An idea prompted by a late-night beer run has now become a billion-dollar business.
On Tuesday, Uber Technologies announced it is buying Boston-based alcohol delivery service Drizly for $1.1 billion in cash and stock. The deal comes amid a massive shift in consumer behavior accelerated by the pandemic, as shoppers increasingly turn to delivery apps to fulfill their everyday needs.
Uber is known for its ride-hailing service, but these days the company is finding more success delivering food, groceries, and alcohol to doorsteps. In the last quarter, Uber’s ride-hailing revenue was down more than 50 percent from the previous year, whereas revenue from Uber Eats grew by 125 percent.
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 it acquired food delivery rival Postmates for $2.65 billion.
Drizly has been called an “Uber for booze” since it first launched in 2013, but it’s a bit of a misnomer. The company itself doesn’t deliver booze, but rather provides software for liquor stores seeking to deliver alcohol in more than 1,400 cities in North America. Each store employs its own delivery drivers, though some have now come to use third-party delivery services as well.
Because Drizly had built a tech platform and navigated the regulatory hurdles involved with selling alcohol in that many locations, acquisition chatter had been swirling even before the pandemic, industry analysts said. But its surge over the past year — the company saw its revenue swell 300 percent in 2020 and grew its Boston-based team by 145 percent — made the company all the more attractive.
Drizly raised $50 million last August, bringing its total venture-capital haul to $117 million.
“The pandemic changed everything. It was sort of the perfect storm for them,” said Scott Madden, a senior partner at the Boston-based marketing firm Connelly Partners, which has worked with Drizly on its branding strategy. “Now we all have learned to normalize home delivery across everything we buy.”
Drizly’s alcohol marketplace will eventually appear in the Uber Eats app, but consumers will still be able to use the separate Drizly app. The deal is expected to close in the first half of the year, and the company will keep its staff based in Boston.
“Drizly has spent the last eight years building the infrastructure, technology, and partnerships to bring the consumer a shopping experience they deserve,” Cory Rellas, the cofounder and chief executive of Drizly, said in a statement.
The business idea first stemmed from a late-night text in a Boston College dorm between cofounder Nick Rellas and his friends as they realized that the nearby liquor store was about to close.
John Gallaugher, a professor of entrepreneurship at BC, admitted to a bit of an eye roll when he first sat down with Drizly’s founders as they approached 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 it was clear that he had a commitment and maturity to examine the market early on that was different from other students.”
Dara Khosrowshahi, the chief executive of Uber, called Drizly an “incredible success story.”
“By bringing Drizly into the Uber family, we can accelerate that trajectory by exposing Drizly to the Uber audience and expanding its geographic presence into our global footprint in the years ahead,” he said in a statement.
Drizly’s approach to business was in stark contrast to Uber’s at its outset. Whereas the early days of Uber saw a no-holds-barred approach entering cities with somewhat reckless abandon to regulations, the Drizly team was much more buttoned-up, studying the alcohol regulations in each region they moved into and ensuring that they were in compliance.
“We’re not coming at this like Uber, trying to go at regulators, trying to go at lawmakers, saying, ‘We want to change the way we’re doing this,’ ” Rellas told BC’s student newspaper in 2014.
Drizly’s founders understood that despite the fact that retail alcohol sales were a $130 billion annual business, most liquor stores were family-owned businesses that weren’t particularly tech savvy, Gallaugher said. Still, “when some kid comes in barely legal to buy the stuff the stores sell and says, ‘I’m going to solve your tech problems, here’s an app,’ most of the time that doesn’t go anywhere.”
But Drizly found traction. Over time, the company expanded its footprint nationally, staffed up its offices on Boylston Street, became profitable, and spun off a cannabis delivery business, Lantern, which launched last year. The move into cannabis drove a wedge between two of the company’s executives, 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 noncompete agreement with Drizly after he set out to launch his own cannabis delivery business, but Drizly ultimately dropped the suit.
The pandemic tipped the scales for Drizly and accelerated the growth to a place that few on the team imagined, said Cathy Lewenberg, the company’s chief operating officer. “Alcohol on the whole is a category that has really struggled to move online given the complexities of regulation. The biggest barrier until COVID was the awareness that you can actually have it delivered to your home.”
That changed within days of the COVID-19-imposed shutdowns, she said, and eventually led the company to bulk up its staff to more than 270 people. She said Drizly was approached by other companies about an acquisition, but Uber’s global reach and established base of over 75 million users could “drive tremendous synergies,” she said.
Lewenberg added that Drizly is looking for additional office space and planning to expand its team. “There’s absolutely the possibility to leverage the Drizly technology to move into other categories,” she said. Lantern, the company’s cannabis delivery service, was not included in the deal.
Much of the deal’s success will hinge on whether consumers will continue to seek out on-demand deliveries in the same volume when the pandemic eases.
While COVID has widened Drizly’s user base and shifted consumer drinking patterns, there’s a good chance people will be scrambling to get back to bars once the vaccines take hold, said Madden of Connelly Partners.
“How much consumers enjoy the convenience of having alcohol delivered versus how much they enjoy looking at the premium choices 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 is really burning through cash [this past year], which is not good,” said Peter Cohan, a business professor at Babson College. “Drizly’s really taking a bet on Uber being able to increase the value of its stock.” Uber’s stock price rose about 7 percent Tuesday.
Pat Kinsel, an early Drizly investor through Polaris Partners, said he thinks Uber was drawn to the company because of its regulatory prowess and similar business model. “To enter a regulated market, you need allies,” Kinsel said. “The lesson in Uber buying them is that first-movers in regulated markets are very durable businesses.”
Dan Adams of the Globe staff contributed reporting.
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