Kaddy, BoozeBud collapses highlight trying conditions for once-booming alcohol delivery sector

A recent spate of online alcohol retailer collapses has exposed financial hardships across the highly competitive sector, even as industry observers predict overall revenues to boom in the next five years.

Kaddy Group, a B2B alcohol marketplace connecting alcohol suppliers and trade customers, last week called in the administrators to oversee its digital, delivery, and fulfilment operations.

Administrators for the ASX-listed entity are undertaking an “urgent assessment” of the group as they attempt to sell the business as a going concern, according to Friday statement.

The announcement comes a year and a half after Digital Wine Ventures acquired the original Kaddy business in a deal worth $34 million.

Digital Wine Ventures rebranded its operations under the Kaddy Group banner shortly after, and renamed the original Kaddy business, co-founded by Rich Coombes and Mike Abbott, as Kaddy Marketplace.

Kaddy Marketplace continues to accept customer orders, the company’s social media profiles say.

Operating costs across the group mounted through 2022, and the company exited its consumer-facing operations late last year as part of a broad cost-saving endeavour.

A January 2023 statement estimated the business’ cash runway would last another quarter.

“I am pleased with how the business is trending, however acknowledge that more work is still required to place us in a position of sustainability,” CEO Steve Voorma said in January.

Days before Kaddy Group called in the administrators, Boozebud, a B2C platform offering a wide variety of beers, wines, and spirits, also recruited its own administrators.

The collapses have intensified the focus on Australia’s alcohol delivery players, particularly given the broad parallels to the ‘instant’ grocery delivery sector and its own rush of high-profile administrations.

QUT’s Professor Gary Mortimer, an expert in Australian food retailing and marketing, said booze-focused startups face the same struggles as food delivery services, compounded by extremely tight margins.

“Alcohol doesn’t have a great deal of margin in it,” Mortimer told SmartCompany.

“So once you move into a home delivery situation, unless you’re able to scale that business up pretty quickly, that last mile cost becomes quite challenging to overcome.”

The presence of industry incumbents like Dan Murphy’s poses another problem, he added, given their increasing efforts to promote online ordering and the convenience of click-and-collect.

“We’ve certainly seen small grocery players like Send, Voly, or Milkrun all collapse post-COVID because the big supermarket players have certainly moved very quickly into that rapid delivery space, offering not just speed of delivery, but also quite a range and lower prices,” Mortimer said.

“The same thing holds for alcohol products.

“As soon as consumers can get lower prices and broader range and expedited delivery, they’re more inclined to move to a place that offers that value.”

Despite the recent administrations, recent market research compiled by IBISWorld suggests online alcohol retailing revenue is set to jump 5.7% over the five years to 2027-2028, reaching an estimated $2.6 billion.

A March report from IBISWorld analyst Matthew Reeves found the COVID-era lean to online ordering platforms will help boost digital alcohol retailing revenues, particularly as older demographics embrace those retail outlets.

“Now that they are more techsavvy, they will use online alcohol retailers more frequently,” Reeves said, while pointing out that older demographics tend towards more premium products, further bolstering order values.

Online alcohol orders only contribute 12% of total liquor retail sales, he added, suggesting there is still potential for digital sales to gain market share.

However, even as revenues rise, market consolidation and pressure from major retailers are expected to make the competition even harder.

Jimmy Brings, one of Australia’s first alcohol-delivery startups, was acquired by Woolworths in 2017 and now sits under the Endeavour Group umbrella, next to traditional brick-and-mortar titans like Dan Murphy’s and BWS.

“The rising number of online alcohol retailers and the larger operators’ discounting strategies are increasing competition and placing downward pressure on overall profitability,” Reeves said.

Separately, alcohol delivery facilitated through platforms like Uber could further sideline startups dedicated to booze drop-offs.

Online alcohol retailers diversifying their range to include beer and wine will also face lower margins, weighing on profitability.