How to address common DTC alcohol fulfillment processing challenges

In this article, we discuss common DTC alcohol fulfillment processing challenges and how to overcome them.

Like the eCommerce grocery market, the trend of buying and selling liquor online is growing exponentially. Rather than driving to the store, browsing the alcohol aisle, and waiting in line, many consumers prefer to purchase wine, beer, and spirits from the comfort of their own home. Today’s consumers also want the freedom to choose between having those items delivered or picking them up at a physical store.

To keep up with customer expectations and maintain a competitive edge in the market, retailers, wineries, breweries, and other alcohol providers are investing in eCommerce solutions more than ever before.

But DTC online alcohol sales come with an added level of complexity when compared to other food and beverage products. Different states have different laws and regulations surrounding online liquor sales, and violating these rules can have a devastating impact on your business.

All DTC sellers in the alcohol industry — regardless of state or type of business — must comply with the following requirements:

  • Employing a common carrier, such as UPS or FedEx, to handle deliveries.
  • Maintaining a direct-shipping license for liquor in every applicable state.
  • Paying use and excise taxes for all deliveries — a cost that varies depending on the destination state.
  • Keeping accurate records in case of audits from regulatory agencies.

The laws and regulations around online liquor sales are constantly changing, so it’s important to keep compliance top of mind as your business adopts new strategies, policies, and procedures. As of 2022, these are the key best practices to follow when addressing common DTC alcohol fulfillment processing challenges:

Maintain both federal and state licenses

If you run a brewery, winery, distillery, cidery, or retail store, you’re likely already aware that you need specific licenses — both on the federal and state level — to legally sell and distribute alcoholic beverages. Unsurprisingly, these same rules apply to eCommerce sales.

Your business must be registered with The Federal Alcohol and Tobacco Tax and Trade Bureau (TTB), The State Department of Revenue (DOR), and The State Alcohol Beverage Control (ABC) agency. These licenses must be acquired and renewed annually to avoid legal penalties that can put your company out of business.

Meet tax requirements

In addition to maintaining the proper licenses, DTC alcohol sellers are required to pay and collect different types of federal, state, and local taxes. These often include sales, excise, and markup taxes — and the rates for each which will fluctuate depending on the destination state. For example, let’s say you own a brewery based in California, and a customer makes a purchase on your eCommerce site from Illinois. In this scenario, the customer should be charged taxes applicable to the state of Illinois, not California. As your online store expands its shipping capabilities to new states, you’ll need a scalable system for calculating tax rates based on the location of the buyer. With advanced eCommerce compliance software, you can automate the process of determining tax rates so your team doesn’t have to do so manually.

Stay up to date on new regulations

Since the end of Prohibition in 1933, states have been allowed to create their own laws around the selling and distribution of alcoholic beverages — and these laws are frequently changing. For instance, in 2021, Nevada revoked the ability for distilleries and breweries to ship liquor directly to their customers. Meanwhile, Alabama opened up its liquor laws, allowing businesses to sell and ship wine directly to online buyers.

Fortunately, there are tools and resources that businesses can access to stay on top of these evolving regulations, and therefore avoid fines, felony charges, and revoked licenses. You can sign up for programs that automatically send legal notifications and updates from local government offices, including deadlines for federal and state tax payments. You can also implement AI-driven software that’s designed to streamline key compliance processes, such as organizing records for tax payments and certifications, or monitoring specific shipping and labeling practices by carriers.

Implement an age verification process

Verifying whether a buyer is above the legal drinking age is more difficult online than it is in person. As eCommerce alcohol sales continue to rise over the next few years, this aspect of the industry will likely experience higher levels of regulation.

Some states require DTC alcohol sellers to adopt a third-party age verification service, while others require a stored copy of the buyer’s government-issued ID. Another approach is for customers to present their ID at the point of sale — or when the item arrives at their door. None of these methods are perfect, so it’s important to learn what your state requirements are, as well what your local competitors are doing to circumvent the issue.

Be prepared for potential audits

As your alcohol eCommerce business grows, your likelihood of being audited by the TTP increases. And failing one of these audits can have serious consequences, from suspended business activity to hefty legal fines. As discussed, staying up to date on ever-changing state and federal regulations is the first step to preparing for an audit. You should also make sure that you have an efficient system in place for managing — and ensuring the accuracy of — specific documentation. This includes:

  • Certificate of Label Approvals (COLA)
  • Purchase records for equipment and supplies
  • Federal and state tax payment records
  • Production records
  • Federal and state product registration records

Wrapping up

Does your growing business have the tools and resources necessary to maintain compliance in today’s heavily-regulated eCommerce alcohol industry? Striking the right balance between maximizing organizational efficiency and obeying state and federal laws can be tricky, which is why it’s so important to work with a team of technical experts that can help guide you through the storm. That’s where Codal comes in.

We’re a web design and development agency that specializes in eCommerce solutions. Our team has years of experience building cutting-edge, industry-compliant online stores for all kinds of DTC brands — including providers of alcoholic beverages.

If you would like to learn more about the eCommerce alcohol fulfillment process, and how Codal can help maintain compliance, improve the customer experience, and boost revenue for your business, get in touch with a member of our team today!

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Codal Inc.

Codal Inc.

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A digital solutions partner with a data-driven approach that empowers companies at the intersection of UX design, development, & business.