The Drizly Business Model – How Does Drizly Make Money?

Executive Summary:

Drizly is an online alcohol delivery platform that enables customers to order liquor in over 100 cities across the United States and Canada.

Drizly makes money via licensing fees, delivery fees, service fees, penalty fees, as well as through advertising on its platform.

Founded in 2012, Drizly has grown to become one of the biggest alcohol delivery services in the United States. The company was acquired by Uber for $1.1 billion in February 2021.

How Drizly Works

Drizly is an online alcohol delivery platform that can be accessed via the firm’s website as well as mobile phone apps (available on Android and iOS devices).

Beverages are delivered within less than 60 minutes. Instant delivery is currently available in over 100 cities across the United States and Canada.

If an area is not serviced by Drizly, users can still order alcohol and receive products within the next 24 to 48 hours (on average).

The alcohol sold on Drizly is not owned by Drizly itself. Instead, the firm partners with local retailers which have the necessary liquor license to be able to sell alcohol. As such, the product’s price is set by the retailer.

Using Drizly is as simple as it gets. Customers first sign up for the service by entering all the required information (such as an address, birth date, name, and more).

After adding your payment method, you can simply pick the products you desire and head straight to the order section. The order page will tell you from which stores you order, how much delivery costs, and how long that delivery will take.

When the booze is delivered, the delivery driver will verify your age as well. It is, therefore, necessary to show proof of identification.

Customers can choose from a wide array of beverages, including beers, wine, hard liquor, and other drinks such as energy drinks. Furthermore, customers can buy party snacks, party supplies, and the necessary equipment to mix drinks.

Drizly also works together with businesses that want to have alcohol delivered to their company events (via its Driz for Biz section).

Drizly Company History

Drizly, headquartered in Boston, was founded in 2012 by Nick Rellas, Justin Robinson, and Spencer Frazier. Rellas’ cousin Cory joined the firm a year later as COO from consulting powerhouse Bain.

Rellas, Robinson, and Frazier started the business right after graduating from Boston College. The idea for Drizly originated when Rellas, who was wrapping up his last semester, tried to get some beer in the middle of the night.

That initial spark prompted hours and hours of research about the legalities and limitations of the alcoholic beverages industry.

What he quickly discovered was a tightly regulated industry controlled by a tiered system of producers, distributors, and retailers. Selling alcohol oftentimes requires businesses to pay a hefty fee in exchange for a liquor license.

As such, not much had changed since these laws were put in place after the prohibition. Many established companies had refused to succumb to the rise of e-commerce and online delivery and instead continued business as usual.

Therefore, the break-things-fast playbook popularized by many Silicon Valley companies was simply not applicable to this industry. The founding team made a few extremely smart adjustments that allowed it to enter the space nonetheless.

First, they chose to not charge a commission but instead apply a licensing fee for using their platform. This revenue model allowed them to circumvent the need to acquire an expensive liquor license.

Second, the company developed a now-patented verification system (called Mident ID) which allowed its liquor store partners to verify a customer’s age using their smartphone.

After working on the concept for over a year, Drizly eventually launched in May 2013. Apart from the website, users could also download its iPhone app. In the beginning, Drizly was solely available in its hometown Boston area.

In January 2014, the startup landed its first-ever outside round of funding of $2.25 million (led by Boston-based Atlas Ventures). Alongside the funding round, Drizly also released its Android app and launched in New York, its second market.

The company quickly raised another round of funding ($2.5 million) in May 2014 and used the cash to expand into even more cities. By the end of 2014, Drizzly was operating in close to 10 cities across the United States.

A year later, Drizzly quadrupled that amount to over 40 cities. The company, furthermore, launched major partnerships to ensure it can offer the necessary supply. In 2015, for instance, it inked a deal with the Wine & Spirits Wholesalers of America (WSWA) which provided Drizly access to its network of wholesalers.

Its first foreign market was launched in February 2016 when Drizly expanded to Edmonton, the capital city of the Canadian province of Alberta. That same year, Grizzly underwent a major change in the way it does business.

In September 2016, Drizly effectively revamped its platform to become an online marketplace. Under the new appearance, customers could now compare liquor prices as well as delivery options from various stores. Prior to the revamp, customer orders were treated on a first-in-first-out basis, which caused some sellers to not be able to fulfill orders.

Throughout the following years, Drizzly continued to add cities to its platform as well as more funding to its balance sheet. The firm experienced that growth without its co-founder and long-time CEO Nick Rellas, who stepped down from his role in August 2018. Nick was replaced by his cousin Cory Rellas, who previously had acted as the firm’s COO.

Unfortunately, that wasn’t the last piece of that story. In March 2019, Drizly filed a lawsuit against Nick Rellas, stating that he violated a non-compete agreement. Rellas initially planned to launch another delivery startup in the cannabis space. The problem: Drizly already had been working on a similar product, which Rellas had first-hand involvement in.

Consequently, in May 2020, the now Drizly Group launched a cannabis delivery service called Lantern. The service was, again, available in the Boston area but expanded quickly into other areas.

2020 became a particularly good year for the company. Stay-at-home orders due to the coronavirus forced people to conduct their liquor shopping online. As a result, Drizly grew by over 350 percent in 2020 alone.

Nevertheless, not everything was going according to plan. In July 2020, the company announced that it suffered from a data breach that exposed 2.5 million user accounts. Although less than 2 percent of those accounts contained sensitive information, its users still filed a class-action lawsuit against Drizly.

Despite those legal setbacks, in February 2021, Uber that it would spend a whopping $1.1 billion (in stock and cash) to acquire the company. Drizly will be incorporated into Uber’s app ecosystem and remain a standalone application.

Today, Drizzly works together with close to 4,000 independent retailers. The company furthermore employs close to 300 people across various offices in the United States.  

How Does Drizly Make Money?

Drizly makes money via licensing, delivery, service, and penalty fees, advertising, as well as selling aggregated customer data. For the sake of simplicity, I won’t cover any revenue channels from the firm’s cannabis delivery business.  

Let’s take a closer look at each of these in the section below.

Licensing Fee

The primary driver of revenue for Drizly is the licensing fees it charges to retailers and independent liquor stores.

Licensing fees can range between $100 to $10,000 per month depending on the store’s location, the volume of transactions, the type of products sold, and many more.

As previously stated, Drizly utilizes the licensing model because it removes the need to buy a liquor license.

Furthermore, since the fee is capped, major retailers operating on a national scale are incentivized to join since their marginal cost decrease with every sale made on the platform.

Delivery, Service & Penalty Fee

Apart from licensing fees, Drizly also collects various fees directly from its customers. For many of the firm’s markets, a $5 delivery fee is applied, which helps their retail partners (who conduct the deliveries) to offset costs.

Second, Drizly applies a $1.99 service fee. The fee covers any cost associated with developing and maintaining its products and services.

Lastly, whenever a user below the age of 18 decides to try his or her luck, a penalty fee is charged after the unsuccessful delivery. This fee is equal to $20.

Advertising

Lastly, Drizly also makes money from advertising on its platform. More specifically, products from certain brands may receive preferential treatment by showing up on top of the page.

The company, in all likeliness, gets compensated on a fixed fee basis. Many other delivery marketplaces, like Gopuff or Instacart, have utilized similar models.

Furthermore, Drizly may also sell aggregated user data to other companies and brands. Its platform creates plenty of lucrative data points, such as how often certain product categories (like vodka or whiskey) get sold and what gender and age those buyers have. Companies buying that anonymized data can use it to inform their product launches.

Drizly Funding, Revenue & Valuation

According to Crunchbase, Drizly has raised a total of $119.6 million across nine rounds of venture capital funding.

Notable investors include Tiger Global Management, Polaris Partners, Cava Capital, Accomplice, FJ Labs, and many more.

Drizly is currently being valued at $1.1 billion – at least to Uber who paid that much (in cash) to acquire 100 percent of the company in February 2021.

As a private company, Drizly is not obligated to disclose its revenue to the public. Uber, in the future, may decide to publicize those numbers in its income reports. 

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..