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certain k e y markets) to create a viable DTC platform. Under this approach, product moves through the three-tier system. Accordingly, the “bricks and clicks” strategy does not offer the advantage of compressed margins that direct interstate sale and shipment offers. This method does, however, involve lower shipping costs, because product would be delivered to consumers by instate retailers, rather than from remote locations. Further, to a consumer placing an order (most likely online), the ordering and delivery experience is similar to that of the direct interstate sale and shipment model. On the downside, the “bricks and clicks” strategy is expensive and resourceintensive. Retail locations can be expensive to establish, and in most states a retailer must have at least some nominal retail store functions (i.e., be open to the public at least sometimes). Fulfilling consumer orders on a national level also would require significant capital investments. Existing large national retailers are best-positioned to use this strategy for direct-delivering spirits to consumers: Since such entities already have retail licenses and premises, additional investments necessary to establish a delivery system likely would be WWW.ARTISANSPIRITMAG.COM  

modest, and the retailers’ existing w a l k - i n sales likely would support the company’s operations during the establishment and growth of the “bricks and clicks” model. It likely, then, does not present a very practical option for most craft distillers, as this method is typically exercised by large retail chains. Distillers wishing to participate in a “bricks and clicks” strategy to directdeliver spirits to consumers would face other legal obstacles. Under the alcohol laws of most states, distillers cannot own or hold an “interest” in a retailer. Moreover, a distiller directly partnering with a retailer also would face substantial regulatory problems. Federal tied house laws, and most state tied house laws, would prohibit exclusive arrangements—whereby the retailer would reserve its online sales only to the distiller’s products. Finally, federal and state alcohol regulators could view channeling email traffic and the like to one retailer as giving that retailer a prohibited “thing of value” in violation of tied house principles.

4. B2B2C INTRASTATE E-COMMERCE/

THIRD PARTY PROVIDER The rapidly expanding, fairly new channel of alcohol sales and deliveries involves delivery of product to consumers by individual retailers through alcohol delivery apps such as Drizly, Minibar, and Klink. The entities running the apps are unlicensed third parties, and do not actually make any sales or deliveries of alcohol beverages themselves. Instead, product moves through the three-tier system (so, again,

no elimination of margins), and the apps leverage existing players in the industry (i.e., off-premise retailers). As with the “bricks and clicks” strategy, business to business to consumer (B2B2C) intrastate e-commerce gives consumers the same “feel” of the traditional DTC experience. State alcohol beverage regulators are still figuring out how to handle “third party STATE provider” operations, ALCOHOL but developments in BEVERAGE several states are encouraging. In REGULATORS a few major ARE STILL m a r k e t s FIGURING OUT HOW (California, Illinois, and TO HANDLE “THIRD New York), PARTY PROVIDER” the state OPERATIONS, BUT alcohol DEVELOPMENTS regulators h a v e IN SEVERAL published STATES ARE g u i d a n c e ENCOURAGING. concerning the role of third party providers in alcohol beverage transactions. Unlike the interstate delivery models, existing distributors and retailers support this model (unsurprising, given that third party e-commerce providers really just facilitate sales of alcohol beverages, thus increasing sales for distributors and retailers with no expenditures or additional effort required). Although distillers’ ability to legally become involved in the e-commerce channel has not yet been clearly outlined by most state legislatures or alcohol regulators, we likely will see more guidance on this issue in the coming years. The future of e-commerce looks promising for suppliers. Third party providers are not retailers, so suppliers face fewer restrictions on their relationships with such entities. A distiller paying for advertising services may be viewed as analogous to payments distillers may legally make in many states to other third parties, like stadium venues. Favored advertising placement (such as

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Profile for Artisan Spirit Magazine

Artisan Spirit: Summer 2017  

The magazine for craft distillers and their fans.

Artisan Spirit: Summer 2017  

The magazine for craft distillers and their fans.