Cannabiz Media

Cannabis retailers abandon the dispensary model in search of greater profits

As a Cannabis retailer, your reason for existence is to provide consumers the opportunity to shop for and buy cannabis products. Designing a retail store that meets minimum customer expectations is easy, and mostly just requires common sense. Designing a best-in-class customer journey requires a deep understanding of how strategic decisions affect your customer experience and profitability. The most important of these decisions is whether you will encourage customers to self-shop, or pair them with a budtender to guide the shopping process. Each strategy comes with unique advantages, challenges, and impacts on efficiency and profitability. 

Self-shopping is the norm in high-volume retail, while a guided retail experience is typical for selling products that are complex, customizable, and/or very expensive. For example, grocery stores, big box retailers, and most clothing stores are designed for self-shopping, while jewelry stores, high-fashion clothing stores, and specialty retailers like the Apple Store try to pair customers with a trained salesperson to guide the process and provide appropriate information and assistance. 

Most cannabis retailers still follow a guided shopping model where each customer approaches the sales counter and is served by a single budtender. In the past few years there has been a growing trend of well-funded retailers opening beautifully merchandised stores filled with customer-facing product information designed to encourage self-shopping and discovery. These new strategies offer exciting potential and sobering challenges–particularly for small retailers.

Why guided shopping is the norm in cannabis

The first “legal” cannabis stores in the US were medical dispensaries.  The one-to-one guided shopping experience was appropriate for early (and limited) product assortments, low transaction volumes, and the sensitive nature of patient conversations. With early markets first legalizing medical sales only, the template for cannabis dispensaries remained pretty static from the passage of San Francisco’s Proposition P in 1991 through 2014 when the first recreational cannabis store opened in Colorado.

Even as recreational cannabis spread to new markets, the dispensary style of retailing dominated for several reasons. In most markets, strict regulations prohibit customers from handling cannabis products, forcing retailers to keep inventory locked up or behind the counter. Small batch sizes and inconsistent supply meant that retail assortments changed on a daily basis, and fixed merchandising and static menus were challenging. Even if a retailer were willing to invest in enough display merchandising to show their entire assortment, there wasn’t much to see! Historically, most cannabis product brands were extremely small businesses with limited resources for slick packaging and marketing materials. In this environment, the budtender served as guide and tastemaker.

As markets and suppliers grew, the larger cannabis brands invested more in product packaging and in-store display materials. Over time, cannabis stores incorporated displays for packaged products like vapes and edibles, while still offering static or digital menus to show the bulk of their assortment. The trend toward more attractive and effective display merchandising has been clear in most markets, but there is a big difference between offering a menu and a few featured displays, and designing a store that allows customers to effectively self-shop. Creating a compelling self-shopping experience requires displaying the entire product assortment with sufficient price, size, and product information to answer the most common customer questions and allow comparison between similar products. 

The advantages and disadvantages of guided shopping

The primary advantage of the guided shopping model is a reduction in cost and complexity driven by smaller sales floors, fewer expensive display fixtures, and less labor spent managing merchandising displays (including product information and pricing signage).  The primary weakness of the guided shopping model is increased labor expense. I’ve seen cannabis retail labor budgets (including managers) range from 8-9% of revenue up to >30%. Labor is one of the few expenses retailers can control, and yet the cost of cutting labor is extreme when the entire customer experience relies on a high-quality budtender interaction. 

In a guided shopping model, every step in the process (other than waiting in line) requires budtender assistance, and it’s common for average transaction times to hover around five minutes. Because each customer must be guided through the entire process by a budtender, transaction volumes are limited by the number of budtenders on the sales floor. If your in-store customer count exceeds the number of budtenders at any time, those customers have to wait to even begin the shopping process. Two budtenders averaging five minutes per transaction can complete 24 transactions in an hour. If customers were able to browse the assortment with full pricing and product information on their own, transaction volumes could theoretically double without increasing labor.

Finally, it’s critical to understand that the guided shopping model itself is a deterrent to many customers. Customer satisfaction falls when customers have to wait in line and then feel the pressure of a line behind them. Pressure to make a decision discourages new product discovery, limits basket size, and increases the likelihood of buyer’s remorse. Most importantly, many customers simply prefer to have the option of browsing and learning about products on their own.

In summary, the guided shopping experience is easy to design, maintain, manage, and execute. It is the most common approach to cannabis retail today, but may not be the best way to maximize customer satisfaction and retail profitability. As regulations in new markets permit larger brands and retail chains, we’re seeing a shift toward more efficient and profitable self-shopping retail models. 

The advantages of self-shopping

Cannabis stores designed to support self-shopping are becoming increasingly common, particularly in Canada (where federal legalization allows for much larger product and retail brands), and east of the Mississippi (where tighter limits on competition drive more sales into fewer stores and brands). The advantages of a self shopping retail model include increased volume potential, labor efficiency, easier budtender training, increased basket size, and improved customer satisfaction. 

Increased volume potential and labor efficiency  are both driven by shifting the burden of basic discovery (assortment, product info, and price) from the budtender to the merchandising displays. Instead of budtenders spending most of their time answering the same basic product and price questions for each new customer, they are freed up to focus on processing transactions and answering more detailed questions. 

Retailers who invest in developing high-quality merchandising displays that are rich with product information will also benefit from easier budtender training. While the best budtenders are able to convey impressive product knowledge, credibility, and charisma, even superstars benefit when accurate product information is presented and reinforced with every customer interaction. Quality merchandising and product information consistently results in an overall improvement in budtender product knowledge and the average customer shopping experience. 

Self-shopping can also drive higher basket sizes (larger average transactions) by allowing customers to browse the assortment and discover new products at their leisure, instead of wasting time in line and then feeling pressured to decide quickly. Budtenders still have the option to up-sell, cross-sell, and add-on to each transaction at the point of sale. 

Featured product displays and impulse cases at the point of sale are foundational retail best practices, but unless all product options within a category are visible, customers lack the context and confidence to make a purchase decision. I appreciate being able to see what is featured or on sale, but before buying I really want to understand what other options are available and at what price. Is this the only product on sale, or the only one featured? Unless all product options within a category are displayed with sufficient information to answer the most common questions, most customers simply bypass both menus and displays and proceed directly to the sales counter to talk with a budtender.

Creating a compelling self-shopping experience requires displaying the entire product assortment with sufficient price, size, and product information to answer the most common customer questions and allow comparison between similar products. 

The takeaway

It should be self-evident that the best possible retail experiences allow customers to shop in whatever way they prefer. Budtenders should absolutely be trained to answer questions and guide the customer through the assortment. But how many customers really need or want that service every time they shop? Imagine if the staff at your local grocery or liquor store tried to guide your purchasing each time you visited!

The guided shopping experience is the most common approach to cannabis today because it is easy to design, maintain, manage, and execute. It may well be the most efficient and profitable approach for small retailers. As regulations in new markets permit larger brands and retail chains, the average retail investment is growing and driving a shift toward better merchandising and self shopping models that enable higher transaction volumes at lower costs. The key question is whether the customer will ultimately prefer the personalized service of the independent retailer, or the buying power and shopping experience offered by larger chains.

Facebook
Twitter
LinkedIn

1 thought on “Cannabis retailers abandon the dispensary model in search of greater profits”

  1. Pingback: How to actually drive higher profits with the self-shopping model - MJ Brand Insights

Leave a Comment

Your email address will not be published. Required fields are marked *

Cannabiz Media
About the Author
Related Articles

Join the List

Subscribe for weekly updates.

We value your privacy.
Scroll to Top