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eCommerce is making an impact on just about every industry imaginable, and alcohol looks set to be the next sector to be disrupted by the continued shift to digital.
In an edited transcript of their recent podcast, Profitero’s SVP Strategy and Insights Keith Anderson is joined by Danny Brager, SVP of Nielsen’s US Beverage Alcohol Practice.
Keith and Danny discuss the maturity level for the online alcohol category versus other CPG categories, the various online delivery models and what’s driving growth, as well as what alcohol brands should be doing today to plan for the future.
Keith Anderson: Maybe a good place to start is where you see the US on the maturity curve from an online perspective today. Is this the first inning? Are we half way through the game? Where do you see us today?
Danny Brager: No doubt we are in the first inning. It’s certainly a growing area of interest and everyone’s poking around at it. And frankly, just from an overall percentage of business standpoint, it’s still pretty small. If we look at the percentage of people that even say they buy alcohol online in the US, it’s about 8%. That’s way down, compared to many other categories including package grocery foods, which is closer to 20% or pet food being north of 20%. And then you get into fashion and books and so on which is into the 40’s, 50’s, 60’s… so we’re still figuring our way through this as an industry.
That said, there seems to be a lot of energy behind trying to understand it and certainly, it’s an avenue for where products can be sold depending on the state, the category, and given the complexity of the regulatory environment.
Keith Anderson: Is it that consumers are pulling the supply side of the industry online or is it the industry that sees what’s happening in other categories and they’re trying to get out in front of it by making new models for shopping and buying more widely available?
Danny Brager: I think there’s energy behind both. Retailers (and when we talk about retailers there’s obviously retailers whose whole business is liquor, like a liquor store, and there’s retailers whose partial business is selling beverage alcohol products) who have an eCommerce or an online strategy for every other category, are trying to understand what does that mean for alcohol.
On the consumer side, obviously more and more consumers are buying things online in many other categories including groceries, so they’re also saying: “Why can’t I get my wine delivered to my house? Or my spirits or my beer? So it’s sort of both coming together.”
And obviously, things like technology is changing all the time and evolving. So it’s all of those things coming together. Consumers are trying to understand how eCommerce for alcohol is the same and/or, in many cases, different from the rest of what they might shop for.
Keith Anderson: There are so many evolving models in the eCommerce landscape overall. How do you see the various models for eCommerce alcohol today, and where do you see evolving?
Danny Brager: When it comes down to it, it depends on a number of factors. It really continues to evolve. Somebody like a Wine.com, they’ve been in the marketplace for several years, they’re well established, their business continues to grow double digits so that’s further along.
Amazon, who clearly a few years ago felt like they wanted to tap into the beverage alcohol eCommerce business, then they sort of stepped out of it – probably to re-figure out what the right way to do it would be – now seem to be back with a vengeance, with different offerings on a very selective market by market basis.
And then there’s all of the delivery apps that are available, again in certain markets affiliated with certain liquor stores, and it just depends on what that looks like. I live in LA and there was something recently about Amazon delivering from a local store and I’m pretty sure Instacart was the delivery vehicle.
So it’s still this hodgepodge of different models and different places with not that many being national. So a Wine.com might be the exception. I would also add in there, depending on your definition of eCommerce, the whole direct to consumer model. So ordering through a wine club or ordering from the wine club or direct from a winery. Certainly for wine, which is probably the most liberal in terms of the fact that you can ship across borders and so on. That’s a pretty well developed and growing business as well. The last time I looked at the data for that we were talking about, I think it was a little north of $2.3 billion being shipped through the direct to consumer channels, so not through a pure play retailer, growing close to 20%.
Keith Anderson: The US is your expertise but I know you’ve also looked at some of the other markets around the world and there’s some that are certainly more mature than the US from an online alcohol purchasing point of view. What are some of those markets and what would you highlight as differences between those markets and the US?
Danny Brager: When we did a global survey last year, and asked consumers the question “Do you buy alcohol online?”, I mentioned that for the US, it was about 8%. It was actually a little bit higher for those who were typically or regularly buying alcohol – for those consumers it was about 12%. Interestingly, the global average is also 8% which covers consumers across 60 countries, surveyed.
Obviously there’s a range around that so the US happens to be at that average level but there’s some countries that were not. China was 27%, Japan was 22%. Then we get into Great Britain, 21%. Australia, 20%. And then there’s a few other western European countries that were in that 15 to 20 range. New Zealand was also about 14%. So there’s certainly some countries where it’s better developed and I’d say it’s likely a function of a couple of things, with one of them likely being just the regulatory environment. In these regions, it may be easier or there may be less barriers. And I’m not saying that in a good or bad way at all – but less barriers and/or complexity to being able to do that.
Keith Anderson: In the work we did together on our recent white paper, there was some interesting data on who the US alcohol shopper is and some of their preferences, especially as it relates to online. So what would you highlight in terms of who is buying alcohol online and what are they looking for?
Danny Brager: I’d say actually two things and one is a more general statement. Before I even talk to “who” they are, because there are certainly some differences about “who” the online alcohol shopper is, compared to the in-store purchaser. So the first, more general statement is this: Consumers who shop online for alcohol, still shop in stores more often – so it’s not like most shoppers have totally abandoned going to a store and shopping for alcohol.
The gap gets a little bit closer when we talk about an online wine shopper and I suspect, again, that probably relates to the fact that there are more options for buying wine online.
And the gap gets wider when we talk about something like beer or spirits.
The major differences would be that the online alcohol buyer tends to be younger, and not surprisingly this consumer tends to be male (maybe with the exception of wine). They are also married, certainly higher earning, higher income and they tend to be more urban.
Keith Anderson: Have you seen anything interesting in some of their preferences around these trade-offs between selection and convenience among the different models?
Danny Brager: Yes, definitely. There are some. Let’s take Wine.com because I think they’re a good example where there is a convenience aspect to it, certainly, but it’s not like an on-demand convenience aspect. You’re not going to get product delivered in an hour or two but there’s huge selection.
If I go to a typical store (a grocery store maybe more than a larger liquor store), I might find a thousand products. But if I go online at any one time into their website, I might find 13,000 products.
So the selection certainly is going to differ. Then there’s others whose aim is really to fulfill demand very quickly. So if I’m having a party and I want to have alcohol delivered to my house very quickly, that’s where some of these delivery apps come in handy.
Keith Anderson: To close out the discussion, what do you see as the opportunity from the supplier perspective and what should they be doing now or at least planning for in the near future?
Danny Brager: I think that anybody who is only banking on an in-store environment for future growth would be making a mistake to put all of their time and effort, energy, resources, into just that channel because just more broadly, that’s certainly going to change as e-commerce becomes a bigger and bigger factor in every category.
Even though we might be in the first inning, this game will progress. While it’s complex and it’s sometimes difficult to understand, I think it makes sense for companies to start understanding the landscape and begin to think about their game plan – if they haven’t already started.
Sometimes that’s going to take some extra resources to do that, and then to develop a strategy that will likely need to evolve because things are changing and changing quickly.
There are other areas of opportunities outside of the traditional retail landscape that can help get “your feet wet” in the eCommerce space. There are meal kits where now you can order wine with it. There are also some interesting clubs that you can join for cocktails where, again there’s opportunities for manufacturers to be part of that and for their products to be included in their cocktail kit.
There are lots of different options and just making sure that suppliers have the knowledge and start thinking through where they should get involved, to me, that’s where they’ve got to start. Some companies are certainly further along in that and some companies aren’t – but everyone needs to put the time and effort into understanding the landscape and when and where to jump in.
I’m kind of anxious to see what the second inning will look like and we’re not that far from it. We we are seeing bigger eCommerce players jumping into this, so it’s really just a matter of how quickly things will evolve from here.
Click here to download the white paper: How Alcohol Brands Can Tap the eCommerce Opportunity.