How the Cannabis Market Can Implement Common Retail Practices to Boost Sales
Three best practices to help drive revenues and stay ahead of the curve.
As the North American cannabis industry becomes more and more crowded, retailers are suddenly faced with flat or declining revenues. That’s bad news for owners, but it’s not necessarily the end of the world. Creative entrepreneurs are constantly looking for new ways to generate income, and those ideas are often hidden in plain sight in other retail industries.
Let’s look at three common retail practices that have yet to embed themselves in the DNA of the cannabis market.
One of the best ways to supplement sales is by charging fees for premium placement of certain products and brands on store shelves. Welcome to the world of slotting fees.
This may seem like an esoteric corner of the retail market, but it is a major driver of revenues for retailers in many different verticals. In fact, the American Journal of Agricultural Economics reported that grocery stores actually make more money from fees charged to manufacturers and distributors than they do from sales. It’s hard to find a retail vertical where this does not occur — as far back as 1996, the New York Times reported that major chain bookstores were engaging in similar practices. In fact, Goldman Sachs published a report in 2015 claiming that consumer goods companies pay more than $200 billion to retailers in placement fees every year.
The economics of slotting fees (also known as “fixed trade spending”) are simple: Customers buy more products that are prominently displayed than those that are placed in nondescript parts of a store. Snack food companies pay thousands of dollars to put up special end-cap displays festooned with bags of chips because they know that shoppers will grab the products as impulse purchases on their way to get milk and bread. They also pay a premium to get their products placed at eye level, which generates significantly more sales than being on the top or bottom shelf.
While this is a common practice in traditional retail, it has not yet become a factor in the legal cannabis retail industry in North America. Mark Cavdar, vice president of business development at Alberta-based Nova Cannabis Inc., says that the vagueness of the current legal scheme creates uncertainty for retailers around what is and isn’t allowed.
“The laws in Canada are restrictive when it comes to any sort of marketing for cannabis products by producers. The regulations are much tighter than those for alcohol, roughly on par with tobacco,” he says. “Because of the uncertainty around trade relationships, cannabis retailers end up in these ad hoc negotiations with sales reps pushing new and untested products and brands. Ordering decisions are then made not because customers are asking for certain products, but because something is featured in a catalogue. This hurts the legal industry as it saddles retailers with inventory that might not move and slows the emergence of legal market brands that deliver consistent product experiences to customers.”
Another practice that is common at many retail stores is the in-store promotion. If you’ve ever gone to Costco on a Saturday, you have most likely been accosted by people giving away small plastic cups filled with everything from Albanian granola to lumps of smoked cheese to alpaca pâté made by monks in Wisconsin. If you’re really lucky, you can finish up with a thimbleful of mystery wine. Why does all of this happen? Because it moves product.
“When people come up to a tasting stand and actually meet a representative, they have an immediate connection to the product even if they weren’t planning on buying it,” says food-industry veteran Michael Albert, who has sold everything from tea to gelato in Costco and other big-box stores. “It’s not so much about the product as it is about the personal contact. It’s a lot easier to walk past a product on the shelf than it is to tell a woman cutting up hot dogs on an electric grill that you aren’t interested.”
Obviously, it’s not possible to offer free samples of cannabis in most jurisdictions, but that doesn’t mean that retailers can’t create positive personal experiences for their shoppers. This is where branded swag — such as stickers, apparel and pens — can help retailers highlight certain products in their stores, even if they aren’t officially giving them preferential placement on their shelves.
One of the hallmarks of the fashion world is that top retailers from Louis Vuitton to Harrods offer personal shopping services. In general, these are appointment-only affairs reserved for high rollers, but it is surprisingly easy to get on the calendar. Why do stores offer these kinds of services? Simply put, they dramatically increase sales.
In many ways, it is the retail equivalent of the fox guarding the henhouse: Shoppers willingly walk the floor with an expert whose sole mission is to get them to buy more things.
As retail analyst Marshal Cohen of NPD Group says, “Imagine a person going into a store to buy a new skirt; personal shopping can turn that skirt into an outfit.”
In fact, Chinese clothing chain Lane Crawford reports that its sales are 400% higher than the average because more than half of its customers choose to work with a personal shopper who is employed by the company.
Personal shopping has been around for decades, if not centuries, but according to Bloomberg it finally went mainstream in the last two years. One of the major reasons for this is that online apps have made it easy for customers to schedule appointments without having to call stores to get on the calendar. In addition, the pandemic fundamentally changed how people interact with retailers, and savvy store owners recognize that now more than ever the personal connection is critical to driving sales. It’s no wonder that Nieman Marcus plans to triple the number of personal shoppers on its payroll by next year.
In addition to driving revenues-per-customer, personal shopping also allows retailers to gather valuable data on shoppers in their stores. It’s one thing for merchants to track general trends, but the personal shopping experience allows them to collect detailed information that they can use to develop future strategies for everything from staffing to merchandising to product selection.
“One of the best things about the pandemic restrictions being lifted here in Ontario is that we can finally offer concierge service, which was our vision from day one,” says Tatyana Parkanskaia, owner of Matchbox Cannabis. Parkanskaia operated a shoe store in Toronto’s West End for more than a decade and has now applied her experience to the Matchbox cannabis stores.
“Retail is all about the personal connection. It’s not just enough to have shoes for people to buy. You need to know what their preferences are, and what their needs are,” she says. “This is true no matter what you are selling. That’s why people can go to our website and book an appointment to meet one-on-one with one of our budtenders, even if they aren’t allowed to sample products in the stores. That’s how we are able to learn so much about our customers both as individuals and as a group.”
The cannabis retail industry faces an uncertain future in Canada and the United States. Because many cannabis products are still illegal at a federal level in the U.S., stores often find themselves operating in a gray zone when it comes to everything from banking to paying taxes. And in Canada, federal and provincial restrictions significantly limit how stores can market products to their customers.
But by drawing inspiration from other retail verticals, stores can adopt best practices that will help them drive revenues and stay ahead of the curve.