How Alcohol Is Upping the Ante in Online Grocery Shopping

Walmart recently patted itself on the back for reaching what it called a “grocery pickup milestone,” with 2,000 stores in 29 states now including alcohol as part of their online grocery offerings. The retailer can also include alcohol in deliveries from nearly 200 stores in California and Florida “with more being added in accordance with local and state regulations.” Online grocery is already a wildly competitive and experimental space with retailers keen to attract consumers and cement their loyalty as the sector grows. But when you factor in booze—and the state and local laws that regulate it—we get another reminder why no one has come up with a blanket solution that works across all 50 states. Why booze is problematic for retailers According to Megan MacDonald, senior marketplace channel analyst at digital marketing agency Tinuiti, expanding into booze is costly for retailers, as many states mandate that alcohol can only be sold by liquor stores and bottle shops—and/or businesses require separate licenses to sell beer/wine and liquor. “This is why only 2,000 of Walmart's 4,700 brick-and-mortar locations currently offer booze through online grocery pickup,” MacDonald said. “Due to the nuances of these liquor laws throughout the U.S., smaller ecommerce startups such as Drizly have been created, which leverage current liquor stores who own licenses and put the burden of hiring delivery drivers directly onto the liquor stores.” Coincidentally, Food and Wine reported Amazon is planning to open a 200-square-foot liquor store in San Francisco so that it can obtain a liquor license and expand its ability to sell beer, wine and spirits beyond Whole Foods in the area. Amazon confirmed it has opened storefronts in California as required by state law in order to deliver alcohol, and that it will serve customers who visit those storefronts. It did not comment on additional potential storefronts elsewhere, or its plans to expand alcohol delivery beyond noting that Amazon Prime members in 22 states can purchase alcohol through Prime Now, Whole Foods Market and Amazon Fresh. Nonetheless, it’s a pretty safe bet alcohol will play a key role in online grocery as it evolves. For starters, consumers are already using alcohol delivery services like Drizly, Instacart, Minibar, Postmates and Saucey. “Since Amazon is already such an important part of the consumer lifestyle, it makes sense to integrate spirits into its already vast product offering,” added Henry Morita, CEO of tequila brand Pure Azul Beverage Company. Bread, butter and booze Booze is already an important part of grocery retail. Anne Ryan, vice president and director of strategy at marketing communications agency Brownstein Group, pointed out how important alcohol sales are for grocery retailers through their new store concepts that include bars, tasting rooms and taprooms, such as Giant Food Stores’ Heirloom Market, which will open another location later this month in Philadelphia with an underground taproom with more than 40 craft beers, wines, hard seltzer and even hard kombucha on tap. So it stands to reason that alcohol and grocery will only become more intertwined as retailers seek to consolidate customers’ shopping trips. “When it comes to shoppers' expectations for speed and convenience, alcohol is not any different from other categories, so the migration of alcohol sales to the online channel is expected and unavoidable,” added Diana Medina, director of ecommerce solutions at tech services company Inmar. “However, according to Inmar's 2018 ecommerce study, only 10% of surveyed shoppers report buying alcohol online.” That being said, Ryan, who is working with both craft brewery Yards Brewery and Giant Food Stores’ online grocery delivery platform, noted her agency’s research in Philadelphia has shown craft beer fans average three beer runs per week, which is “a lot of errands that could be consolidated through online delivery.” "Just as booze is key to bringing customers to brick-and-mortar grocery outlets today, it is key to getting more people to use online services and platforms, too," she added. And, Medina said, alcohol is an excellent ecommerce expansion opportunity as it “continues to be a healthy, high-margin category that can attract new shoppers and help grow existing ones.” So while Walmart customers in 29 states have the option of adding booze to their online grocery orders, it’s unlikely Amazon is twiddling its thumbs. “Amazon is already planning to open a new series of grocery stores with a more wholesale, suburban and affordable concept than Whole Foods,” Ryan said. “It’s not unreasonable to think that a wider assortment of beer and spirits delivery will be part of that plan.” They may also opt to partner with local players to expand delivery or even acquire an online service outright, Pure Azul's Morita ventured. And, said Sylvain Perrier, president and CEO of ecommerce platform Mercatus, don’t rule out Amazon going private label with its own wine. “First, the margins are excellent, and the consumption of wine in the U.S. is at an all-time high,” he said. “Second, the increased opportunity for shoppers to discover new foods through wine pairings can balloon the size of the overall basket, helping to drive sales. Convenience is a key driver of online grocery retail growth, and alcohol sales are a big part of that.” Why alcohol is the next online retail trend The expansion of online alcohol options also opens up opportunities for subscriptions, curated deliveries and in-home bar restocking, Ryan said. “Imagine partnerships with popular beer apps like Untappd or up-and-coming publications like VinePair to create new learning and social experiences around booze delivery,” she added. But first come the regulatory and logistics challenges, followed by merchandising and marketing strategies. From there, MacDonald advises retailers and alcohol brands alike to focus on enhancing the customer experience, which can sometimes be overwhelming in alcohol. “The existing ecommerce sites don't offer much guidance or education to the consumer, leaving them lost when navigating the online aisles,” she said. “With the endless possibilities that a digital experience can offer, brands and retailers can do a much better job of helping the consumer narrow down their options based on the occasion, taste, preferences or pairing needs.” However, Amazon has bigger fish to fry right now, according to Oweise Khazi, senior principal at business intelligence firm Gartner L2. "Amazon just spent $800 million on fulfillment and, coupled with an underwhelming quarter, an acquisition would not be on the cards for the time being," Khazi said said. "In terms of ecommerce, replenishable products which have a higher frequency of orders and are commoditized is more in line with Amazon’s ethos as a platform." As a result, he expects Amazon will continue with its existing beer offerings from Whole Foods for the time being while optimizing its core grocery business, as opposed to expanding into alcohol. Update: This story has been updated to include comments from Amazon.