Drizly: the disruptor of the 3-tier system?

Since the proliferation of on-demand transportation apps– Uber and Lyft, more and more startups have entered the on-demand service arena. For example, there is “Uber for food,” e.g. DoorDash, Eat24, and GrubHub. “Uber for drycleaning” e.g. Washio and NimNim, and even “Uber for massage,” Zeel and Soothe. Investors are frenzy about these “Uber for xyz” startups. Just DoorDash alone, raised $40 million series B in March, 2015. Given the fact that mobile users are more likely to choose such on-demand service, it’s obvious that someone has come up something totally unoriginal, Drizly —“Uber for booze.”


How does Drizly work?

Similar to how you call a Uber, you use an app. Download and log in Drizly app. Add your favorite beer, wine, and liquor to cart. Enter your address, check out, and Drizly delivers to your door in less than an hour.

You may wonder: why it’s Drizly or any “Uber for booze” startups different from the rest on-demand apps. Here is the biggest caveat – alcoholic beverage business is one of the most regulated businesses in the United States.

Notorious 3-Tier System

When you go to your local corner store and grab a 6-pack, have you thought about how the beer got to the store? Most people would guess: “Obviously, the breweries wholesale beers to grocery stores as how other stuff, such as ice cream and frozen pizza, get here.” Well, you know, of course it’s different. Otherwise, why am I wasting my time writing this?

The three-tier system of alcohol distribution is the system for distributing alcoholic beverages set up in the United States after the repeal of Prohibition. The three tiers are producers, distributors, and retailers. The basic structure of the system is that producers can sell their products only to wholesale distributors who then sell to retailers, and only retailers may sell to consumers. Producers include brewers, wine makers, distillers and importers.” – Wikipedia

In reality, since many states stop issuing distributor licenses and producers have to sell their products to distributors, these distributors virtually became monopoly in the business. Big distributors virtually control the livelihood of many breweries. Under some state laws, only licensed liquor retailers are legally to sell alcoholic beverage to consumers.

So, is Drizly legal?

Yes, in fact, during the entire shopping experience, Drizly never touches any alcoholic beverage you order.

Really?? How does it work again?

What Drizly actually does is just sends your order to the closest partner store. The liquor store, which is a registered liquor retailer, fulfills the order. The driver who delivers your beer is also employed by the partner store, not Drizly. In fact, Drizly never touches a cent from the transaction.

Wait, what? I noticed that Drizly doesn’t even charge a delivery fee in New York City. How does it even make money?

“Retail partners of Drizly pay a monthly license fee, which is based on a myriad of factors including the value of the delivery zone served.Drizly never touches a bottle of alcohol or a cent from the transaction; the Drizly retail partner fulfills the order and receives 100% of the money from that order.” –Drizly site

In summary, Drizly just functions as a marketplace that connects liquor stores to you!

I see. But seems the entry barrier is quite low, doesn’t Drizly have a lot of competitors?

You are absolutely right. Saucey, Thirstie, Minibar, Swill, etc. The list goes on! Since the entry barrier is relatively low and people love booze (for better or worse), this industry is booming! All of these startups operate under similar models. Some bring in revenue through the transaction-based technology fees they collect from partners. Others charge delivery fees to consumers or licensing fees to retailers. Although Minibar is one of the largest players in the space, it’s not clear who is going to win this war. However, regardless which app you use, you can well sit back, relax, and order your next drink among thousands of selections directly from you palm!


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Student comments on Drizly: the disruptor of the 3-tier system?

  1. Hi Ni, thanks for your post on Drizly. You explained very clearly how the company is able to operate in an extremely regulated market by creating a business model that explores the 3-tiered system. I was also very surprised to find out they never touch any alcoholic beverage we order or any cent of the transactions. It will be interesting to see how they will maintain a competitive advantage going forward with so many new entrants in the space.

  2. Hey Ni! This is a really interesting post- no doubt influenced by your awesome beer marketplace startup! I am fascinated by the idea that Drizly never touches the product. What is the barrier to the partner stores themselves just having a delivery service? Since they already have the licensing required to carry the product, it seems like they could avoid the fee to Drizly by just starting their own alcohol delivery service. I suppose that may require some capital investment that deviates from their core business model, but it seems like they themselves could be the ones to disrupt this newly emerging space. I’d be curious to know what you think! -Anjali

    1. That’s a good question! I think individual liquor stores are too small to run a full-fledged mobile and web app. In addition, why reinventing wheel if there is a reasonable priced service? The liquor store market is similar to the bed&breakfast market (Think AirBnB). Each of them is too small to create a network effect, however, if you can group them together, everyone benefits.

  3. Hahaha! I really enjoyed reading your article, Ni! Very refreshing (in all meanings of the word).
    I found the operating & business models very original: you made it clear that there is a form of “uberization” in all industries with many players trying to get their shares of the pie. I am wondering how Drizly and other Uber-like apps can survive and find a competitive advantage in an environment with such low entry barriers: what makes Drizly a winner vs. similar apps? Also, is there a risk that minors use this app to order alcohol?

  4. I’ve never used drizly but it seems to be a good concept. Really smart how they created the marketplace to get around the regulation barrier. My only concern is legal troubles in the future. I remember in college there was a liquor store that delivered to apartments. The liquor store ended up getting into a lot of trouble because a minor order the booze, and the driver didn’t check their ID. If public incident like that happen to a drizly partner I think a state could put them on hold allowing competitors to surge forward. Excited to see what happens and will have to download the app.

  5. According to Drizly’s site, it uses a technology called “Forensic ID Verification System,” http://www.advancediddetection.com/. This system connects to government database and verify recipients’ driver licenses.

  6. Ni! Ni! Ni! Thanks for a good post. All of these marketplace companies that seem to find the gray areas around various laws are really interesting. The laws have tried to force companies into models that don’t always match up with the ideal business model, and when companies find a better alignment between the two models by skirting laws, they hope they can just become popular enough that lawmakers feel pressure from consumers to simply change the laws.

  7. Interesting post, Ni. I was completely unaware of the fact that Drizly doesn’t clip a portion of each transaction similar to other “online/mobile marketplace” companies like Uber or GrubHub. I agree that the barriers to entry are incredibly low in this space — you essentially need a few smart software engineers to develop the app and a sales-oriented founder to pitch the local retailers. I could see this newfound industry evolving into a vicious land grab in which certain companies (or apps) establish dominance over certain major metropolitan areas of the country, and the only natural path to further progress is through consolidation (see Seamless / GrubHub).

  8. Great post, Ni – you have clearly laid out the business and operating models as well as captured the context of the 3-tiered system. I think it is interesting how the company has been able to operate in such a regulated environment. While they have discover a workaround, it would obviously be optimal for them to dominate the entire transaction ecosystem, owning the payment and data. Do you think that this will ever be possible? It seems like this is a regulatory issue so will laws evolve?

    Also, I really like the subscription service nature of the business. Drizzly is essentially acting as a broker, but not dependent on transaction volume, right? This steady, recurring revenue stream and low working capital requirements (since they don’t hold inventory) certainly will make this business more attractive from a private equity perspective, further pushing up valuations.

  9. Great post Ni. Of the businesses that have replicated the Uber model, which ones do you think are positioned for sustained success?

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