Alcohol E-Commerce: What it Means for Independent Retailers

July 12, 2018 In Industry Trends

As a retail store owner, the rise of e-commerce is an important trend to follow. Traditional shopping is moving into the digital age, and purchases are more frequently happening on mobile devices. In fact, e-commerce sales grew 23% across all categories last year.

When it comes to beverage alcohol, e-commerce in the form of delivery saw an even bigger growth — nearly 33%. This was led by on-demand delivery services like Drizly, which saw sales shoot up by close to 62% last year.

There is still a lot of room for growth and change in the e-commerce market. Business owners should weigh the benefits that come with expanding into this modern shopping experience against the hurdles.

Use these pros and cons to help evaluate whether your business should take advantage of this categorical growth, and in what way.

Pros:

  • Embrace an omnichannel experience. 

By expanding into e-commerce, you can develop a flow that moves from inside your store to your website, and vice-versa. Use kiosks or digital displays in store to drive shoppers to your website to learn more about a product and how it can be used or paired. Offer unique or limited-quantity products exclusively in-store and promote them online to shoppers who are local.

  • Gain incremental business from new customers.

New customers aren’t limited to those outside your area. With an online store, you can also attract those who live locally and know of your store but have never visited, or who prefer to do their shopping online.

Social Wines, for example, is a specialty retailer with a hyperlocal focus on the South Boston area where it is located. The store launched its e-commerce site earlier this year to showcase merchandise and fulfills orders from local shoppers using its in-store checkout system. In five months, the store saw online sales increase from 5 to 19% of overall sales.

New customers aren’t limited to those outside your area. With an online store, you can also attract those who live locally and know of your store but have never visited, or who prefer to do their shopping online. Click To Tweet
  • Bring in millennial business. 

There are more millennial consumers than that of any other generation, and their buying power is growing. Plus, 67% of millennials prefer shopping online to buying in-store. Taking your business online is a vital step toward capturing these buyers.

In the realm of on-demand shopping, a lot of the success has been attributed to the attention it pays to younger consumers. The service works with stores in markets where large numbers of young people live and shop for alcohol. It also incorporates recipes and tips alongside products, creating a rounded experience (which millennials gravitate toward) for shoppers.

  • Reach your customers on new channels. 

When a customer buys a bottle of wine from your online store, you gain access to their email and home address. With this new information, you can send tailored promotions and offers directly to your customers when they want them most.

Of course, you should be careful about how you use this information. Decide on a cadence of communication that makes sense: one email a month with a special deal, a weekly newsletter about new items in stock, or one-off emails with more custom promotions. Eileen Elliot, the Director of Operations at Social Wines, said they send a monthly email, and see online sales spike after it goes out.

  • Compete with bigger retail players. 

As big players in the alcohol beverage and delivery games join the e-commerce world (like Whole Foods with Amazon Prime Now and Total Wine & More expanding their on-demand offerings), it’s important to stay competitive. If customers are given the choice of supporting their local liquor store with the same convenience as ordering from Whole Foods, there is a big chance they’ll stay loyal to your business.

But there are potential negatives to e-commerce for many independent retailers.

Cons:

  • Initial capital investment in e-commerce capabilities. 

Whether you’re joining an existing marketplace or creating your own website, there will be some additional spend to join the e-commerce world. If you create your own website, most of that cost is upfront website development and setup. You may also need to hire more staff or retrain your employees to accommodate new fulfillment needs.

When you join an online marketplace, like Drizly or MiniBar, those services take a cut of your revenue. While it is usually a small percentage, this could lead to a loss in profits depending on how you balance your e-commerce and brick-and-mortar store.

  • Losing face-to-face interaction with customers. 

One of the beauties of a retail store is meeting and interacting with your customers. In your store, you can get to know regulars, make suggestions based on people’s tastes and even make friends with your best customers. Online, you know these customers through their purchasing habits and data – not face-to-face.

  • Missing out on basket-adjacent and recurring purchases. 

With the ability to sort and search for exactly what they want, versus browsing a store and discovering other items, online shopping means you could miss out on basket-building purchases. Some stores counter this by setting a free-shipping minimum or cross-promoting other deals that encourage people to browse the site and buy more to save. But these promotions aren’t as controlled as in-store arrangements that encourage basket-adjacent purchases.

Similarly, people shopping online are often buying for the occasion. They may not sign on regularly to order their staple bottles of pinot grigio, for example. Instead, they buy what they need, and don’t think about your store (or any store) until the next time they need a few bottles of wine or a case of beer.

People shopping online are often buying for the occasion. They may not sign on regularly to order their staple bottles of pinot grigio, for example. Click To Tweet
  • Potential to cannibalize in-store business. 

In some cases, starting an online store could draw in-store customers away. Especially when joining a marketplace service, you could actually end up losing in-store sales and losing revenue on online sales. In that case, it’s important to weigh whether it makes more sense to create your own, more controlled e-commerce site that can keep your store afloat rather than joining an existing market.

  • Having to compete on price without personal differentiators. 

Because the online market is more crowded and less personal, your items compete on price alone. Especially on marketplace apps, customers don’t readily see which stores they’re patronizing, so personal differentiators are lost. This creates a potential race to the bottom to stay competitive with larger stores, ultimately ending with a loss of revenue and profit.

It’s also important to weigh the differences between starting out in e-commerce by creating your own website or joining an online marketplace. If you create your own website, you can attract more business without having to pay a fee to implementation partners. Your store can be built for and can cater to the people you know are already coming into your store to shop; there’s room for personality to help differentiate you. But, as we mentioned earlier, costs can be high to build the site, align it with your current POS system and configure a fulfillment strategy. You’ll also have to work harder to be seen by new customers.

On the marketplace side, you open your business up to an existing pool of new customers. You’ll benefit from new, incremental sales and expanded reach without the long-term investment of a dedicated store site. However, there are a few setbacks to joining these marketplaces, too. You’ll lose some of your online revenue to the service, which inserts itself between you and your customer. You can’t get to know or directly retarget to the people purchasing from your store through a marketplace like Drizly. You won’t receive credit for the sales made on the site, and overall will get lost in a sea of other stores.

There is a lot to consider when diving into e-commerce. The benefits are big: adding an online arm to your store has shown sales increases for many businesses. Plus, the market is growing and you don’t want to miss an opportunity to get in while you can. But how can you succeed without cannibalizing in-store business or sacrificing too much money on fees on an e-commerce provider?

As you weigh your decision, lean on your customers. Find out how they prefer to shop, if they use any of the on-demand services and what benefit they might receive from your store expanding into e-commerce. At the same time, look at their purchasing behaviors and other customer data to build a fuller profile of your shoppers, and let them guide your expansion decisions.