Home Delivery of Booze - Can Startups cash in the huge opportunity?

Lots of money and opportunity will eventually follow in India when booze is concerned and it is the liquor delivery sector that has led companies, services, startups and entrepreneurs alike to see a massive windfall. In India, liquor sales take place through three licensed vertical retail, horeca (hotels, restaurants and catering), and department canteen stores. The total horeca licensed places are around 30,000 in the country and the stock in hand is for 1 month at any given time, which means that the total unsold inventory at various horeca outlets throughout India would be around Rs 3,000 while liquor retail sales are opening, the service industry continues to be deferred due to corona.

According to the All India Brewers Association (AIBA), the liquor industry is contributing revenues to state governments about Rs 2.5 lakh crore. In the 40-odd days when liquor trade was closed, states lost revenue of around Rs 25,000 crores. After the lock down imposed in the country on 25 March, all liquor shops and distributors in the country were closed and production, services and supply were also halted. Although customers were supported by eCommerce and app-based logistics companies to get on their doorsteps a continuous supply of food and vital goods, alcohol buyers were left in the lurch.

The Indian food aggregators such as Zomato and Swiggy seem to have heard the alcohol lovers’ anxious prayers. The company has confirmed in a major announcement that it is making a foray into supplying alcohol to customers at their doorstep. The company is on the road to set an example for the entire industry, having already diversified its interests into grocery stores and home essentials delivery less than a week after launching similar services in Jharkhand Zomato and Swiggy  launched home delivery of alcohol in Odisha as part of measures to avoid overcrowding of customers in shops in the midst of the coronavirus pandemic. Zomato would soon spread to other towns, such as Rourkela, Balasore, Balangir, Sambalpur, Berhampur and Cuttack, beginning with Bhubaneswar.

Swiggy said in a separate statement that their home delivery service went live in Bhubaneswar and Rourkela last month after receiving the necessary approvals from the government of Odisha and plans to extend to other major cities in the state. Earlier this month, the Supreme Court requested states to allow non-direct contact or digital purchases and home delivery of liquor during the lockout phase to avoid the spread of coronavirus due to crowding in the shops, there will be age checks at the time of order as well as at the time of delivery of the product. Users would be asked to submit a valid proof of Identity to be qualified for order, which will then be checked by the delivery partner when the order is issued. The service called Zomato Wine Shops would be available on the Zomato app's homepage and will enable users to select any product from the listed retailers and have it delivered right outside their doors of place orders.

All orders will carry a unique OTP which the customer must provide at the time of delivery. The news has certainly grabbed the eyeballs throughout, with businesses of all scales, especially those who are up and coming, looking to expand their horizons, vertically or horizontally, aggressively and actively. Within no time the internet became abuzz with the news of many other existing businessmen and investors who have set their eyes on this untapped Indian market and this has led to many unanswered questions which are as follows

1. Will Liquor delivery be the next multi-billion startup idea for entrepreneurs in INDIA?

2. Whether this kind of business model is high-risk high-gain for entrepreneurs and investors?

3. Will it be a new cash cow for the economy?

Liquor Delivery: The Trigger

It will come as no surprise that the market for liquor has skyrocketed since the shutdown, consisting of such a vibrant customer base. As the government eased restrictions on the movement of essential and non-essential goods from 4 May, it also took the decision to allow a fraction of liquor outlets to reopen throughout the country. This prompted other consumers around the country to flout social distancing norms such desperate acts by the people prompted the government to consider viable ways to curtail the spread of coronavirus and offered the involved parties an immense opportunity to capitalize on such a huge market. Whether or not liquor delivery was originally in every organization's plans, the pandemic's onset has intensified the effort to diversify their operations.

This actually has an impact across multiple facets. Startups such as HipBar, HipCask, sites such as WineBazar.in and LetsBuyDrink.com, etc., have already been doing business in space, facilitating the home delivery of alcoholic beverages in that time, also achieving varied levels of success, sometimes due to the grey area in operation and sometimes due to changing state government laws. It is precisely these issues that have made this lockdown the perfect opportunity to rake in the extra cash for these companies.

For certain nations, overall tax based on alcohol consumption amounts to as much as 25 per cent. annually, Delhi with per capita GDP higher than the national level, receives over Rs 5,000 crore. Last year Karnataka earned Rs 21,400 crore from the liquor sales. In this time of crisis, states like Kerala and Meghalaya, which have the highest per capita consumption rates for alcoholic beverages, along with Goa, which is also a tourism-driven industry are severely impacted. The central government has proclaimed itself to be hit hard, and the GST reserves and revenue sources of the states have dried up. 

In the aftermath of these spectacular results, states are pushing for a regulated compliance and delivery allocation to account for lost sources of revenue. It has also encouraged app and web services to continue their work and to stabilize their companies by expanding their offerings to multiple outlets and governments of the state. States such as Chhattisgarh, Punjab and West Bengal have all launched online portals and mobile apps that offer door-to - door alcoholic beverage distribution (9am-7pm) based on age verification by means of Aadhar numbers.

At the other hand, many companies have also requested state governments to encourage them to move forward with the distribution services in tandem with Zomato, with their near rivals Swiggy obviously interested in entering the space. ISWAI, the Indian Spirits and Wines Association of India, a representative body, has also called for more clarification on the standards and legislation for alcoholic beverage distribution through the states but the biggest challenge for Swiggy and Zomato will be the detailed clearance required by each state government to expand this line of business.

A Multi-Billion Dollar Opportunity for Entrepreneurs

Such technological measures will not only provide the government with effective ways to fight the spread of COVID-19 while maintaining regulations, but will also enable potential entrepreneurs to benefit from the clientele. The delivery model which works on the app has garnered huge success in India.  Though Zomato, Swiggy, Big basket has already been riding high with their unicorn status, there are more than 1,0007 logistics start-ups, including Dunzo and JhutPut, seeking to gain a substantial market share.

India's alcohol industry is the world 's third-largest with an estimated $35 billion behind just two big nations, China and Russia.  According to Euromonitor International, a well-known research firm, India's spirit industry – which includes whiskey, brandy, rum and vodka is estimated to grow 25 percent by 2022 to 2.92 trillion rupees ($41bn). Combine it with India's beer market, by 2022 the combined demand is expected to be as high as $56 billion to $60 billion (4.4 trillion rupees).

With the increase in the rise of smartphones, the rapid use of digital payment systems and the growth in customer trust in technology-driven delivery firms the app-based liquor delivery start-ups could comfortably account for not less than 1% of the overall market over the next two years, which will amount to $600 million (3,800 crore rupees) now that Indian delivery startups are growing it would be safe to assume that India 's online liquor delivery market would be nearly $ 3 billion – $4 billion business in the next 4-5 years.

Liquor Delivery: The Challenges

It is just the dawn of India's liquor delivery market. Just like every emerging sector, it always comes with a range of its own policy challenges, as well as emerging businessmen. The government has to re-examine its liquor policies to gain entrepreneurs' trust. The uncertainty in the business model of liquor delivery is a major problem and companies like HipBar have already felt the brunt of that.   The biggest barrier to the sale of liquor continues to be the disparity of laws between various jurisdictions. Retail laws are not only special but there is also a disparity in income, rates and also age limits.

The major challenge is about managing inventories. Imagine a consumer order on the app for a particular variety of beer, and something else is delivered which is not desired also retailers worry that online businesses such as Zomato , Swiggy and others may threaten profitability, which is a major deal in the liquor store industry due to the high sale license price. For businesses like Swiggy and Zomato there are no rules as retailers believe they won't be able to access the orders they normally receive because applications can monitor the whole chain from ordering to last-mile delivery. Just a few retailers could go for exclusive Zomato and Swiggy tie-ups. In this situation, when exclusivity comes at a premium, smaller retailers would miss out on the market. Data misuse by food delivery apps could monopolize consumer data from liquor distribution, claimed by some restaurants in the food delivery space. Retailers want to own this data as they think consumers will be linked directly to sellers.

To sum up

Governments in almost all states have imposed on the alcoholic drinks a heavy 'extra corona tax' to maximize revenue, thus helping the operations of delivery services. Brewery workers have also called for this model to be affirmed, because it will help thousands of workers to get paid and restaurants, roadside dhabas will benefit from this arrangement which have been dry all along this time. What seems to be a controversial issue on the surface can be the one which provides the economy and its related businesses with a big cash flow it is really an opportunity worth exploring for entrepreneurs. How far the liquor delivery firms extract the revenue will rely on the policies the government chooses to adopt.