Why Uber decided to sunset Drizly

Uber is shutting down alcohol delivery service Drizly, roughly three years after acquiring it for $1.1 billion.

On January 15, Uber announced that it would shut down Drizly by March. The news comes almost exactly three years after the big acquisition, which took place months after Uber’s $2.65 billion acquisition of competitor Postmates.

“After three years of Drizly operating independently within the Uber family, we’ve decided to close the business and focus on our core Uber Eats strategy of helping consumers get almost anything — from food to groceries to alcohol — all on a single app,” Uber’s svp of delivery, Pierre-Dimitri Gore-Coty, told Axios in a statement. Uber also is also sunsetting its grocery delivery service CornerShop, which focuses on Latin America, after paying $1.4 billion to become a majority stakeholder in 2022.

Uber announced it was acquiring Drizly in February 2021. At the time, Uber was looking to rapidly scale its food and beverage delivery business, after e-commerce exploded during the pandemic. Two months before the Drizly acquisition, Uber had acquired Postmates. But now, as Uber is under pressure to maintain profitability, the company is looking to scale back on certain ventures, and instead focus on its core Uber Eats business.

Over the past 18 months, Uber attempted to grow Drizly with revamped marketing efforts. In September 2022, the platform launched an ad network that seemed promising for smaller alcohol brands trying to gain national exposure. This was followed by a January 2023 announcement of a partnership with Gopuff to expand its delivery network. And just two months ago, in November, Drizly also unveiled its latest campaign and a gift registry.

But there were other signs that the sunsetting of Drizly was inevitable. In March 2023, Drizly laid off about 100 employees. At the time, Uber said that “this was a part of a corporate restructure as Drizly officially begins integrating certain operations into Uber for a strategically aligned, centralized BevAlc vision.” At at the end of 2022, Drizly said it was undergoing a “new brand direction” when it unveiled a new product experience design.

When Uber purchased Drizly, it viewed it as an opportunity to expand its delivery footprint and get into the hot alcohol delivery space. At the time, Uber’s rideshare revenue had plummeted due to the pandemic’s stay-at-home orders. But with the pendulum swinging the other way, Uber is now streamlining the internal structure.

One former Drizly employee, who was let go during the March 2023 layoffs and wished to remain anonymous, told Modern Retail that Uber’s hold on Drizly’s team had been tightening in the months leading up to those cuts. 

“There were just so many meetings on procedure, it was such a time suck,” the former employee said. “We were always going over ways to do things because there was so much red tape.”

Things got exponentially worse when Uber’s grip tightened on Drizly in 2022, which also included shifts in the leadership team. “Some executives suddenly moved over into Uber roles,” the former employee said. Particularly as the company went virtual, it also led to consistent miscommunication between Drizly and Uber, the former employee added.

At the same time, Drizly was under pressure to continue the growth momentum it gained during the pandemic. The former Drizly employee said heavy promotions and discount codes became a go-to ploy to get people back on the app. 

Data privacy was another issue following the Uber acquisition. In 2020, Drizly publicly disclosed a cyber hacking had breached the information of 2.5 million customers; the Federal Trade Commission later said Drizly had known about for two years before addressing it. As part of the FTC action against Drizly and CEO James Cory Rellas, the company was limited to the type of user information it can collect and retain.

Despite these external pressures, in some ways, Uber and Drizly’s delivery service roadmap would inevitably clash. 

“We’ve seen Uber and other companies focus on profitability, but how do you streamline and grow the bottom line?” said Brad Jashinsky, director analyst at Gartner. “It’s usually by doing away with unrelated services.” Indeed, Uber’s rideshare business is rebounding as it focuses back on its core services; In its last earnings report in November, the company reported a record ridership that helped it generate $221 million in net income. 

Jashinsky also pointed to a potential factor in Uber’s decision: The alcohol category has consistently grown within Uber Eats, especially due to partnerships. For instance, last summer Uber announced a partnership with Midwestern grocery chain Hy-Vee, which also includes its liquor store locations. As such, Uber can likely more quickly grow the basket size of Uber Eats by offering alcohol in just one place — Uber Eats — rather than through both Uber Eats and Drizly apps.

But Drizly’s shutdown also signals a wider shift in the alcohol delivery space since its heyday during lockdowns.  

ReserveBar, which acquired Drizly’s competitor Minibar Delivery in 2021, is preparing to fill the gap in the market that Drizly is leaving. “I’m a little bit surprised by the news, and not because I wasn’t expecting for Drizly to be eventually folded into Uber Eats,” ReserveBar CEO Derek Correia said. “But that creates an opportunity for us… Minibar Delivery serves a lot of the same customers, with essentially the same product assortment.” 

It’s unclear how Drizly’s advertising partnerships with major spirits brands will be impacted. For now, Drizly is encouraging its users to migrate over to the “dapper” UberEats, and previewed an incoming flurry of promotions in the coming weeks. 

Unlike many grocery items, shoppers tend to be indifferent about where they buy their favorite booze brands – whether it be a same-day delivery service or local liquor shop. As such, part of ReserveBar’s growth strategy is to differentiate its shopping experience through lifestyle content and gifting services. 

Correia said that ReserveBar has achieved profitability after working toward it for the past year. A big part of the decision to prioritize turning a profit was because of the inability to secure more funding. “The markets are treating us the same as everyone else,” Correia said, referencing the fact that venture capital funding has slowed down. That meant putting new ventures on hold, like the plans to grow the new ready-to-drink beverages site. Instead, the company is focused on growing the money-making side of the business, such as providing the software to white label the DTC websites of brands like Macallan and Tito’s.

And so ReserveBar’s hypergrowth push is on pause, at least for the time being. But, he doesn’t see demand for alcohol delivery slowing down, even with the exit of Drizly.

“The appetite for investing in growth just isn’t there right now,” Correia said. “But when it is, you’ve got to be around and still in business.

more

Leave a comment

Your email address will not be published. Required fields are marked *