Uber buys Boston-based alcohol delivery service Drizly for $1.1 billion
The deal strengthens the San Francisco tech company’s foothold in the delivery sector, which has become more competitive during the pandemic. Uber Eats has already added grocery, convenience and liquor stores to its app, and last summer acquired rival Postmates for grocery delivery for $ 2.65 billion.
Drizly has been referred to as “Uber for Booze” since its launch in 2013, but it is a misnomer. The company does not supply alcohol itself, but rather provides software for liquor stores that want to deliver alcohol in more than 1,400 cities in North America. Each store employs its own delivery drivers, although some are now using third-party delivery services as well.
With Drizly building a tech platform and overcoming the regulatory hurdles in selling alcohol in so many locations, the industry talk had swirled before the pandemic, according to industry analysts. The surge last year – the company saw sales jump 300 percent in 2020 and its Boston-based team grew 145 percent – made the company all the more attractive.
Drizly raised $ 50 million last August, increasing its total venture capital transport to $ 117 million.
“The pandemic changed everything. It was kind of a perfect storm for them, ”said Scott Madden, senior partner at Boston-based marketing firm Connelly Partners who worked with Drizly on their branding strategy. “Now we’ve all learned to normalize home delivery across everything we buy.”
Drizly’s alcohol market will appear on the Uber Eats app at some point, but consumers can still use the separate Drizly app. The transaction is expected to close in the first half of the year and the company will continue to employ Boston based.
“Drizly has built the infrastructure, technology and partnerships over the past eight years to provide consumers with the shopping experience they deserve,” said Cory Rellas, co-founder and managing director of Drizly, in a statement.
The business idea first arose from a text in a dormitory at Boston College between co-founder Nick Rellas and his friends when they realized that the nearby liquor store was about to close.
John Gallaugher, professor of entrepreneurship at BC, admitted that he had been a little deliberate when he first sat down with Drizly’s founders when they reached out to him for advice. “So many times students come in and say they want to start a delivery business,” he said. “But what was interesting about Nick was that he was clear and ready to examine the market early on, which was different from other students.”
Dara Khosrowshahi, the managing director of Uber, described Drizly as an “incredible success story”.
“By adding Drizly to the Uber family, we can accelerate this journey by introducing Drizly to the Uber audience and expanding its geographic footprint to our global footprint in the years to come,” he said in a statement.
Drizly’s approach to business was in stark contrast to Uber’s at the start. While in the early days of Uber there was an unrestricted approach to entering cities with some reckless regulation waiver, the Drizly team was much more knotty, studying the alcohol regulations in every region they moved to and making sure they were complied with the regulations.
“We don’t get around like Uber, try to reach regulators, try to talk to lawmakers, and say, ‘We want to change the way we do it,” Rellas told BC student newspaper in 2014.
The founders of Drizly understood that despite the fact that retail alcohol sales were a $ 130 billion annual business, most liquor stores were family-owned and not particularly tech-savvy, Gallaugher said. Still, “If a kid barely comes in legally to buy the things the stores sell and says,” I’m going to solve your tech problems, here’s an app. “Most of the time, it doesn’t go anywhere.”
But Drizly found traction. Over time, the company expanded its presence nationally, occupying its Boylston Street offices, becoming profitable, and establishing a cannabis delivery business, Lantern, which was launched last year. The move to cannabis created a wedge between two executives at the company, former CEO Nick Rellas and his cousin and current CEO, Cory Rellas. The company filed a lawsuit against Nick Rellas in 2019, accusing him of violating a non-compete agreement with Drizly after he set out to start his own cannabis delivery business, but Drizly eventually dropped the lawsuit .
The pandemic was critical for Drizly, accelerating growth to a place few on the team had envisioned, said Cathy Lewenberg, the company’s chief operating officer. “Overall, alcohol is a category that has really struggled to get online given the complexity of the regulation. The biggest obstacle to COVID was the awareness that you can actually have it delivered to your home. “
That changed within days of the COVID-19-imposed shutdowns, and eventually led the company to grow its workforce to more than 270 employees. She said Drizly had been approached by other companies about an acquisition, but Uber’s global reach and established base of over 75 million users could “fuel tremendous synergies,” she said.
Lewenberg added that Drizly is looking for additional office space and plans to expand its team. “There is absolutely an opportunity to use Drizly technology to move into other categories,” she said. Lantern, the company’s cannabis delivery service, was not included in the contract.
Much of the business’s success will depend on consumers continuing to look for on-demand delivery of the same volume as the pandemic subsides.
While COVID has expanded Drizly’s user base and changed the way consumers drink, there’s a good chance people will make an effort to get back to the bars once the vaccines hit, said Madden of Connelly Partners.
“How much do consumers enjoy the convenience of delivering alcohol and how much they enjoy looking at the premium range of bourbon and seeing the different colors and ambers of whiskey bottles,” is the big question, he said.
Others questioned the terms of the deal, as Drizly will receive 90 percent of the $ 1.1 billion in Uber stock. “Uber really does burn cash [this past year]which is not good, ”said Peter Cohan, an economics professor at Babson College. “Drizly is really betting that Uber can add value to its stock.” Uber’s share price rose 7 percent on Tuesday.
Pat Kinsel, an early Drizly investor through Polaris Partners, said he believed Uber was drawn to the company because of its regulatory capabilities and similar business model. “To enter a regulated market, you need allies,” said Kinsel. “The lesson from buying through Uber is that first movers in regulated markets are very long-lived businesses.”
Dan Adams from Globe staff contributed to the coverage.