Uber to Buy Leading Alcohol Delivery Service Drizly in $1.1bn Deal

Rideshare and delivery giant Uber recently announced that it has agreed to acquire Drizly, an on-demand alcohol marketplace. Despite the modest size of the transaction, representing roughly 1% of Uber’s total market value, Uber’s shareholders celebrated the news with shares rising around 7% upon announcement. Following the acquisition, Drizly will become a wholly-owned subsidiary of Uber and will be integrated into the delivery app Uber Eats, but as a standalone brand.

Who?

Uber Technologies

Uber Technologies is a on-demand technology platform that matches riders with drivers, hungry people with restaurants and food delivery service providers. Uber was founded in 2009 and is headquartered in San Francisco. The pandemic transformed Uber from a company that primarily transported people into one that largely delivers food from restaurants.

Drizly

With some calling it the ‘Amazon for liquor’, Drizly is a leading on-demand alcohol delivery platform that facilitates the delivery of beer, wine and spirits directly from local retailers across more than 1,400 US cities. The Boston-based company, founded in 2012, had a breakout year as consumers stuck at home ordered alcohol online as opposed to venturing to the store. But unlike traditional delivery platforms, which usually charge a markup on the price, Drizly monetizes its services via a monthly membership fee to stores for using its platform.

The Deal

Announced: 2 February, 2021

Anticipated completion: within the first half of 2021

Value: $1.1bn (anticipated to consist of >90% Uber stock, with the remainder paid in cash)

Financial Advisors to Uber: Not disclosed

Financial Advisors to Drizly: Not disclosed

This particular transaction, however, is not the only company that Uber added to its basket recently. In December 2020, Uber completed its acquisition of Postmates in an all-stock deal valued at around $2.65bn. The Postmates deal also arrived just months after Uber’s failed attempt to purchase online food delivery company Grubhub due to antitrust scrutiny. Grubhub was instead bought by the newly merged Just Eat Takeaway for $7.3bn.

At the same time, Uber additionally offloaded some of its more cost-eating transportation segments. On December 8, Uber sold its flying taxi unit Uber Elevate and just a day before this Uber also announced the selling of its autonomous driving unit Advanced Technologies Group (ATG) to Aurora Innovation. However, the ATG deal will see Uber invest $400m for a 26% stake in the Aurora. Uber also transferred its electric bike and scooter business, Jump, to Lime in May.

Why?

Strategic Rationale:

Uber's recent acquisitions and divestments are part of its shifting strategy, which is to focus predominantly on rides and delivery. Uber CEO Dara Khosrowshahi highlights that Uber's goal is to make people's lives a little bit easier, which is why it has been "branching into new categories like groceries, prescriptions and, now, alcohol". Therefore, by bringing Drizly into the Uber family, Uber can "accelerate that trajectory by exposing Drizly to the Uber audience and expanding its geographic presence into our global footprint in the years ahead"

Further, popularity for delivery services exploded amid the pandemic and with year-over-year gross bookings surging more than 300% during 2020, Drizly is no exception. Similarly, Uber's food delivery business proved indispensable in 2020, at a time when Uber’s core ride-hailing business had taken a backseat due to the lockdowns, which confined people to their homes and crushed rideshare demand. As a result and as depicted in the figure below, the company’s Mobility revenues fell by 53% in Q3 of 2020 year-over-year. However, Uber’s pivot and focus on its delivery business helped keep the company alive with revenues surging 125% year-over-year.

Source: Financial Times

Acquiring Drizly also offers immediate dividends for Uber as Drizly has been set up to be fully compliant with local laws and regulations, which significantly reduces the risk associated with the deal and allows Uber to instantly offer a wide selection of alcohol products across the country within its Uber Eats app. This presents a key competitive advantage in the fight for market share.

As for Drizly, it plans to expand in its rapidly growing sector, while simultaneously gaining access to Uber’s advanced online marketplace technologies and innovations. Merchants on Drizly will also benefit from Uber’s massive customer base and best-in-class routing technology. Finally, Uber’s rewards programs will deliver greater value to its customers and provide even more ways to earn for delivery drivers.

"We are thrilled to join a world-class Uber team whose platform will accelerate Drizly on its mission to be there when it matters - committed to life’s moments and the people who create them,” – Drizly Co-founder and CEO Cory Rellas

Furthermore, with a valuation of just $73m in 2017 according to an estimate from PitchBook, “Investors in Drizly will want to break open a bottle of Champagne”. More than 90% of the $1.1bn will be paid in Uber Stock to Drizly shareholders, with the remainder in cash.

Overall, Uber CEO Khosrowshahi called the deal a “win-win,” noting that Uber users will soon be able to access alcohol delivery services while Drizly will be to reach millions of Uber users “immediately overnight in a very, very big way.”