Online Liquor Retailing is a Business With a Twist
If you are looking for a scalable online business idea, consider online liquor retail. It has been pegged as the next big thing by budding entrepreneurs as well as by established liquor shop owners.
A burgeoning working class having busy schedules but a high disposable income are the target customers of this segment. Another key driver is the growing number of women drinkers, who are uncomfortable to shop liquor from the often dim-lit and overcrowded stores. Moreover, a new breed of globetrotters with a taste for imported wines and spirits, which are not easily available at local stores, is fuelling the trend.
The Model of a Service Provider
Dhruv Khandelwal, Business Head, LetsBuyDrink.com, recalls, “It was a lazy Sunday afternoon in July last year. A bunch of friends were sitting together at my place and we ran out of beer, but nobody felt like going out to buy it. That is when the idea of an online liquor portal occurred to us.”
LetsBuyDrink.com was officially launched in April this year with a seed investment of Rs 10 lakh (borne out of personal savings). Later Rs 10 lakh (from friends and family) were also invested in the venture.
It currently caters to liquor buffs in Delhi, Gurgaon, Faridabad and Mumbai. The website operates on a unique business model more as a service provider that lists the liquor inventory and books the orders.
After the order is placed, it checks with partner retailers for the availability and it then allocates the order to the retailers for delivery. It beats both licensing and delivery hurdles through this model.
“We partner with the licensed retailers in a particular city. We have a small commission system in which for whatever order we give to them for delivery, we get a percentage of profit from them. This kind of a business model or website is not there anywhere in India. It is a win-win situation for both,” says Khadelwal.
As of now, an order is usually delivered within two hours, however, the last order is taken between 7:30 pm and 8:00 pm, and anything later than this is kept for next day delivery. LetsBuyDrink.com has a tie-up with more than 50 top licensed retailers in Delhi and about 30 licensed retailers in Mumbai.
He says, “The biggest challenge for us was to convince the retailers that it was a very good model and it would be successful and become the next big thing in the dotcom industry. We are currently creating a business plan to be pitched to the investors. We need the funding to improve our delivery model.”
The minimum order on the website is priced at Rs 1,000 and goes up to Rs 5,00,000 for premium brands. The company has registered brisk sales in the Diwali season by booking over 150 orders in just one month. With the wedding season in full swing, they are also receiving bulk orders for parties and marriages.
As a Strategic Expansion for Brick and Mortar
Madhuloka Liquor Boutique is a leading chain of modish liquor stores in Bangalore. Keeping in view the activity in the e-commerce space, it forayed into the online space with Madhuloka.com, last year.
Shivalingegowda Lokesh, Managing Director, Madhuloka Liquor Boutique, says, “The online retail contributes nearly 10 per cent to our total sales. We expanded online to cater to the customers who do not have time to visit stores due to their busy schedules. In addition to this, e-commerce is emerging as the new way of trade.”
Madhuloka Liquor Boutique has 17 outlets in Bangalore. It delivers orders placed online within a range of three to four kilometres of these outlets.
Likewise, Chandreshwar Wines in Mumbai has been in the business of liquor retail for nearly 22 years now. In 2011, it started with WineBazaar.in. “A brick and mortar store gives the visibility only in a particular area, whereas the online platform provides a reach to a larger audience. Also, out of over 500 shops in Mumbai, a mere 30 to 40 shops stock imported spirits. There is a demand for imported wines and spirits, so through our website we list all imported stuff that we stock,” says Sagar Shetty, owner, WineBazaar.in.
WineBazaar.in operates in Mumbai, New Mumbai and Thane. It usually delivers the product within 24 hours. It offers cash-on-delivery, but not an integrated payment gateway. It takes up gifting orders through the RTGS transfer. Nearly 8 to 10 per cent of its sales come from the online portal.
Through the portal, Shetty is looking to offer good discounts and deals in future. He says, “We want to expand our base further, but the biggest problem would be the delivery. No logistics company procures alcohol as a shipment.”
The Challenges of a Highly Regulated Market
“The current legislation caters only to the offline model of sales and the license parameters cover only such requirements. Unfortunately, the laws in India are slightly archaic in nature. Ideally, a licensing mechanism that permits retailers to open online stores and a registration of such domains with the authorities would probably strike a good balance of control and modern approach to undertaking business in India,” says Ramya Sridhar, Attorney, NovoJuris.*
There is also an age-limit for drinking that ranges from 21 to 25 years in different states.
The websites try to maintain the age limit checks by demanding a scanned copy of a photo identity proof during online registration.
The liquor industry in India is estimated to be between Rs 80,000 ($12.9 billion) and 1, 00,000 crore ($16.2 billion).
In addition to this, according to a study by the Internet & Mobile Association of India and KPMG, Indian e-commerce grew to $9.5 billion in 2012 (including online travel bookings) and is projected to reach to $12.6 billion in 2013.
Currently, around 11 per cent of the country’s population uses the Internet and that number is set to grow thanks to an increasing Internet penetration, growing Smartphone users and rising appetite for online shopping among consumers in Tier-II and III cities.
Thus, the prospects for the online format for the liquor industry look rosy. Rajesh Sawhney, Founder, GSF Accelerator, says, “This is a good development. It is certainly a scalable business even though there are significant regulatory and distribution hurdles. Consumer aspirations are rising. Online retailing could offer tremendous value of convenience and choice to consumers. We would look at investing in this segment provided the business model is differentiated, backed by a talented team.”
“E-commerce businesses can only be viable at scale, especially for investors to get good returns. To build a sizable business in the liquor category may take five to seven years. Investors will need to be patient here. It will also be a capital intensive business,” he concludes.