Provisions for a cocktail party, delivered in two shakes

There are many bodies in the delivery graveyard. Webvan, Kozmo and Urbanfetch were all seen as the next big thing before crashing spectacularly.

But same-day delivery is making a comeback, with large Internet players such as Amazon and eBay entering the mix. And in that resurgence are small startups focused on a niche product: alcohol.

It has not hurt that millennials, who are used to ordering food for delivery on their smartphones, have come of legal drinking age. And at a moment of resurgence in craft beers and cocktails, no less.

“I saw alcohol, wine, spirits delivery as the last frontier in convenience and on-demand delivery,” said Devaraj Southworth, founder of Thirstie, based in New York.

The past two years have also brought Drizly in Boston, Klink in Orlando and Drinkos in Cincinnati. Along with choosing twee-style names, the businesses use a similar model: The delivery companies form partnerships with brick-and-mortar stores, and consumers use the delivery company’s website or app to shop. The startups deliver in a guaranteed window, usually less than an hour, and checking identification is the job of the delivery driver. Most delivery services are free to customers.

Since customers’ payments are processed by and go directly to the stores, these startups can operate within many state liquor laws because they are considered third-party marketing businesses.

Some startups charge the stores flat fees or a percentage of orders; others charge customers a delivery fee. Saucey, based in Los Angeles, charges the stores a flat fee per order and charges customers a markup on products.

But business isn’t all about popping Champagne corks, of course. The founders of Drizly, Nicholas Rellas and Justin Robinson, spent almost a year working at Gordon’s Wines and Liquors in Watertown, Mass., to create a business model that fit with the store’s operation and state liquor laws.

Also, they spent nine months creating an identification verification system with Advanced ID Detection, which Rellas said was a strong selling point when they approached new stores.

“We had to trudge through some mud,” he said. “It was a fight to get consumers; it was a fight to get stores; it was a fight to get investors.”

Gordon’s was Drizly’s first store partner when it officially began in February 2013. It now has 33 employees and expected more than $5 million in revenue for 2014. Margins for alcohol are thin, typically 40 percent for wine, 30 percent for beer, and 20 percent for liquor, Rellas said. To compensate, Drizly negotiates a flat monthly fee with each store, which ranges from hundreds to thousands of dollars. And it has raised $4.8 million in venture funding.

Expanding quickly

For many of these startups, revenue comes primarily from the partner stores, and stores can gain the advantage of expanding their customer base, especially those who want to warm up with a hot toddy without having to brave the cold.

Prav Saraff, owner of 1 West Dupont Circle Wine and Spirits in Washington, signed with Ultra, based in New York, last spring. “We’re pleased with it so far,” he said. “It’s been new orders from customers we normally would not see at the store.”

In New York, Vino Fine Wines and Spirits has signed up with several services, including Thirstie and Ultra. The services have brought in new business and customers, said Adam Linet, the store’s owner, so he is not concerned about fees. Since he began to work with Thirstie in March, the store has been taking in $1,000 to $2,000 more a month just through that service.

But his wine steward side is languishing. “We do touch almost every customer who comes into the store. We help them pick things out and they trust us,” he said. “That is something that unfortunately isn’t in the delivery platforms right now.”

The delivery companies are charging ahead into new markets. Drizly is in 14 cities and plans to be in 12 to 15 states by the end of this year. Ultra is in nine cities, planning to add three to five by the end of the year.

Meanwhile, established Internet companies have expanded their services. Amazon is offering same-day grocery and alcohol delivery service with AmazonFresh in New York City, Seattle and parts of California. Amazon and Google are looking at drones to speed delivery.

As the competition intensifies in this increasingly crowded field, Southworth of Thirstie expects there will be failures, consolidation and buyouts by larger companies watching the startups test the market.

“Indications are they’re looking around to see how they can leverage other companies out there that are small and nimble like ours to help their customers,” he said.

Patchwork of laws

One difficulty in creating a broader business, though, is the morass of state and local liquor laws. Ultra, for example, had to briefly cease operations in Washington, changing its business model to being a processor of payments, from accepting payments.

Walt Doyle, of the venture capital firm Highland Capital Partners, made a personal investment in Drizly despite all of its competition. “We see a big business here, not just from consumer demand,” he said, adding that these customer bases are potential ad targets.

In the 1990s heyday of delivery startups, Kozmo focused on growth and market share instead of making money, said Christopher Siragusa, its former chief technology officer. That led to its early demise, he said, as Kozmo had no delivery fee. With no minimum order either, Kozmo lost money on every delivery of a single chocolate bar.

Siragusa says the delivery business is tricky: “You have to be efficient enough not to lose your shirt.”

Learning from Kozmo, Siragusa went on to found, in 2004, the grocery service MaxDelivery, which also delivers alcohol. He aims for slow and steady growth for MaxDelivery, and, of course, there are minimum orders and delivery fees.

DrinkFly, based in Chicago, was started by Will Cullen with his brother after prompts from Cullen’s Doughballs Pizza Palace customers, who were looking for some brews with their pizza slices. Initially, DrinkFly wanted to charge stores a 12 percent fee for each order, then 5 percent. Since those efforts were not getting them far, the brothers canceled the fee and now hope to attract in-app advertising.

Now with 40 partner stores, DrinkFly is not yet profitable, but it has an 80 percent reorder rate.

“Delivery is an addictive experience,” Siragusa said of MaxDelivery. “It sounds silly, but the product is at your door, and that makes you want to come back for more.”