Monday, September 21, 2015
The Fourth Tier and the Uberization of Liquor Sales
Since the end of prohibition, most of the United States has had a three tier system for sales of alcohol. A producer sells alcohol to a distributor (i.e. a wholesaler) who then sells it to a retailer who can sell to the public. The booze sees a mark up at each step so each player can make a profit. Many, including myself, have suggested that the three tier system is outdated and needlessly complicated and should be eliminated. However, rather than moving in that direction, it appears that the system is growing more complicated, and more expensive, with an emerging fourth tier.
Have you ever gotten one of the emails from Caskers offering high priced whiskey and claiming that nearly everything scored higher than Pappy Van Winkle? Meet the fourth tier. Companies like Caskers are not producers, distributors or retailers. In fact, they don't handle any alcohol. They are marketing firms. They advertise booze and solicit sales for retailers, who then complete the orders. It's an Uber-like system, where Caskers acts as the app and individual retailers sign up as drivers. Alcohol delivery sites like Saucey, DrinkFly and Drizly appear to use a similar model (though Saucey employs delivery couriers).
One area that's unclear is how payment works. If these companies sell alcohol, they would need to be licensed retailers. If you purchase a bottle on Caskers, they take your credit card information like any other site, but their terms state that they do not sell alcohol and that all sales are made by the vendors. It will be interesting to see if the government sees it the same way.
These companies may be a good thing for people in states that don't get large selections on the shelves, but the fourth tier adds another complication and another party that needs to get paid, which presumably explains the high prices. It would be much easier if retailers could ship directly across the 50 states, but unlike Caskers, licensed retailers are subject to the liquor laws of their states and shipping can be a grey area. Prominent retailers like The Party Source and Binny's have stopped shipping spirits in recent years. Caskers benefits from being able to access multiple retailers in different jurisdictions who are subject to different shipping laws, though there are shipping restrictions on each bottle they offer.
Given the complications of retailer shipping, we are likely to see more of these companies in the future. So on balance, is the emergence of a fourth tier of alcohol sales a good thing or a bad thing? What do you think?