Drizly, the company that delivers wine, beer, or liquor to your door in under an hour, is one of the hottest apps in the on-demand economy. Drizly has grown and expanded into new cities, capitalizing on the incredible market for booze delivery, while making the process a pleasure for both consumers and stores.
In May of this year, Drizly raised $13M in a series A, bringing its total funding to $17.75M. At the time, the company planned on doubling its employee count to 70 and expanding into more than 30 markets by the end of the year. Drizly is mastering what it takes to launch and stand up a city with an on-demand offering and they have learned a lot along the way.
As surprising as it might seem (who doesn’t want alcohol delivered to their doorstep?), expanding into new cities wasn’t – and isn’t – always simple. We spoke to Nick Rellas, CEO and co-founder of Drizly, about the challenges and opportunities that marketplaces experience when expanding into new cities.
“Right off the bat you have to decide; do you need to scale quickly or not? Because the financial ramifications of taking a set amount of money and stretching it out over an increasing number of markets means you spend less and less per market,” said Rellas.
Not all marketplaces are created equal in Rellas’ eyes. Some, like Uber for instance, are providing consumers with a commodity. For commodity marketplaces, Rellas argues that money is critical and recommends proving a model of supply & demand in one market, and then using the success of that market to fundraise for the next 5 markets, 10 markets, and so on. These marketplaces need to own the space and can’t afford for other upstarts to grab their audience across the country. For marketplaces that aren’t providing a commodity, you likely don’t need to expand to other cities overnight.
Drizly’s model requires a bit more sophistication and a first-mover approach. While liquor is indeed a commodity – “Jack Daniels is Jack Daniels is Jack Daniels,” commented Rellas – the liquor stores themselves are not. Liquor stores in Boston look nothing like the huge chains that dominate the scene in Chicago.
Drizly took a hard look at what it takes to be a Drizly retailer, and realized quickly that there is a finite supply of quality retailers to choose from. They needed to snag the top players, the cream of the crop, in order to satisfy the supply side of the marketplace. Speaking of which, Rellas never questioned what came first, the chicken or the egg, for his team. In Drizly’s world, it is always the chicken: if you find high quality supply, you can reach quality consumers at scale.
Components of an effective expansion plan
A lot of marketplaces like Homejoy and Lyft expanded quickly and then reversed directions, pulling out of markets, proving the model, and entering again when they were ready, if they could.
The Drizly marketplace might have a unique supply & demand scenario, but they still feel growing pains. Drizly must move quick & expand fast to capture the best retailers. Rellas put it this way: at the time of our convo, they’d raised $17M and were in 17 markets. Simplistically, that amounts to about $1M per market, and when you break down the costs associated with each city, such as local employees’ salary, travel, marketing costs, operations, etc. – the cash thins out pretty quick. Further, as Drizly expands into each new market, the budget gets squeezed and funneled to cover overhead from the last city. Marketing spend for the next city is typically the first to get pinched by overhead costs of the previous city, making the act of launching and awareness itself more difficult.
Because of this, Drizly takes a pragmatic approach to expanding and has operationalized just about everything they do to create a comprehensive playbook when launching a new city, reducing surprises and maximizing time & costs.
Rellas and team spent a lot of time trying to understand what makes a good city, and they have gotten pretty sharp at it. They look at various factors and weigh them accordingly: population density, liquor store density, affluence, access or lack of access to Uber or other delivery services, and they even weigh how much consumers would love to avoid going to a store (i.e. do they have public transportation, is traffic bad, or is it very rural, etc.).
Now, all these factors are not weighed identically, and answers to these factors do not guarantee it’s a great place for Drizly to be, but asking the questions and knowing the answers is all part of amending the playbook for that city.
“If there’s a lot of liquor stores in an area, it doesn’t necessarily mean we should or shouldn’t be there, but we are able to identify corresponding factors that tip the scales in one direction,” said Rellas.
The playbook guides their research and investigation of a new city, ensuring they launch in the correct areas, and enough areas, to get it right from the start.
“The magic of Drizly is in the experience. When alcohol shows up at your door, that’s the magic. We need special service providers, the best of the best, that help us demonstrate that magic,” said Rellas.
How do they find the best of the best? Sometimes those retailers come direct to Drizly. The company’s fifth city was Indianapolis, which might seem random, but the number one liquor store in that market approached them after hearing about their success in other markets. That one retailer owned the market with many stores, and Drizly wasn’t about to say no to owning a market.
It’s clear that quality suppliers are a critical component of Drizly’s expansion strategy, but in the past, when stores didn’t approach Drizly, they still had to find those rock star retailers. Rellas and team would simply map and tier out the retailers based on various criteria, such as:
- Do they deliver or are they open to adding delivery? This is necessary since Drizly doesn’t have its own drivers.
- Is the store clean and stocked pleasantly? If the store can’t take care of itself, they probably can’t take care of Drizly.
- Do they have a POS? Is it updated? And does Drizly integrate into it? They’ve helped retailers update or implement POS, but these are barriers and slow down the process.
- Do they have a wide breadth of product? Some stores might be well-loved locally but only offer 10 products, which isn’t ideal for the Drizly app experience.
- Are their prices relative? If they are marked up, and then Drizly has to add on a delivery fee, tip and tax, it might just be too much for the average consumer.
By tiering the stores this way, Drizly was able to create a plan of attack to go after tier 1, 2, and 3 stores in their next market. But however much Drizly tried to put process around this, the team realized early on that they had to be flexible, too. For instance, a lot of markets are light on stores to choose from, and some markets have only smaller retailers. Drizly realized that they had to fit their processes to any market, meaning they also accommodate the mom & pop stores of the world. That means making small but significant changes, such as altering the legal contract to be as light as possible for those retailers. Otherwise, the legal process was too complex and fees too large for smaller retailers, slowing down the process considerably and making it harder to get to product market fit.
Rellas commented, “Product market fit isn’t purely focused on the app or technology, but on the experience. If your legal strategy doesn’t fit into your service provider’s expectations, you will stunt the closing process.”
With one or two employees involved in launching and running a market for Drizly, finding quality people is critical to the success of a launch. Drizly employs a hub-and-spoke model for their markets, leveraging a city launcher who handles the most important moment for the city – the launch – for 4-6 months. From there, the city launcher passes the baton on to a permanent market manager who runs ongoing operations.
For both positions, Rellas looks for athletes on the local side. They have to be able to do a lot to ramp up, essentially growing into a mini-CEO, and also must possess the ability to specialize down the road based on the requirements & intricacies of the specific market – business development, marketing, partnerships, etc.
As mentioned, money is important when expanding into each new market. Rellas stresses the importance of being generous with budget for each: “Whatever you calculate that you will spend, expect to need exponentially more. You always need more. Account for overhead so you don’t have to dip into your marketing spend.”
EXECUTING AN EFFECTIVE EXPANSION PLAN
With all the ingredients for a launch, Drizly calls upon its playbook to execute. With each market launch, Drizly has physically recorded every experience so that there are very little edge-cases to surprise the team down the road.
LAUNCHING CITIES & STORES
For every launch, Drizly observes the aspects that made the process more efficient and manufactures those aspects of a launch repeatedly for forthcoming cities. And, while every store is special, the Drizly process follows an 80/20 rule, meaning 80% of launches should be extremely operationalized, while 20% are so special that they require Drizly be flexible to deal with fragmentation. The success of that 20% comes down to the quality of people Drizly employs and their attention to detail.
The process (80% of it anyways) is referred to fondly by Rellas as “store & city-in-a-box.” The store-in-a-box holds everything Drizly needs to integrate into a store – training, phones, widgets, etc. Drizly has literally put every process and edge-case down on paper and into a binder so that each launch follows as many replicable actions, procedures and exercises as possible. For most stores, they follow a self-onboarding process and can be up and running in two hours.
Suddenly, Drizly is launching 4, then 17, and then 35 store integrations per city, increasing their confidence to multiply installations everywhere.
PERFECTING TEAM DYNAMICS
The intricacies of the playbook require that people on the ground are able to execute against and perfect the process. It’s hard for Drizly to find really good candidates for each market in time to launch the city, as the decision to launch a new city typically happens pretty quickly and requires quick turnaround for hiring. The launch, and having one city-launcher employee pass the baton to an ongoing operations manager, is arguably the most important aspect to guarantee continuation of success.
Because of these time constraints, Rellas prefers that a handful of specific team members become really good at baton passing to market managers, rather than putting his eggs in one basket with individual market leaders that quickly ramp up to launch and go on to handle ongoing operations as well. By spreading the responsibilities, and honing in on specific abilities/strengths, Rellas can better guarantee success from the team.
RAISING AWARENESS FOR ALCOHOL DELIVERY
As part of its launch playbook, Drizly has baked driving awareness into each launch. Consumers are aware of on-demand services – most people, especially in urban areas, have access to anything they need, when and where they need it – and Drizly is able to ride on the coattails of that national awareness. But, there is still a need for awareness on the local level.
“We realized pretty quickly that we were starting a new company over and over again, every time we launched a market. When you’re creating a category, you can’t assume that anyone knows what you do or why they might want it. Just because we launched in Boston, doesn’t mean anyone in Denver has any idea who we are.”
But, Rellas recognizes that on-demand apps are a dime a dozen, and customers are tired as a result. So, their team implements multiple touch points with customers, assuming that if they hear about Drizly on the morning radio, they likely aren’t looking to buy alcohol at that hour, and will forget about the app/service unless they are reminded time and time again, until they need it in the moment. So, another important aspect of the Drizly marketing mix is local targeting – Spotify, Pandora, Facebook, etc. It’s no surprise that targeted posts by demographic and geography have an extremely high return.
So, where is Drizly today? Helping thousands of retailers in dozens of cities serve their many, many customers. Rellas and team have learned that launching in a city can become *easy* over time, but it’s truly hard to grow deep within each. They are focusing on the killer markets that are really successful for them, and getting even deeper into those markets, while simultaneously finding the markets that show the least path of resistance when it comes to replicating the processes that work best.
Ideally, Rellas wants to work towards a federation or franchise model, similar to how Uber Canada and Uber France enjoy the same global brand and product of Uber, but actually have nothing to do with each other from an operations perspective. For Drizly, no city really mirrors another city, so each market should ideally follow as many processes as possible, but take a specialized approach, focusing on the preferences and style of local customers and local retailers.
Running Drizly like a franchise-based business makes a lot of sense. As they figure out how to take a city from month 0 to month 14, understanding P&L will help them discern how much money to allocate to each city, and in turn how to scale.
ADVICE FOR MARKETPLACES WITH EXPANSION DREAMS?
When looking back at Drizly’s own trajectory, Rellas is honest about what future marketplace founders can expect when expanding their services to new cities:
“The second market you launch will be the worst market you launch. You will be flying high after the success of your first market, and make completely wrong assumptions about your second. But your third market launch will go a bit better, and the fourth better than that, and so on. You will continue to improve and you will figure it out, but there must be a focus on process. And you must be self-aware enough to know that you don’t know what you don’t know. You will learn as you go so account for some failure, but being humble and flexible enough to learn from each launch will get your marketplace where it needs to go.”
Interesting in being a part of the Drizly machine? Check out their careers page today.
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