Uber bought Drizly for $1.1 billion in stock and cash last year. The aim was to integrate Drizly into UberEats allowing people to buy even more alcohol via Uber. It appears Uber didn’t understand the legal rules and regulations around alcohol sales in the U.S. before completing their acquisition. They are now facing problems because the U.S. three-tier system regulates the alcohol trade.
Understanding the three-tier system
Federal states have the legal authority to regulate alcohol as they saw fit. And states have developed a structure of checks and balances that provided alcohol to the consumer while ensuring a simple method to collect tax revenue, and protect public health. This is known as the three-tier system.
The three-tier system is simple in theory: manufacturers provide alcoholic products to wholesalers, who distribute the products to retailers, who sell to the consumers. No one entity can be involved in more than one tier under most state models and each tier is regulated and
licensed separately.
The three-tier system offers many benefits to society across four categories: regulatory, economic, commercial, and public health.
Regulatory Benefits
Within the three-tier system, each tier is responsible for ensuring that the laws and regulations set forward by the government are executed. All parties must comply with those laws and each is responsible to the other. These laws and regulations provide safeguards that there are lawful trade practices and safe handling of alcoholic beverages before they get to consumers. This transparent regulatory scheme elevates consumer confidence because the three-tier system ensures that only licensed distributors and retailers will be able to provide and sell alcoholic beverages.
Economic Benefits
Tens of billions of tax dollars are provided to federal, state, and local governments by manufacturers, wholesalers, and retailers in the alcohol industry. Because of the checks and balances created within the three-tier system, there is less risk of untaxed, potentially tainted “black market” alcohol passing to the consumer. The tax money provided by the system is invested in education, infrastructure improvements, and other areas that benefit all citizens.
Commercial Benefits
Manufacturers are given equal access to the marketplace that they would not receive under other systems. This allows for large corporations as well as craft distillers and brewers to reach consumers. Rather than be dwarfed by larger competitors, smaller manufacturers receive greater opportunities to increase sales through distributors with retailers nationwide. As a result, consumers have more choices to a variety of alcoholic products.
Public Health Benefits
Because of the checks and balances created by the three-tier system, several public health and safety benefits are present. The system has played an important role in preventing easily and widely available cheap alcohol in the United States. As described in the “Safe and Sound” publication on alcohol regulation and the three-tier system: The three-tier system prevents marketplace domination by large companies that would seek to greatly increase alcohol sales through aggressive practices, or by controlling the entire alcohol distribution chain, from manufacturer to consumer.
The Drizly challenge to the three-tier system
The three-tier system of alcohol sales in the U.S. means that alcohol must be sold from producers to distributors and then to retailers before reaching consumers. But Drizly circumvents this system by providing a platform for alcohol e-commerce for retailers and never being involved in the actual delivery of the products.
Drizly is an online retail and delivery platform that facilitates the on-demand delivery of alcohol from local retailers via its mobile app or website. There are many public health concerns around on-demand alcohol delivery and online retail, such as age limit verification and providing alcohol to already intoxicated people.
In contrast to other actors within the three-tier system, Drizly operates without any liquor licenses. Instead, Drizly charges retailers a monthly fee to use its platform.
Previously the delivery was done either by the retailer or third-party delivery service, mainly DoorDash. Since Uber is a competitor of DoorDash the company pulled out of delivering for Drizly since it was taken over by Uber. Uber has since replaced DoorDash as the leading provider of third-party delivery services for Drizly.
Apart from the delivery issues, Drizly’s and Uber’s methods of accepting payments are mismatched. Due to the three-tier system when people buy alcohol from Drizly the money directly goes to the retailer, which pays Drizly a fee for the service. While on Uber, when people buy food on UberEats the money goes directly to Uber which passes a portion of it to the restaurant. Due to the three-tier system, the way Uber payments work won’t be legal for alcohol e-commerce and delivery.
[We sensed that] Uber does not understand the legality around what we did and how we did it,” said a former employee of Drizly, as per the Boston Globe.
A former employee of Drizly
Payment processes could affect Drizly’s eventual integration into the Uber Eats app. Some have observed a lack of cross-promotion between the brands, besides Drizly being a part of Uber’s free delivery program.
A spokeswoman for Uber has said that said the company’s “payment systems operate in compliance with all state and local laws, including those on alcohol and including those that govern the flow of funds.” She added that integration is on track and that cross-promotion is there when the integration moves forward.
Attack on the U.S. alcohol control state system?
In April 2019, Movendi International reported that the online retail giant Amazon hired an alcohol lobbyist. This revealed Amazon’s plans to expand further into online alcohol retail.
Amazon already dominates general online retail in the U.S. and has expanded into grocery business and food delivery. Selling liquor has long been in the sights of the retail giant, but the state and local laws governing alcohol sale pose common-sense limits.
In 2019, Amazon first joined Big Alcohol when it began delivering alcohol to customers in San Francisco. Amazon began delivering alcohol from its Prime Now warehouse in San Francisco.
These moves by Amazon, Uber, and others signal the potential to further disrupt the three-tier system of alcohol control. It is already under attack by Big Alcohol. Also Amazon and Uber have the financial and political power to influence law makers in the interest of eroding the checks and balances of alcohol production, distribution, and retail to make alcohol more easily, cheaply and widely available and thus fuel rising harm.
Online Alcohol Delivery Is Linked With Heavier Alcohol Use During COVID‐19 Pandemic
A study published in the renowned journal Alcohol and Drug Review found that purchasing online alcohol delivery during the pandemic is linked with heavier alcohol use (75% higher odds) in the past week, while purchasing alcohol from supermarkets was not.
- About 58% of online purchasers under 25 years of age reported no age checks, in New Zealand.
- 16% of people purchasing alcohol online repeat ordered online to keep consuming alcohol after running out.
- Of respondents who had tried to buy alcohol and food online, 56% reported that alcohol was easier to get delivered than fresh food.
- Advertising for online alcohol delivery was seen by around 75% of the sample. Half of the sample reported consuming more alcohol during the pandemic.
This study shows that the business model of Uber and Drizly is harmful to the health and well-being of people and communities.
