In the first quarter of 2021, AB InBev’s sales through owned ecommerce channels quadrupled in size. The world’s largest brewer reported that its courier platforms are now available in nine markets and 220 cities. Heineken, the world’s second largest brewer, reported that revenue doubled at its DTC platform in Europe, Beerwulf.

In the United States, producers sold $223 million worth of wine via their DTC channels in June, an increase of 18% on the previous year. That was despite a strong rebound in on-premise sales, highlighting a continued trend for home consumption in the world’s largest economy.

The spirits industry has lagged behind, but trade bodies are working hard to pave the way for a new era of DTC growth. The Distilled Spirits Council of the United States, American Craft Spirits Association and American Distilling Institute have joined forces to lobby the federal government to pass direct-to-consumer shipping laws.

Just nine states, plus the District of Columbia, permit DTC spirits sales, compared to 46 states that allow DTC wine sales. The trade groups are calling on the federal government to intervene. “In states where craft distillers have been permitted to ship their spirits direct-to-consumer, they report it has been a saving grace and a much needed source of revenue during the hardships of the pandemic,” said ADI president Erik Owens. The groups teamed up with IWSR to survey 2,000 consumers about the issue, and 80% said they supported direct-to-consumer sales.

Johnnie Walker and Smirnoff producer Diageo expects direct-to-consumer sales to grow rapidly and emerge as an important part of the business in the years ahead. The spirits giant has just beaten analysts’ expectations by posting 16% organic net profit growth for the year to June 30. That was partially driven by surging ecommerce sales, which now account for around 5% of Diageo’s global business. It has enjoyed success with major third-party platforms such as Amazon and Drizly, but is starting to ramp up its focus on direct-to-consumer sales too.

At an earnings call, chief executive Ivan Menezes told Drinks International: “We do see the consumer behaviour shift towards shopping online as very sustained. It will continue to grow. Alcohol has typically been under-penetrated [online]. Throughout the lockdown and the pandemic period, the penetration for alcohol online shopping has gone up significantly.

“We have leading positions on third-party platforms like Amazon in Europe, Tmall in China and Drizly in the US. We’re doing very well on those platforms. We have introduced nine new direct-to-consumer platforms around the world. We do tend to lead in that space. It’s still relatively small for Diageo, but we expect it to grow fast and it will become a more important piece of our business. 

“We have an asset called TheBar.com in the UK and Brazil. We have platforms at the top end of our single malts portfolio. This is an area where Diageo will do more. I expect it to become a bigger part of our business over time.”

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Dayalan Nayager, managing director of Diageo Great Britain, added that “the prominence will stay” for ecommerce sales as the world emerges from the Covid-19 pandemic, because “consumer buying habits have shifted”.

It is easy to see why brand owners are keen to accelerate a shift towards DTC sales. First, there is no middleman taking a cut, so margins are theoretically higher, provided they create very efficient platforms and logistical capabilities. Second, they can ensure a pleasant purchasing experience for their consumers by seizing control of the process.

Yet perhaps the greatest incentive to switch from supplying the trade to selling DTC is the ability to mine valuable consumer data. Some economists suggest that data is the new oil: an immense, untapped, lucrative asset that fuels the digital economy. By selling DTC, brand owners can enjoy access to the sort of analytics they would be unlikely to gain by supplying the trade. 

This could be one of the reasons why Moët Hennessy and Campari Group have joined forces to create an ecommerce business that will sell wine and spirits to consumers across Europe.

Last summer, Campari purchased a 49% stake in Tannico – Italy’s leading online wine and spirits retailer – for €23.4 million. Tannico also owns a majority stake in Ventealapropriete. com, a major ecommerce platform for the sale of premium wines and spirits in France. Campari will sell its stake in Tannico to the JV for €25.6 million. The new venture will be led by current Tannico chief executive Marco Magnocavallo, who remains a minority shareholder in the business, with the aim of building “a European ecommerce pure player in this growing category”.

“With the joint backing of Moët Hennessy and Campari, Tannico will have the repower to consolidate the fragmented European ecommerce sector and offer a qualitative, sizeable and integrated route to market option catering to the needs of all its wines and spirits suppliers,” said Magnocavallo.

Philippe Schaus, chairman and chief executive of Moët Hennessy, added: “This partnership represents a significant step forward in our global ecommerce development strategy. While ecommerce was already a growing channel for wines and spirits, the global pandemic has triggered a significant acceleration.”

GROWING TREND

We can expect to see more deals of this nature in the months and years ahead. It is certainly not limited to the drinks industry: manufacturers from Apple to Nike are increasingly selling directly to consumers. Yet it begs the question: what can retailers and bar owners do to ensure they are not phased out?

It is not such a concern for the on-trade. DTC retail channels cannot replace the conviviality, camaraderie and enjoyment of visiting bars and restaurants. Lots of brewers have their own pub chains, but there has always been a role for high-quality on-trade establishments with a strong and differentiated offering. 

The situation is a little more concerning for o-trade and ecommerce drinks retailers. They essentially need to maintain such strong sales volumes that drinks producers cannot afford to bypass them, ensuring they retain the bulk of their market share in the face to increased competition from DTC.

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Bricks-and-mortar stores are now welcoming customers back after many months of enforced lockdowns across the globe. They will have to double down on the attentive customer service that hands them a natural advantage over online retail. Luxury retailers must enthral shoppers, transform their perceptions and upsell, providing an immersive, multisensory shoppi
ng experience that stimulates consumers, excites them, and keeps them coming back for more. Retailers that use their physical space in innovative ways that add value for shoppers can thrive in future.

The rise of DTC sales threatens to drastically reshape the global drinks industry, and it is certainly a cause for concern among retailers. Yet there are also lots of reasons for them to remain optimistic.

First, it is costly and time-consuming for producers to set up DTC routes to market. Drinks retailers can stay afloat by making it much more cost-effective for producers to sell through them at scale rather than going direct.

They will need to work hard to keep costs down. They must become increasingly efficient. In certain countries, that could involve offshoring IT, nance, HR and even merchandising and marketing analytics to cut costs.

Another advantage for traditional retailers is the level of choice they can provide consumers. They can create exciting ranges featuring the best drinks from a multitude of suppliers from around the world – whereas a DTC platform is unlikely to offer such strong variety.

Retailers that provide deep product expertise, offer unique product education and proactively shape shopping decisions will be successful in future. They currently hold most of the consumer data, and they need to start leveraging it to a greater extent. They can build analytical muscle, enabling targeted marketing, improved ranges and efficient pricing and promotions. They can ultimately harness their natural and historical advantages to remain the gatekeepers for consumers. The future still looks bright for forward-thinking retailers that can display innovation and dynamism in the years ahead. The trends that will shape the future of the industry are clear, so retailers simply need to evolve. Retailers that design a thriving ecosystem that meets consumers at every possible touch point – in the physical and digital spheres – in a multichannel, multisensory and multidirectional fashion, can not only survive, but thrive.