Dive Brief:

• H-E-B has introduced wine and beer delivery service in less than an hour using Favor, the on-demand delivery service the grocer acquired earlier this year, according to the company. 
• The service will eventually be offered in more than 30 cities with free delivery on beer and wine orders through Labor Day. Initially, the new service will be available across the greater areas of San Antonio, Austin, Corpus Christi and Houston. 
• Customers can order on-demand beer and wine by downloading the Favor app, clicking the “H-E-B Beer and Wine” banner or online at favordelivery.com. Choices will vary depending on the location. Each city has a unique selection curated by H-E-B’s team of experts that also includes local breweries.

Dive Insight:

H-E-B’s newest service gives the chain another way to compete against other grocers as well as web giant Amazon, which began testing alcohol delivery in Seattle three years ago. Amazon has since expanded its footprint to Portland, Cincinnati, Columbus, Ohio and several other cities through its Prime Now service, which includes free two-hour delivery of groceries and alcohol.

H-E-B has increased its e-commerce presence by bringing Jag Bath, Favor's CEO and H-E-B's chief digital officer, on board. But it's decision to deliver beer and wine isn’t something that is new to the alcohol or the grocery industry. Rabobank analysts in March estimated that U.S. online alcohol sales hit $1.7 billion last year, a relatively small total dollar value, but growth in online channels is outpacing that of brick-and-mortar retailers.

Drizly, the nation’s largest online alcohol seller, has expanded to more than 100 North American markets. Other grocers offering alcohol delivery include Publix and Walmart, as well as delivery services like Instacart, Doordash, and Postmates. Online sales of alcohol could put pressure on wine and beer sales in traditional grocery stores, a reason more grocers are offering the service in-house.

The wine and spirits industry has struggled to create an online presence regardless of the uptick in demand. A big challenge is alcohol regulations, many of which remain largely unchanged since Prohibition. For example, only five states today permit direct shipping of spirits to consumers.

There are many challenges retailers face in e-commerce when it comes to alcohol, including ID verification and handling of fragile bottles. But if H-E-B can overcome those challenges, its move into online alcohol sales could be a good one. H-E-B has a loyal customer base throughout Texas and can tap into its vast network of stores to effectively market and roll out the delivery service.

One way to market it is to include wine and beer pairings on its already established site, hebtoyou.com, next to complimentary grocery items. This ensures the company is advertising its alcohol offerings to the right audience — those that already participate in online grocery shopping — and building a relationship with that customer. H-E-B also could offer tastings in its stores to draw attention to the newly acquired Favor service, especially among millennials.

H-E-B dominates the Texas market but it's facing stiff competition from Walmart, Target, Whole Foods, Kroger, Trader Joe’s, and Lidl. The state’s grocery market is competitive, and H-E-B is realizing it must differentiate itself from its competitors and hold its ground. Delivering alcohol is one small but potentially important way to do that.