DTC FOR (Non-Wine) ALCOHOL

Alcohol brands face a unique challenge: they often do not know their customers. Where other CPG brands can utilize their direct-to-consumer ecommerce sites to gather first-party data, alcohol brands are subject to the three-tier system, preventing any direct relationship with consumers.

In a world with increasing optionality, offering consumers a personalized experience could be what sets a brand apart. So how do brands obtain first-party data when stuck in a three-tier system?

We spoke with Jordan Tepper, co-founder of Apologue, to learn more about how he navigates the DTC landscape — and the workarounds that have enabled the company to dominate the bottled cocktail space.

Apologue is somewhat of a microcosm of the industry. With three separate lines of business, each experiment with a differentiated distribution strategy. They started with canned tequila-based RTDs (a collaboration with Chicago’s beloved Big Star restaurant), but quickly found that the unit economics for shipping a $20 four-pack of margaritas was hard to justify. This got Tepper interested: how could they stay in the ready-to-drink cocktail category without competing on cost? They ultimately found the answer in Sunday’s Finest Gold Fashioned, the most premium possible ready-to-drink cocktail made with the “best ingredients on the planet” and packaged in a stunning glass bottle. Gold Fashioned joined their lines of Apologue Liqueurs and canned cocktails as their golden child, the premium option distributed 50/50 on ecommerce and on-premise retail. This option would drive traffic to their website and kick off their omnichannel approach. Meanwhile, they focus their liqueurs mainly on on-premise (bars, restaurants) and canned cocktails on off-premise (retail stores).

The Workaround For DTC Alcohol

To remain three-tier compliant, non-wine alcohol brands cannot sell directly from their website and must use a third party. There are ways to get scrappy with this; Mizo, for example, took a more analog approach and partnered with a local liquor store to build out a DTC option that is funneled through the store. They sell their product wholesale to the liquor store and the owner runs their DTC website and fulfills orders.

Some other options include utilizing alcohol delivery sites including Drizly, Reserve Bar, Sipsy (LA-focused) and TapRm (NYC-focused). These sites either function as retailers or work with retailers to deliver alcohol directly to consumers. But for brands looking to engage directly with their customers, these sites are not enough. The Drizlys of the world, like in-person retailers, do not share consumer data back you. While you can offer more accessibility to customers, you still cannot offer a personalized experience without understanding who our customer is.

The only real “workaround” is to solve the solution from the inside out using third-party ecommerce platforms. Platforms like Barcart, Speakeasy, and Accelpay all seamlessly integrate into existing DTC sites. These platforms then work with local retailers to fulfill orders, but the customer never knows the difference — almost like white labeling the purchasing process. When a consumer goes to checkout on your website, they will feel like they are purchasing directly from you, no pop-ups or site diversions required. Consumers get a seamless front-end experience, while brands can reap the benefits of first-party data.

Apologue launched their Sunday’s Finest Gold Fashioned brand on ecommerce in October 2021. Using Accelpay, their $150 bottled cocktail has sold out twice since launching.

How To Find Your Dtc Partner

There are a few major players in this space, including Barcart, Speakeasy and Accelpay. When deciding on a platform, Tepper recommends considering:

1. Tech team. Know who’s behind the platform and make sure that your web developers feel comfortable working with them and seamlessly integrating.

2. Cost. Each platform has its own upfront costs, as well as cuts they take from both the brand and the retailers.

3. Retailer compatibility. Make sure that retailers feel comfortable getting on board with them and are satisfied with the cut they’re taking.

Ultimately, each will have its pros and cons. Once you find the right platform for your brand, though, they all will generate the same experience for the customer on the other side.

Unique Challenges with DTC

Competition

When you have your own DTC site, suddenly other ecommerce retailers can compete with you — for your own customer. Essentially, ecommerce partners like Spirit Hub or Reserve Bar have the budget to run paid ads. When prospective customers googles Gold Fashioned, for ex- ample, they will likely come across Spirit Hub, where it’s discounted by $15. “Other ecommerce retailers will overpay on SEO as an acquisition tool, and then discount your product. The challenge is then figuring out a way to offer the consumer greater value ordering from our DTC site without competing on price.”

To drive traffic to the Sunday’s Finest site, Apologue offers value through free shipping and pre-release to their customers. Since they have sold out of Gold Fashioned twice, offering first-to-know access to customers is of great value. They also rely on press placements and in-person event activations to drive traffic to their site. But ultimately, customer poaching is inevitable, and DTC brands should be prepared to accept this fate.

Variability of service

The biggest problem with this model, Tepper believes, is the retailers on the backend fulfilling each order. “Their brands are not at stake,” he says. If a customer is shopping in-person at a Fine Wine & Good Spirits, for example, they associate their purchasing experience with that store, not the brand they happen to pick up on its shelf. If they have a negative experience shopping in the store or receiving an order online, they blame the retailer. But because the retailer operates behind the curtain in the case of Accelpay, the brand of the retailer is not associated with the fulfillment experience — which puts the alcohol brands at stake.

“The retailers behind these platforms don’t care about the individual consumer nearly as much as you do. We often have retailers accept orders without any inventory in stock, which can significantly delay shipments,” Tepper notes. The quality of the service is also less important to these retailers, meaning that product can arrive damaged.

“We have customers complain that their bottles are showing up broken or super delayed. Luckily, the brand is able to do customer service, because you do have that first-party data. You can see when the retailer shipped it, what the tracking ID is, and email the customer directly.” Though the fulfillment process may not go to plan, obtaining first-party data through these platforms allows brands to have complete control over customer service.

“Many customers are ordering our product for birthdays or special occasions. Making sure these customers get their product on-time and intact can be sensitive, so being able to talk to them on the phone or email back and forth with them has been really helpful,” Tepper says. “We’ve gotten really positive responses about our customer service, and I think that helps build goodwill.”

Tips For Brands Considering DTC

If you decide to start working with a DTC platform, “you have to own the consumer journey from the beginning to the end,” says Tepper. “You cannot rely on the third-party payment processor or the retailer to provide a seamless experience. You have to hold their hands — which sometimes can even mean sending them custom shipping packaging — to make sure that your product arrives exactly how you want it to arrive.”

Tepper also encourages brands to think critically about their retail partners throughout this process. “There's a magic sauce in how many retail partners you work with,” he says. “If you only work with one retail partner, you have you put a lot of your eggs in a basket that's operating a grey legal area. If that person doesn't come through for you, that’s a lot of risk.” At the same time, if you work with 20 retailers, you're not going to be a meaningful enough supplier for them to care about your product.

The "Necessary Evil"

Though platforms like Accelpay present their own challenges, Tepper views them as a “necessary evil.” Beyond the immediate benefits of direct communication with your customers, Tepper believes that setting up this infrastructure will be critically important for the future of alcohol. “Say Illinois suddenly passes DTC spirits shipping. If 30% of our consumers are in Illinois, and we have all their emails from Accelpay, we can direct them to our website to buy bottles at the same price point,” Tepper says. “That means they’re not paying more, but we're capturing an additional $60 margin per bottle that would typically go to a retailer. That’s very meaningful — and that’s starting to happen.”

Aside from the future of DTC, “in terms of building a brand, developing relationships with consumers and building a community, these platforms are crucial. If you don’t know who your customers are, you cannot engage with them.” Tepper also believes that DTC sites can create a sense of brand affinity for consumers. “You think about wineries in Napa Valley — when a consumer goes there and tastes wine, they have a strong affinity with the brand.”