May 12-13, 2020
Santa Rosa, CA
If you thought that fintech innovations such as cryptocurrencies and the blockchain were not going to impact the alcohol beverage industry, then think again. The rapid pace of fintech innovation is now starting to spill over into the world of wine, beer, and spirits in some very interesting ways.
Just as the new era of mobile payments suddenly made it possible for consumers to pay a bar tab with a simple swipe of their smartphone, the new era of crypto and blockchain will also have a very profound effect on the behavior of alcohol beverage consumers.
Take, for example, the world of cryptocurrencies. The most famous cryptocurrency is Bitcoin, and it is becoming increasingly popular for on-premise establishments to accept payments in Bitcoin (as well as other cryptos such as Ethereum). But that was just the start - it’s now the case that some leading-edge wine and spirits suppliers are developing their own proprietary cryptocurrencies that are linked to physical, real-world assets in the world of wine and spirits.
For example, the Costaflores winery in the Mendoza wine region of Argentina became the first-ever winery in the world to develop its own cryptocurrency. On its website (www.costaflores.com), the winery proudly touts the fact that it is “the world’s first organic wine-backed crypto-asset open-source winery.” Each token is backed by a real-world bottle of wine produced by the winery. Thus, the number of crypto assets in circulation at any time is directly correlated to the number of bottles produced. A crypto-asset holder can exchange any token for a bottle of wine at a price determined by the marketplace. This enables crypto holders to benefit from the aging effect of wine. Just as the value of a fine wine increases over time, so does the value of a crypto asset linked to that wine.
And, not to be outdone, the spirits world has also seen the launch of a brand-new whisky-based cryptocurrency, known as CaskCoin. The logic here is the same - a single coin represents a shared interest in a cask of Scotch whisky. As more whisky is produced, more coins are released into the marketplace. This offers an easy, convenient way for individuals around the world to invest in high-end Scotch whisky without having to get involved in the auction market or without even having to take physical delivery of the whisky bottle itself. At any time, in any geographic location around the world, it’s theoretically possible to exchange a CaskCoin for a bottle of the underlying asset.
The popularity of cryptocurrencies received a further boost in 2019 when social media giant Facebook announced plans for a global “stablecoin” known as the Libra crypto coin, which is expected to start trading in 2020. Libra is different from crypto coins such as Bitcoin because it is backed by real-world “fiat” currency - this guarantees that the value of the coin will not fluctuate wildly (as long as the value of the U.S. dollar remains relatively stable). Many industry analysts see the Libra coin as a payment system that will be layered on top of the current financial system, much like PayPal, Venmo or Square. Theoretically, Facebook users would be able to use Libra to send money to each other or to split bar tabs. There is also a potential for the 1.7 billion people around the world who do not have access to banks to use Libra as a proxy banking account, given the scope and size of the Facebook network. Any company with a Facebook presence - such as a rum, tequila or vodka maker - would be able to accept payment in Libra for products or services (or, at least, list prices for their products in Libra rather than dollars or euros).
Another possible application of cryptocurrencies could be crypto-powered vending machines. Instead of paying for a bottle of alcohol or a can of beer with fiat currency (i.e. dollars or euros), you’d pay for that bottle in a machine with cryptocurrency. At the 2019 SXSW event, event participants saw the introduction of the Civic crypto-powered vending machine, in which event-goers could pay for their bottle of Shiner Bock or Austin Amber beer with Civic crypto tokens. As long as these vending machines are able to verify the age of the consumer (i.e. the person is age 21 or older in the U.S.), they could become a popular addition to events like summer festivals or music concerts, or to hospitality venues like hotels (the same vending machines that dispense soft drinks and ice could soon dispense a bottle of wine to tired travelers!).
Another fintech innovation with implications for the alcohol beverage industry is blockchain technology. In essence, a blockchain is a ledger of transactions that is permanent and immutable. When applied to the world of wine and spirits, it means that buyers can track the journey of all ingredients or inputs used to make wine or spirit. If millennial buyers are concerned about organic and natural ingredients used to make a product, for example, they can immediately verify that a product is “organic” or “gluten-free” or “biodynamic.”
Since blockchain data cannot be tampered with or compromised, the hope is that blockchain technology will also reduce the problem of counterfeits and fakes for wine and high-end spirits. This is especially a problem with auction houses selling bottles of wine worth tens of thousands of dollars. With blockchain technology, potential buyers will have the peace of mind of knowing that the bottle they are buying is completely, 100% authentic.
Some industry analysts have even suggested that blockchain could introduce new options for marketing and advertising products. Instead of spending money on ads touting the qualities, ingredients or origin of their products, they can simply take advantage of blockchain authentication. Millennial buyers would be able to scan a bottle and immediately see all transactions that have taken place with that bottle, or all ingredients that have been added to that bottle. This could have a huge impact on the Direct-to-Consumer (DTC) market because small, craft distillers or family-owned wineries would be able to leverage this technology in order to build trust with individual consumers.
Fintech innovations have already shown enormous promise in transforming how consumers of wine and spirits pay for their purchases. Given the ubiquity of smartphones and Internet-connected digital devices, it’s likely that innovators will continue to look for ways to tap into the full power and potential of fintech innovations.
If these innovations reduce the cost of consumption (such as by lowering transaction fees) and improve the transparency of every purchase, it’s easy to see how they will continue to be embraced by young millennial wine and spirits consumers.