Uber announced this week that it is shutting down Drizly, the alcohol delivery service it acquired for $1.1 billion in 2021, by March 31st. The closure comes amidst increasing market saturation in the alcohol delivery space and signals Uber’s shift in focus towards its core ride-hailing and food delivery businesses.
Background
Drizly was launched in 2012 as an on-demand alcohol delivery app. The startup experienced rapid growth, especially during the COVID-19 pandemic when alcohol consumption sharply rose and many consumers turned to delivery.
Uber acquired Drizly in early 2021 for $1.1 billion in stock and cash, betting that alcohol delivery would continue booming post-pandemic. Uber integrated Drizly into its food delivery app Uber Eats.
At the time, Uber CEO Dara Khosrowshahi said alcohol delivery was highly complementary to Uber’s business and had the potential to drive frequency and improved business economics.
Reasons for Closure
Industry experts cite market saturation and increasing competition as key reasons why Uber is shuttering Drizly.
Alcohol delivery exploded during 2020-2021 with many new startups entering the space. However, demand has slowed significantly compared to pandemic peaks.
Major competitors in alcohol delivery include DoorDash, GoPuff, and Instacart which have also integrated alcohol. This created an oversaturated market with too many similar services.
Additionally, as pandemic restrictions have eased, more consumers have returned to in-person drinking and alcohol sales at bars and restaurants have rebounded.
| Drizly’s Market Share and Sales |
|---|
| Drizly accounts for about 35% market share of alcohol delivery sales, down from nearly 50% in early 2021.
Drizly’s sales peaked in Q1 2021 at over $60 million. By Q4 2022, sales declined to around $40 million. |
With tapering demand and mounting competition, Drizly was likely proving unprofitable for Uber to continue owning and operating.
Uber also seems to be refocusing on its core ride-hailing and food delivery divisions rather than ancillary experiments like alcohol delivery. As part of its path to profitability, Uber is exiting side businesses without a clear roadmap to long-term growth.
Impact on Uber’s Business
Shutting down Drizly is not expected to significantly impact Uber’s overall financial performance.
Uber’s delivery segment (including Eats, Drizly, Cornershop) accounted for only ~15% of total gross bookings in 2022. Rides remains Uber’s cash cow at over 75% of bookings.
Moreover, Uber plans on integrating Drizly’s functionality directly into its main Uber Eats app. Users will still be able to order alcohol, but through Eats rather than a standalone Drizly app.
While Uber is backing away from owning Drizly, the company still sees value in alcohol delivery. Integrating ordering into Eats can drive higher order values and customer loyalty.
Uber may also benefit from reduced operating costs after sunsetting Drizly’s app and backend infrastructure. Resources can be reallocated to support core Eats growth.
What Happens to Drizly After Closure
For now, Drizly will immediately stop onboarding new retail partners. Existing partners will see no change in service until operations wind down on March 31st.
After that, Drizly’s website and app will go dark. All customer data and previous order history in Drizly will be deleted.
It remains unclear what will happen with Drizly’s remaining intellectual property and backend technology. Uber may absorb certain parts into the Eats codebase to enable alcohol delivery.
Industry rumors speculate some components could be sold off to other delivery companies still committed to the alcohol space. DoorDash in particular has been floated as a potential buyer.
The future is decidedly more bleak for Drizly’s roughly 100 corporate employees. Uber has confirmed laying off staff, providing transition packages and employment assistance.
Several executives and team leads already seem to be departing for other startups. Drizly’s CEO James Cory is reportedly taking an executive role at an alcohol-related cryptocurrency startup.
What This Means for The Alcohol Delivery Landscape
Drizly’s shut down signals alcohol delivery remains a challenging niche with unsatisfactory unit economics even for giants like Uber. The initial gold rush is cooling fast.
Industry consolidation is expected around a smaller number of leading players: DoorDash, GoPuff, Instacart predominately. Single-vertical alcohol delivery apps likely cannot compete with their cross-category network effects and operational scale.
Market share for alcohol delivery may stabilize around 3-5% of total alcohol sales – higher than pre-2020 but below bullish pandemic projections.
The loss of Drizly leaves a chunk of market share up for grabs. Competitors will jockey aggressively to capture Drizly’s previous retail partners and transitioning customers. This next phase promises heavy discounts and promotions.
Business models will lean towards alcohol delivery being an add-on capability for universal delivery apps, rather than standalone boutique services. The exceptions may be ultra-fast convenience store operators like GoPuff or well-funded startups pursuing differentiated strategies.
In summary, Uber’s closure of Drizly signals volatility in the still-nascent alcohol delivery wars. The promising pandemic boom has cooled, leaving more realistic growth trajectories. Uber’s exit puts an exclamation point that profits remain challenging to unlock at scale. Consolidation and shakeout seems inevitable as delivery apps incorporate alcohol into their expanding cross-category virtual convenience stores.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
