If the pandemic has taught us anything, it’s that those with the most robust direct-to-consumer options are winning. E-commerce retail sales of alcohol have been up as much as 234 percent during the Covid-19 period compared to a year prior, according to Nielsen data. Given the stark differences between direct-to-consumer laws for wineries versus distilleries, many distillers are struggling. According to a recent study conducted by the Distilled Spirits Council, craft distillery sales have dropped 41 percent during the pandemic.
To help even the playing field, there are a few options spirits brands can consider to get their products into consumers’ hands with close to a direct-to-consumer solution. These include third-party marketing companies with their own platforms and audiences, and white-label store and shopping cart options that maintain a brand’s look and feel throughout a transaction.
By now, most of us are familiar with the various online platforms that allow for delivery to your door. Caskers, Reservebar, Drizly, and the like are third-party marketing platforms and not liquor stores. Rather, the selection is based on prices and availability within a network of liquor stores that deliver or ship to the consumer. These third-party marketers work by receiving an order from a consumer, then the retailer is pinged to accept or reject the order. Assuming the retailer accepts the order, the retailer processes payment and arranges for delivery or shipment. The retailer then pays the third-party marketer a small marketing fee.
If a brand links to a third-party marketer, the consumer knows they are leaving the brand’s website. When the consumer lands at, say, Drizly, that consumer could be swayed into purchasing another brand. That means the work you did to get the consumer to your site may be lost to another brand at the point of purchase.
However, some brands are going further, choosing to sell their products from white-label shopping cart and store options such as Barcart, Passion Spirits, and Speakeasy. These storefronts allow brands to keep their branding consistent, with a look and feel that mimics the brand’s own website throughout a transaction that actually takes place on a third-party site.
“Think about it,” says Adi Pal, CEO of Barcart. “When you are shopping and you see a Gucci advertisement, it’s a different feeling than when you see an advertisement from a retailer selling Gucci.” In Barcart’s white-label model, consumers visit a brand’s website and see a “purchase now” or “buy now” option. When a consumer clicks that link, it takes the person to a branded shopping cart. The URL changes without the consumer necessarily knowing it. The shopping cart lives on the third-party marketing company’s platform.
“The orders get funneled through a small group of retailers,” explains Alain Scheiman, CEO of Passion Spirits, which has seen many of its clients’ sales increase 300 percent during the pandemic. “Given the limited distribution and number of stores an emerging brand will be in, white-label sites are superior to traditional delivery apps for emerging brands,” says Scheiman. Passion Spirits has a select group of liquor stores process multiple orders versus a lot of liquor stores processing just a few orders. This, Sheiman says, keeps the retailers happy and reordering.
“DTC has become the most important distribution channel for many of our clients,” Scheiman adds. For most brands, marketing and driving traffic to a brand site is what they do best, and white-label “stores” allow them to focus their efforts without worrying about legal hurdles.
For Old Harbor Distilling Co in San Diego, which utilizes Speakeasy, this white-label, “direct-to-consumer” model has added to Old Harbor’s bottom line. “It gives us a good consumer face and gets us out there to more people throughout the country,” says founder and distiller Michael Skubic. Skubic pays Speakeasy a monthly fee for its services, which the other white-labels stores charge as well. “We’ve made a profit using this model and it has only been up two months,” Skubic says.
Whether you’re an alcohol beverage supplier or an unlicensed third-party marketing company, navigating the heavily regulated sales and shipment of alcohol across state lines requires a number of important legal and compliance considerations. In most instances, the payment of a marketing fee to an unlicensed entity is permissible as long as the fee is reasonable and does not create the appearance that an unlicensed entity is availing the privileges of an alcohol beverage licensee.
In many states, such as New York, the marketing fee should be flat or de minimis in comparison to the retailer’s proceeds from the sale of alcohol (that means no more than 10 percent). Although a marketing fee may generally be paid to a marketing company, product prices must be independently set by the alcohol beverage licensee in each of the three tiers. A marketing company should also generally avoid independently collecting the funds, retaining its fee, and passing the balance on to the licensee, as outlined in this California advisory.
For brands entering into an agreement with a white-label, third-party marketer, your agreement should outline that the third- party marketer is responsible for working with licensed liquor stores and retailers. It should be clear that those retailers are responsible for complying with applicable shipping and delivery rules.
Although many distilleries have been struggling, some states, like New York, have provided limited and short-term benefits to help their industry members stay afloat. That means shipping directly to consumers from the distillery. Much as wineries sell and ship directly to consumers, so, too, can New York distilleries like Catskill Provisions (at least for the next few weeks if the privilege is not extended). Direct-to-consumer shipping has “been a lifeline during Covid,” says Claire Marin, CEO and founder of Catskill Provisions. Although Marin can only ship within New York at the moment, “it would be amazing to be able to send product anywhere in the country,” she says. Industry groups are working toward that ultimate goal: Selling and shipping parity with domestic wineries. Indeed, it’s a development most craft spirits producers would like to see.
Editor’s Note: Nothing in this article is intended to be and should not be construed as specific legal advice. It is for information and educational purposes only.
Published: September 21, 2020