COVID-19’s Effects on Alcohol E-commerce
Selling alcoholic beverages online can be as frustrating as your first attempt to solve a Rubik’s Cube. Not only do alcohol brands have to overcome the same e-commerce challenges as their non-alcoholic brethren, but they also must deal with a whole different set of challenges that are unique to their category. Add in the complex, ever-changing business environment that has arisen because of COVID-19, and it’s like solving a Rubik’s Cube blindfolded, underwater and for speed. But the alcohol brands that have accepted this challenge are being rewarded, as U.S. alcohol e-commerce sales grew 80 percent year-over-year in 2020 to about $5.6 billion.
While the level of disruption varies slightly across alcoholic beverage categories, it’s important to understand how the COVID-19 pandemic has affected the steps major beer, wine and spirits brands must take in order to win at e-commerce. In this article, I will discuss a few of the e-commerce challenges – and connected opportunities – major alcohol brands may still be facing as a result of the ongoing coronavirus pandemic.
Challenge #1: Consumer Awareness
Historically, many consumers have not even been aware that they could purchase alcohol online. A 2019 survey by AB InBev and Mintel found that over one-quarter of consumers surveyed didn’t know they could buy beer online. This is likely a main reason why online sales only accounted for 1 percent of total U.S. off-premise alcohol sales that year.
Opportunity: According to Cory Rellas, CEO of Drizly, “the most significant difference in e-commerce for 2020 was simply the increase of consumer awareness as to the ability to purchase alcohol online.” The restricted living situations caused by the coronavirus pandemic caused an increase in online purchasing across all CPG categories, including alcohol. Additionally, the oldest members of Generation Z are now reaching legal drinking age. This generation will undoubtedly join Millennials in their quest to seek convenient digital shopping experiences. If alcohol brands can adapt from traditional mass media to digital, they should be in an advantageous position, as they’re arguably some of the industry’s best storytellers and marketers.
Challenge #2: State and Local Laws
An often cited challenge for alcohol brands trying to sell online is navigating complex and antiquated local laws. After the repeal of Prohibition, states began enacting their own regulations to control the alcohol industry. How each state and local government set up the three-tier system of alcohol commerce (production, distribution and retail) has caused ambiguity for today’s business ecosystem.
Opportunity: Almost three-fourths of states relaxed or clarified their alcohol fulfillment laws because of the severe business impacts caused by COVID-19. This has opened up a Pandora’s Box of strategic e-commerce partnerships that benefit the consumer and help offset lost business activity. While it’s likely that many states will eventually reinstate restrictions, the legalization of online alcohol sales will be a major focus for state and local lawmakers who understand its growing utility with their constituents. Given the fluidity of the situation, it’s essential for the alcohol industry to keep “ears to the ground” so they can respond to changing regulatory shifts and take advantage of additional opportunities.
Challenge #3: Digital Resource Gap
While the growth of online alcohol sales has been astonishing lately, most alcohol brands have digital talent pools that are lighter than a Michelob Ultra. Since almost all of the largest alcohol brands are owned by publicly traded portfolio companies, resources are prioritized based on their perceived impact on upcoming quarterly results. That often leaves digital human capital and project spending low in the budgetary pecking order.
Opportunity: When on-premise alcohol consumption plummeted from stay-at-home orders and restricted living situations, appetite for the alcoholic beverage category sustained, though it shifted to off-premise channels. With COVID-19 causing a massive consumer shift to online shopping, digital talent acquisition and related capital expenditure projects skyrocketed in importance. Along with acquiring more digital talent, alcoholic beverage portfolios should also consider reskilling their current workforce and clearing all organizational hurdles that would slow down the speed needed to excel in the online environment. Moreover, strategic partnerships with outside service providers that specialize in the technical aspects of e-commerce can help bridge the gap quickly and take advantage of the current “land grab” that’s happening across the online retail landscape.
Challenge #4: Online Retail Landscape
As Americans have started embracing the convenience of shopping for alcohol online, there has been no shortage of retailers, marketplaces and third-party service providers jumping in to satisfy the growing consumer demand. Additionally, consumer profiles have been further fragmented by the maturation of these various online sales models. Because of that, it’s imperative to focus on the partners that provide the biggest return on investment for your alcohol brand.
Opportunity: To determine which partners are most important to focus your e-commerce efforts on, it is vital to understand the role each online sales model plays within the consumer path to purchase. This involves considering purchase criteria such as selection, price and convenience. Pure-play digital retailers such as Thrive Market essentially have price parity to major retailers, and they have an endless selection, but they’re not as convenient as other options because they take several days to deliver. Omnichannel retailers in the grocery and mass channels typically have price parity to their in-store shopping experiences and endless digital selection, plus on-demand fulfillment options give customers optimal convenience. Third-party service providers like Instacart and Drizly (recently acquired by Uber) have a higher cost, but they offer the closest thing possible to instant gratification across a large selection of merchandise.
Regardless of the online sales model, alcohol brands would be best served to follow the footsteps of other CPG categories that have higher e-commerce penetration. To stand out on the digital shelf, product content should be used as a strategic differentiator. Alcohol brands investing in the process of optimizing product content will see that it is a major driver of search visibility and conversion on retailer websites.
Digitization of the alcohol industry has been a long time coming, but even early nascent shifts will result in significant impacts that will inevitably surface in the coming months and years. With a taste of their ease and convenience, consumers will continue to utilize online shopping channels for alcoholic beverage purchases, even as COVID-19 restrictions begin to lift. While challenges remain plentiful, equally boundless opportunities await those brands that understand the digital channel’s growing importance in today’s retail landscape.
OneSpace Can Help
Today, the idea that “eye level is buy level” is just as relevant online as it is offline. As more and more consumers turn to online channels for alcohol purchasing, it has become increasingly important for brands to maintain prime placement on the digital shelf. OneSpace’s suite of tools and services helps CPG brands publish product content that wins top position in search results on multiple online retailers. Contact us to learn more.