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Alcohol Home-Delivery Apps: Are they legal?

Matthew Mann
Jan 20, 2015   |   Matthew Mann Recommended for:   DTC Compliance
Wine Shop Wine Shop

Home delivery of alcohol by local retailers has been available in many states for years, which is not to say all retailers would deliver to a consumer even if they could under state and local laws. Just because a retailer can do something doesn’t make it economically feasible. Home delivery needed a partner to aid the retailer and in the stultifying world of alcoholic beverage regulation that existed, ‘Big Brother’ placed too many restrictions on third party companies for such a partnership to be effective.

Alcohol’s ‘Brave New World’

Along came smartphones and the brave new world of apps, those funny little icons from which you can seemingly summon any product or service in the world except, until just recently, alcohol delivery. In the last two years innovative app entrepreneurs have turned their attention to filling the void in alcohol delivery with a technology solution to satisfy the ever more demanding “app generation” of consumers who want it fast, cheap and easy.

There are a handful of apps in the marketplace already – Drizly, Minibar, Saucey, Swill, Thirstie, and Klink, just to name a few, and competition in this new market is expanding rapidly. A great idea for a convenient service that invigorates a previously under-utilized segment of the alcoholic beverages market. So great, in fact, that it begs two questions:

  1. Why has no one done it before?
  2. Is it legal?

The answer to the first question is technology along with the answer to the second question. The answer to the second question requires a little more thought.

What would ‘Big Brother’ Say?

Whether it’s legal or not isn’t a function of whether home delivery is legal. A simple reference to the alcoholic beverage code and regulations will usually provide a ready answer in any particular state. The more interesting question revolves around the notion of “availing”, the use of a licensee’s license privileges by a non-licensee, which is frowned upon by most alcohol regulatory authorities.

Less than 5 years ago ‘Big Brother’ would have answered the second question with a definitive “no”; today, he would find it much easier to answer “yes”, or at least “probably”. The reason is in large part due to the issuance of the seminal Third Party Providers Industry Advisory by the California ABC in October 2011. Prior to this Advisory, providing such a home delivery service might very well have been impossible, even if the technology had existed. Strict guidelines were enforced severely limiting the participation of third party providers with alcohol licensees. So strict, that operating compliantly within them generally made the business venture economically unviable.

Those strict guidelines were nearly flipped on their head with the Advisory. Rather than taking a restrictive attitude – one saying “you can’t do this”, the Advisory takes a permissive tone – one saying “to do this, you need to do this". It's a world of difference and without the change it is doubtful the alcohol home delivery app model would be favored by ‘Big Brother’, as it appears to be today.

It’s all about “Control”

Business and revenue models vary among the different competitors looking to get a leg-up in the battle for market share but control of the sale by the retailer is the common thread running through every aspect of the relationship between licensee and non-licensee in determining “availing”. Ownership of the product, the customer relationship, prices, inventory, selection, payment and funds management, and maybe most importantly, profit and risk, must remain with the licensee as the party to the transaction with the buy and sell privileges. So long as the home delivery services’ business model respects the boundaries established by the Advisory, and anecdotally most appear to do so, there is no need to spend sleepless nights wondering if the relationship is within the law.

Eluding “Capture”

One area of concern remains about retailer control of the transaction and their license; the concept of the “captured retailer”. This occurs when the retailer licensee becomes so dependent upon the volume of sales generated by the third party provider that they lose their independence. Conceivably, if the popularity of these home delivery apps continues to grow, they will generate a higher volume of transactions resulting in a greater percentage of overall sales for the retailer. At what point does the percentage of sales generated create such a dependency by the retailer that they could not survive economically without them? 20%? 30%? 50%? It’s hard to say, but if it occurs the app provider may have undue leverage to ring financial concessions from the retailer.

It seems unlikely, and the best way to prevent it is increased competition in the growing home delivery app market. Maybe as important, a lack of exclusivity of service by the app providers should exist, ensuring no single provider can capture a retailer to the exclusion of all other app providers.

Alcohol home delivery apps are a convenient and timely innovation that’s a boost to the industry. So long as they operate within the permissive, established third party provider guidelines, they should be accepted by ‘Big Brother’ and continue to grow and thrive.

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