Cannabis brands are still high on the in-store experience

Catering to different segments, price tiers and education levels could help drive differentiation in a saturated retail market.

Cannabis retail stores are still popping up like, well, weeds.

In Alberta, the retail licensing framework began fairly open, and there are now 588 licensed stores in the province just over two years post-legalization. And now Ontario, potentially the biggest cannabis retail market in the country and one companies have repeatedly said has been underserved, could be headed in a similar direction. Since the licensing framework was changed last year, the Alcohol and Gaming Commission of Ontario has been freed up to approve retail licenses more quickly, and allowing retail companies to commit to expansion plans, knowing licenses will no longer be awarded through a random lottery. 

Nick Whitehead, SVP, market development at Aurora Cannabis, tells strategy that many markets still remain underserved and retailers can now take advantage of that opportunity. This is especially true in Ontario, where the provincial government is aiming to have licensed more than 1,000 stores before the end of 2021.

“But in markets with larger numbers of retail stores, there continues to be opportunity for differentiated strategies,” Whitehead says. “We are starting to see retailers narrow their focus to better cater to different consumer segments and price tiers.” 

For example, according to OCS data on Ontario’s cannabis marketthere are opportunities at all price points as long as producers meet the expectations of consumers. But while premiumization was a key focus in the early days of legalization, Aurora CFO Glen Ibbott said in 2020 that market share for weed costing less than $9 a gram had grown from 2% to 17%, while premium products were going in the opposite direction.

While the nascent industry is quite unlike any other, there are parallels to the grocery space, like geography being a key factor in determining loyalty – and which seems to be driving some recent M&A activity in the space, with retail companies looking to have an early foothold as the Ontario market opens up.

However, some brands have been able to draw on CPG best practices by leveraging consumer insights and developing a more sophisticated approach to category management that better reflect true consumer demand – and, to Whitehead’s point, drive differentiation in saturated or soon-to-be saturated markets.

Apart from catering to more price tiers, Whitehead says key changes in retail experience include complementing in-store education (for those who need a little purchase guidance) with click-and-collect and express check-out services, giving convenience to a customer segment that is more product knowledgeable.

At the time of legalization, both licensed producers and retailers had limited knowledge around what was going to perform well and what wasn’t, Whitehead says. And apart from using Canadian medical sales and early U.S. consumer sales data as a proxy, there was limited information to support building the product assortment.

But with more consumer data and new products coming to market, that is changing as well. For its part, Tokyo Smoke has a wide assortment of products, including its own house brands, as Lacey Norton, head of retail at Canopy Growth, says it wants to ensure it offers a full range of formats, including Cannabis 2.0 products. This means beverages, edibles, vapes and concentrates for those averse to smoking – which have piqued enough interest in consumers to help keep sales and new trial strong, even in a pandemic environment.

“Not only are new formats attracting new and current users, we have found that the introduction of new formats has resulted in stores being able to maintain higher units per transaction than what we have historically seen as some of these new formats are proving to be easy add-ons for consumers,” Norton says.

Norton says her company’s click-and-collect offering and a five-minute guaranteed pick-up time has been working particularly well for Tokyo Smoke, especially when it comes to accommodating spikes in demand, with delivery being convenient for those who don’t want to leave their homes during the pandemic.

But she still sees education playing a major role, for both new and experienced consumers alike. Generally, when people purchase cannabis, they want to understand what they’re consuming, she says, and maintains that it’s still a relatively new product to many. Even experienced consumers may not be familiar with, for example, the names a strain they like has between different producers.

Store designs are always going to be beholden to the nuances of different provincial regulations, such as needing accessories to be behind locked glass in Alberta. But Norton says education is something that drives the customer journey everywhere and can fit into the experience in any jurisdiction – and this begins at store design, with consumer experiences that anchors education into every touchpoint.

For example, its Tokyo Smoke Intent System is specifically designed to educate new and current consumers alike based on what type of experience they are looking for.

“We consider the classification system as ‘cannabis made simple,’” Norton says, designed to empower consumers to make intentional choices, using easily digestible language based off of the desired product effect – something useful even for experience users, who might see even familiar strains named different things, depending on which producer it is coming from.

For Tweed, similarly, she says, stores are designed to provide an immersive and experiential experience for guests with any level of experience, including “bud carts” (a display case to highlight usage occasions) to “scent orbs” (where consumers pull a stopper for an olfactory experience).

But like any retail-based industry, cannabis has been impacted by the pandemic; Norton says “best in class” employee training and hosting community education events “were a great way to engage new and existing customers.” Many of these community initiatives have now transitioned to virtual events – it has been hosting virtual “Tweed Sessions,” a course offering education about formats such as its cannabis-infused chocolate and gummies, over interactive Zoom workshops.