted something that was already marketed and had a following,” Chase said.

She said working with Drizly was helpful to the store because all the technology and marketing work was taken care of, giving Bauer Wine & Spirits an entry point to the e-commerce industry without distracting from daily operations.

But there are some hurdles to partnering with Drizly, including allowing for some extra time to roll out the system, Chase said. Often more challenging for store owners is the process of hiring the delivery driver for the store, which neither Drizly nor Buttery handles. 

Ian Mashiter, director of Entrepreneurship Activities and a senior lecturer in Boston University’s Questrom School of Business, said the Drizly model is good for the liquor stores that can afford to hire dedicated drivers, but it poses additional competition for the stores nearby who would like to deliver but are unable to hire a full-time driver in a city where owning a car is expensive.

He also noted that delivery services can make it easier for consumers to purchase alcohol from discount stores outside the city that they might not typically travel to on their own. 

“It’s tough for the local liquor store that’s already on pretty low margins, being sort of out-competed by someone who’s out of town but just happens to offer higher volume and lower pricing,” Mashiter explained. “Margins in liquor stores are very tight anyway, so this idea that they have a lot of margin to give away is wrong.”

Customers in Boston and other cities may gravitate toward the cheaper pricing of an out of town liquor store that can purchase the alcohol in larger quantities with bigger space, he said, while the small liquor store sitting on pricier real estate in the middle of the city likely can’t compete the same way.

“What we’ve seen with other internet businesses is that people are incredibly price sensitive. The airlines were astounded by how price-sensitive people were, but they were prepared to take less advantageous schedules in order to save what was relatively a small amount of money,” Mashiter said. “Even though a couple dollars for a case of Budweiser doesn’t seem like a lot of money, I think it’s clear that people will choose the lower price option.”

Mashiter compares the added competition from Drizly’s price comparison feature to the popularity of Uber and Lyft versus taxis. Overall, the cost savings of using Uber as opposed to a taxi is generally small, but people are still driven to use the cheaper option.

“It’s a very interesting approach from Drizly, but it’s going to be very tough for small retailers that don’t have big volume and expensive real estate to cope with that,” he said.

Mark Youngblood, general manager of The Wine Emporium, confirmed that he didn’t have much room to maneuver on prices.

“We’re definitely a city store and a smaller retail location, and the bigger box stores obviously have bigger buying power—it’s the Walmart-ization of everything,” he said. “If you buy 500 cases you’re getting a better deal, but I don’t have that ability, so I don’t have the best pricing in the city. But I would say we offer very competitive pricing.”

The Wine Emporium, which serves Backbay and the South End with two stores, was one of the first sellers to work with Drizly, Youngblood said. His shop now employs a full-time driver six days a week who does Drizly, Buttery and in-store delivery, which the store had been doing on its own for years. He acknowledged that hiring drivers is a challenge.

"Drivers in the city are very challenging to hire because it’s obviously very expensive to have a car in the city; it’s not a very high-paying job, and to require a car can be challenging," Youngblood said. "The biggest challenge was hiring a driver who is reliable. We’re not delivering pizza, we’re giving them a product that has some legal factor behind it, so there’s a lot of responsibility to that."

Drizly drivers have the responsibility of delivering what can be a higher value product and the responsibility of checking IDs at the door, making it a bit more complicated than the standard pizza delivery.

Rellas acknowledged the added challenges of hiring a delivery driver, but said Drizly is trying to make store owners' lives easier in other ways. In particular, he said the company is working to improve the data it gathers so that businesses can better predict consumer demand—and, in turn, how to staff their stores more efficiently.

"We want [the stores] to do what they’re best at, which is be a liquor store, put inventory on the shelves and price it correctly. Our thought process is, how do we bring technology expertise and marketing and awareness to bring the retailers more consumers through the door in the most profitable way?" Rellas said. "If we all build the best consumer experience possible, then everyone who is partnered in this chain will do very well."

 

Editor's note: An earlier version of this story inaccurately described the process through which Drizly's alcohol delivery orders are processed. The liquor stores that partner with Drizly process the credit card transactions, and Drizly provides the infrastructure that allows liquor stores to verify credit card information and prevent fraudulent purchases.

May 16, 2017 - 1:29pm