Why Uber is expanding into alcohol via its Drizly acquisition

“By bringing Drizly into the Uber family, we can accelerate that trajectory by exposing Drizly to the Uber audience and expanding its geographic presence into our global footprint in the years ahead,” Uber CEO Dara Khosrowshahi said in the announcement. He also stressed that Drizly’s infrastructure will help expand Eats’ categories, which until now consisted of restaurant orders, groceries and prescriptions. 

The acquisition also follows a tumultuous year for Uber, whose ride share business took a hit during the pandemic. By last August, Uber reported gross bookings of $10.2 billion, down 35% compared to the previous year’s second quarterly earnings. The slow period resulted in a $2.24 billion revenue, down from $3.17 billion year-over-year. At the same time, the company has increasingly pushed for a bigger piece of food and essentials delivery via the Eats app. As a whole, delivery saw huge growth over the last year, resulting in a growing arms race between competitors like Uber, DoorDash and Grubhub.

At first glance, this latest acquisition looks like another example of consolidation — which is certainly on the rise. Within the past two years, DoorDash acquired food delivery platform Caviar, narrowing the field down to three main services: DoorDash, Grubhub and Uber Eats. Uber itself also completed the acquisition of delivery service Postmates at the end of 2020, which recently began operating under the Uber umbrella.

But according to Rachel Binder, senior intelligence analyst at CB Insights, the Drizly acquisition is likely more about product expansion for Uber than acquiring a competitor. Uber has been attempting to diversify offerings beyond perishable food, which requires quick delivery and has notoriously tight margins. “With alcohol, couriers can batch bigger orders to drop off over a few hours,” Binder explained.

The delivery space is increasingly competitive and many companies have yet to yield returns. “A lot of companies have seen a lot of top line growth during the pandemic, but most of them still aren’t profitable,” said Binder. With Uber continuing to struggle with profitability, a streamlined retail experience appears to be its new focus. The company also recently sold off some of its ambitious transit subsidiaries; they include Uber’s autonomous vehicle startup Aurora and its flying taxi business.

Dave Gill, vp of insights and analytics at Rakuten Intelligence, agreed that alcohol was “the last remaining niche” outside of general essentials delivery for Uber. Gill cited tracked data by Rakuten Intelligence, showing Drizly’s year-over-year order growth first spiked pre-Covid in February 2020, at 72%. Orders then fully accelerated to 279% in March, when the coronavirus first hit the U.S. Interestingly, a chunk of the service’s growth — about 40% — was driven by new customers, Gill said. 

Meanwhile, Drizly has spent the last year focusing solely on growth. As Drizly’s chief operating officer, Cathy Lewenberg, told Modern Retail in December, the startup has plans to invest in scaling its tech capabilities and brand partnerships in 2021. The company said at the time that it plans to double the size of the tech team in the coming months to build out its mobile app. 

“Drizly has steadily built market share over the years,” said Gill. “It remains to be seen how well Drizly can retain these customers under Uber.”