Read this if you work in an alcohol control capacity for state government.
The COVID-19 outbreak has changed the alcoholic beverage industry significantly over the last 14 months. Restrictions forced people to stay at home, limiting their travel to restaurants, bars, and even some stores to purchase their favorite spirits. In at least 32 states, new legislation allowed consumers the option to buy to-go cocktails as a way to help these establishments stay in business. As a result, consumers took advantage of alcohol delivery services.
There were two large shifts in consumer purchasing for the alcoholic beverage industry in 2020. The first was a shift from on-premise to off-premise purchasing (for example, more takeaway beverages from bars, breweries, and other establishments). The second was the explosion of e-commerce sales for curbside pickup and home delivery. A study by IWSR, an alcoholic beverage market research firm, stated that alcohol e-commerce sales grew 42% in 2020. The head of consumer insights for the online alcoholic beverage delivery service, Drizly, attributes this growth to the “increased consumer awareness of alcohol delivery as a legal option, as well as an overall shift in consumer purchasing behavior toward online ordering and delivery”.
How state agencies responded
The move to an e-commerce model has impacted state agencies who regulate the distribution and/or sale of alcohol. States such as Oklahoma, Alabama, and Georgia recently passed legislation allowing alcohol delivery to consumers’ homes. In alcoholic beverage control states, where the state controls the sale of alcohol at the wholesale level, curbside pickup programs (New Hampshire) were implemented, while others started online home delivery services (Pennsylvania).
In a fluid legislative environment, states agencies are working to meet consumer needs in a very competitive marketplace, while fulfilling their regulatory obligation to the health and safety of their constituents.
How alcoholic beverage control states can adapt
Now is an opportune time for control state agencies to keep pace with consumer demand for more flexible purchasing options, such as buying online with home delivery, or some form of curbside and/or in-store pickup programs. Every one of the 17 alcoholic beverage control states has passed legislation to allow the delivery of either beer, wine, and/or distilled spirits in some form, with some limitations.
While for some the COVID-19 outbreak has necessitated these more distant shopping experiences, the option of these sales channels has brought consumers flexibility they will expect going forward. This calls for control state agencies to act on this changing consumer demand. By prioritizing investing in and taking ownership of new sales channels, such as e-commerce and curbside pickup, control state agencies’ technology and logistics teams can develop strategies and tools to effectively adapt to this new demand.
Adapting technology and logistics
Through technology, control state agencies can take advantage of e-commerce and curbside pickup sales channels, to drive more revenue. We recommend control states consider the following:
Define the current capabilities to support an online sales strategy
An important first step is to define how to address constituents’ evolving needs as compared to the current e-commerce capabilities control state agencies can support. Considerations include:
- Are current staff capable of developing and supporting new website capabilities to meet the increased demand on the website?
- How will the current customer support team(s) expand to support concerns from the new channels?
- How will new e-commerce order volume be fulfilled for home delivery (including order errors, breakage, returns, etc.)?
Control state agencies should complete current and future state assessments in each area above to confirm what capabilities they have today and which they would like to have in the future; which will allow for an accurate gap analysis and comparison to their future state needs. Once the current state assessment, future state strategy, and gap analysis are complete, control state agencies can define the projects required to support the future state requirements.
Reevaluate existing fulfillment, inventory, and distribution processes
Each control state has existing product fulfillment, inventory and distribution processes, and information technology (IT) tools for delivering alcohol, to their own or licensed retail stores and businesses. These current processes and IT systems should be assessed as part of the current state capabilities assessment mentioned above, to help define the level of change needed to support the control state agency’s future needs in the e-commerce channel. Key assessment questions control state agencies should ask themselves include:
- Can the current IT systems (e.g., inventory management, customer relationship management [CRM], customer support/call center, financial, point of sale [POS], and website infrastructure) support required upgrades?
- Can retail teams and today’s infrastructure support order taking, inventory, fulfillment, and buy online pickup in store programs?
- How will warehouse and retail stores track and manage the e-commerce shipments and returns related to this channel?
- If home delivery is part of the strategy, define how the delivery logistics will be met through state or vendor resources.
- What staffing model and skill sets will support future business needs?
- What is the total cost of ownership for these new e-commerce capabilities so that the short and long-term costs and profits can be accurately estimated?
The answers to these questions will help to inform a future e-commerce strategy and accommodate the cost and staff impacts.
Bring in online retail expertise
It is important to ensure that the control state agency has website and mobile capabilities to support today’s consumer needs. This includes the ability to order a wide range of products online for either home delivery or buy online pickup in store. The design of the website and mobile transactional capabilities is critically important to the success of this channel, the true growth in revenues. Being marketing focused (e.g., allowing consumers to view and order products, save items for later, and see similar products) will help drive traffic and sales on this upgraded channel.
For control state agencies with a more static product website, consider purchasing a commercial off-the-shelf (COTS) e-commerce product with existing retail-focused website features, or contract with a vendor to build a website that meets more unique needs. The control state agency should bring in at least one online retail subject matter expert vendor to help set the direction, design the upgrades or new site, manage the project(s) needed to implement the online capabilities, and potentially manage the operational support of the website and mobile solution.
BerryDunn provides state alcoholic beverage control boards and commissions with many services along the IT system acquisition lifecycle, including planning, needs assessment, business process analysis, request for proposal (RFP) development, requirements development, technology contract development, and project management services.
For the full list of steps to consider and to learn more about how you can successfully position your control state agency to adapt to the changing alcoholic beverage landscape, contact us.