COVID 19 is burning its way through the world, taking lives, ruining businesses, and keeping us all inside. It changed everything in the space of days. A week that started with full restaurants and bars quickly transitioned to dining at socially distanced tables. Then places closed and started offering pick up only and now mostly only offer delivery. That all happened over a few days.
As all of us switched to sheltering in place we started drinking more, and tried to retain some semblance of social sanity with Zoom cocktail hours. The question of how we obtain our alcohol also changed. Suddenly we’re getting it delivered, and lots of it, and we’re buying quite a bit from local specialty stores. In a rare positive note amidst the economic carnage this means that some businesses are making money, and lots of it. But it has also changed the spirits landscape, perhaps forever.
Huge growth overnight
You’ve all seen the figures, Nielsen says that TKTK, but the thing that encapsulates this change best is Drizly’s data dump. Drizly is an alcohol delivery broker who works with local stores to manage delivery of anything in stock. Their business has grown more than 500% over their baseline since the start of the crisis and they’re letting the public see much of the detail.
Obviously they’re not the only ones in this business. Everyone who is still selling spirits for delivery seems to be seeing a large boost in business. San Diego’s long time agave spirits specialist Old Town Tequila (Mezcalista’s preferred spirits partner) is seeing booming business while San Francisco mini-chain Healthy Spirits is also working to keep up with demand.
Not all spirits were created equal
But don’t think that everyone suddenly ran out and started buying bottles of Mezonte. Sales growth appears to be focused in the cocktail area which means more budget friendly bottles and all the accoutrement. If you parse through Drizly’s data you’ll see that all the things we put in cocktails like cherries, tonic, and mixers are outpacing sales for everything else. Liz Paquette, Head of Consumer Insights at Drizly put a point on it: “Liquors, mixers, vermouth for complex cocktails have outpaced growth of traditional categories, which would suggest that more people are making cocktails at home. Vermouth specifically has been up 1,200% over baseline in recent weeks.” 1,200%, now that’s a hockey stick growth curve.
And when people are buying spirits they’re mostly buying things that are safe which means inexpensive and approachable. Old Town Tequila’s Romaya said “Any brand that’s around $50 tends to be doing really well. It is really like the luxury brands that seem to be harder hit. Luxury always tends to have a harder time in these situations. It’s hard to tell someone to go spend $200 on a mezcal when they don’t know what’s going to happen in the next day.”
When I spoke with Eli Rodriguez who works at San Francisco’s Healthy Spirits which has one of, if not the, most extensive mezcal selection in the city, he reiterated that point saying that “People are typically sticking to value or mid-range $30-40/bottle.” But his customers aren’t really changing what they buy, just how much of it. He hasn’t seen a “big change in what they’re buying, they’re just buying more of it at a time. 2-4 bottles of wine, 4-5 four packs of beer, 2-4 bottles of spirits.”
Big numbers aren’t the full story
That explosion in retail sales is great, for retail. It’s a completely different story when you look at brewers, wine makers, and distillers because most of them rely on bars and restaurants, called “on-premise” in the business, for the majority of their business. Bartenders and servers are their front line sales people who meet customers right when they might want to try something new. And the price point to sample one beer, one shot, or a glass of wine seems far more approachable than investing in an entire bottle. Without that army of sales people, alcoholic beverage producers are seeing their business crater because those retail sales barely make a dent in lost on-premises sales.
While Nielsen’s report that off premises sales (those through retail channels) are up 19%, if you dig into that and other reports you’ll see that sales actually dropped for many. The San Francisco Chronicle reported that California craft brewers have seen sales drop by 43% since the COVID 19 crisis began. Those numbers are ominous. As businesses across the spectrum fail, it’s only a matter of time for that to start happening in our industry.
Location, location, location
The geographical spread of this new retail focus is its own fascinating story. Old Town Tequila’s Romaya said that this crisis pushed him to start delivery in his home town and that the local delivery business is growing faster than anything else to the point that he’s had to hire two new delivery people. Even better, he’s been able to use people furloughed from distributors that he works with so that they’re giving back to the community. Healthy Spirits is a very localized business in San Francisco that caters to key neighborhoods, people are flocking to them because they are local.
Even if their business is taking off, everyone involved mentions the fears, risks, and anxieties that we’re all feeling. Eli mentioned that Healthy Spirits had to rapidly evolve their rules to only allow one person in stores at a time because customers weren’t respecting social distancing. Romaya mentioned that “there have been times when I’m sitting at my computer at the store and someone comes in without a mask and leans in over my shoulder. ‘I’m like what are you doing dude!’”
Brands are rushing to pivot
Now that bars aren’t sales channels brands are rushing to figure out the new retail environment. Cora Tang, Mezcal El Silencio’s Western Region Market Manager used to focus on local bars but says that now “our new on premise is off premise.” Tang said that they “haven’t sold a case on premises in two weeks, I was 80% on premise.” That was a business that she’d labored to build “through my personal relationships as a bartender” and now it’s suddenly gone. She’s been active in promoting the mezcal category in general so as her evangelization to get bars to stock her mezcal opened doors to others, now that entire conduit is closed.
That’s led to lots of creative thinking. Silencio has a variety of programs to promote sales through retail partners ranging from cocktail recipes, packaging mini-bottles in a ready to mix cocktail format, and more. The economic devastation has been so keenly felt that many of the normally august and conservative bureaucracies that regular alcoholic beverage sales in US states quickly relaxed regulations allow bars to sell pre-mixed cocktails in a variety of formats. Some like LA’s Guelaguetza are selling pre-made liter bottles of cocktails as they strive to bring their bar sensibility to customer couches.
Old Town Tequila has seen at least one brand spike in sales. When I asked Romaya if any specific brands were selling well he didn’t hesitate to name Termana, a newly launched tequila promoted by Dwayne Johnson, aka The Rock.
“It was released around the week this started happening in California. Obviously it’s the Rock’s tequila, but pallets of this product are selling. It’s already outselling some brands that have been on sale in years.” Romaya also sees the digital promotion strategy as key to Teremana’s success: “The Rock retagged some picture on Instagram with one of our pictures and it was one little thing and he did it with other stores and it was crazy to see suddenly I’m getting phone calls beep-beep-beep within 5-10 minutes of that picture. Once he really starts promoting it, it’s going to sell like crazy. And it’s a good price, granted it’s not a tequila that aficionados will like. It’s a $30 tequila.”
Yes, Termana is in a relatively unique position in having one of the dominant stars of the era behind it: Celebrity+timing+ecommerce connections do have an impact so this isn’t exactly a replicable strategy unless you can find more celebrities for your brand. Obviously that’s a road plenty are following but for the majority of brands that’s probably not an option.
As for what brands can do, Romaya thinks that focusing on building connections with customers and getting them to order online is critical. “I think right now for brands it’s educating their customers that these products can be ordered online and pointing them to where they can do it, helping to spread the word that ecommerce spirits is a thing.” But for brands like Wahaka Mezcal which have focused on a very deliberate business strategy for the past ten years, pivoting isn’t something to be done in a haphazard manner. Co-founder Raza Zaidi says simply that “online is really hard.”
That’s not to say that brands like Wahaka have ignored retail. That’s actually been a focus for them since well before the current crisis. They are now placed in Whole Foods up and down the west coast and Total Wines in Washington. So it’s not like they haven’t pursued retail, it’s just that it has taken quite a lot of time and effort to get those placements and now that they’re there, that’s the relationship that they need to nurture because instead of bar tenders making the sale, now it’s also retail partnerships. Of course this isn’t an option open to most. Wahaka has been building its brand and relationships for 10 years now, for many smaller or newer entrants in the market, it’s a much tougher space, especially in times like this.
Longer term this is going to change the way spirits are sold. El Silencio’s Tang says that “This is not going away, the off premises sales are going to grow, we’re losing the luxury of on premise sales. My work as a brand person has become more sales director than brand ambassador.”
Where do we go from here?
Alcohol’s move into ecommerce has been slow and fraught by the 21st amendment’s fractured, state-by-state, regulations and that isn’t going to change overnight, especially for spirits. When the wine world managed to finally get states to accept direct shipments in 2011 it was the culmination of a long struggle which, even then, many thought would never happen. Since then some wine makers have built a whole new business based on delivery on the model that Romaya mentioned, direct connections to their customers. But it’s been a slog and nothing has been simple.
We can all be hopeful that everyone will take advantage of the moment and think about the bigger picture. States have been hearing from their booming local distilleries that they would like more flexibility so some of the groundwork is already there. Perhaps this whole crisis will provide an opportunity. In the interim brands are trying to swim with the current. The trouble is that their entire business was set up to deal with a different sales channel and regulatory environment. And they have to deal with a different sort of customer as well. It’s not like everyone suddenly switched to sipping many of the fine mezcals on the market. It feels like at this moment people are chasing the comfort of cocktails and keeping themselves on budget so there are quite a few challenges to overcome. Still, the more time we spend sheltered in place and the more the realization that no switch is going to be flipped to bring us back to our old ways overnight, means that everyone is going to have to adjust.
As Romaya told me: “People go to bars for the education aspect of it, it’s the first time someone might try something on a bartender’s recommendation. Now that’s not happening so how do you make that happen? You need to connect directly with customers, people like Mezcalistas help people understand their products.” Here’s hoping that we can be a little part of this but, more importantly, that we figure out the new methodology of introducing customers to great spirits so they can experience the amazing fruits of distilling while keeping all the wonderful people in this business alive.
In the meantime retailers like Romaya and Rodriguez are also on the front lines of this epidemic and they aren’t liking what they’re seeing. Safety has obviously been the major concern for many but both retailers raise red flags about customer behavior. And then they have to think about their own health and their families. Rodriguez has a stressful day at work and then goes home where he “has to reset that quarantine clock,” again for when he can see his loved ones.