How Producers Can Build a DtC Shipping Market

Alex Koral
March 21, 2024

Direct-to-consumer (DtC) shipping has become one of the leading sales models for businesses of all sizes and in all markets. The idea of connecting directly with consumers is notably attractive, as it helps brands develop a personal relationship and avoid costly distribution chains.

Yet, for all its popularity, DtC is often a hard concept to define, especially within the beverage alcohol industry. For producers and suppliers of beverage alcohol products, the lack of clarity around what DtC means and where and how it can be done can lead to real problems if they try to do something that even approaches a regulatory red line.

Legal compliance in the sale of beverage alcohol can vary widely depending on who is selling, who is buying, what is being sold, where the sales take place and how the consumer ultimately gains possession of the products they purchase. To help clarify things, at least at a very high level, we will look at the primary ways that beverage alcohol suppliers can engage in DtC sales across the country.

Tasting room sales

One of the key ways for producers to build out their DtC sales is by hosting consumers on their premises. Indeed, consumers are increasingly seeking out new ways to connect directly with their favorite brands or find new favorites. Providing a memorable experience, whether that is through a beer garden hangout, tours of the stills or a luxurious afternoon in wine country is one of the best ways a producer can connect with their consumers.

However, producers need to know the rules and restrictions that govern tasting room sales, which can vary depending on the state they are in and the products they sell. For instance, some states still require consumers to go on a tour of a distillery before they can sample spirits, and not every state allows distilleries to sell their products for off-premises consumption. Many states also limit the volume that a producer can sell to consumers per day or restrict sales to producers of a certain size or require the producer to apply for an additional license.

It is therefore critical to thoroughly understand what you are allowed—and not allowed—to do depending on the state you operate in and the licenses you hold. But producers that can figure out how to bring consumers into their tasting rooms are best set to establish real and meaningful relationships with their customers that can encourage years of future sales.

DtC shipping

Not all consumers are able to make it to tasting rooms, though, and even those who can have become increasingly invested in online sales as a means of purchasing anything and everything. As such, the direct-to-consumer shipping model has become one of the most active and developing means of selling alcohol.

Where allowed, DtC shipping offers producers, especially craft producers, the ability to sell to consumers nationwide and avoid the complications that can make working in the three-tier system impossible. Few wholesalers are able or willing to give much attention to smaller brands, often meaning those brands will be entirely cut off from expanding into new markets despite consumer demand. And even for producers that do make robust three-tier sales, offering rare and select products to club members is a great way to remain connected to customers and goose retail sales.

But DtC shipping is also heavily regulated and largely restricted to the wine industry. Currently, 47 states and D.C. allow out-of-state wineries to become licensed to ship to consumers, whereas only 11 states plus D.C. allow shipping of beer and only 8 plus D.C. allow shipping of spirits.

Even with their more expansive map of available states, wineries face a slew of regulatory challenges when shipping, from getting the appropriate license to staying within allowable volume limits to collecting and remitting the proper tax for all of their sales. Nevertheless, DtC shipping of wine has provided a lifeline to hundreds of small wineries and access to millions of wine lovers.

However, for brewers and distillers and their consumers, DtC shipping remains very limited. This has led some to look for alternative options for selling DtC online.

Services like the late Drizly, which enable consumers to buy online from a selection of local retailers, are one way for producers to meet the demand, but they are ultimately three-tier sales and require producers to be actively distributing their products into the partner stores.

Other services have popped up in recent years to attempt to fill the gap between what the law allows and what consumers want, but many of them operate in at best a legal grey zone—and some seem wholly unconcerned with legality.

Still, consumer interest in being able to receive DtC shipments of all types of alcoholic beverages is growing. State lawmakers would do well to recognize the demand and establish clear, regulated markets for the shipping of alcohol under the laws and regulations like those that have worked for wine shipping for nearly two decades.

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Ready to take on DtC shipping but need some support? Check out A Buyer’s Guide to DtC Alcohol Shipping Compliance Software to learn more about choosing the right solution for your business.

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Alex Koral

Alex Koral is Senior Regulatory Counsel for Sovos ShipCompliant in the company’s Boulder, Colorado office. He actively researches beverage alcohol regulations and market developments to inform development of Sovos’ ShipCompliant product and help educate the industry on compliance issues. Alex has been in the beverage alcohol arena since 2015, after receiving his J.D. from the University of Colorado Law School.
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