If you build it, will they come?
The cannabis industry often looks like a field of dreams, with bright-eyed entrepreneurs coming from all walks of life to carve out their piece of the Green Rush. In many markets, opportunism, a bit of cash, and a dose of luck is all it takes to open your own cannabis retail store and secure a seat at the table. But even in a booming industry with “essential” status, a seat at the table is no guarantee of success.
I’ve seen the same pattern play out consistently in new cannabis markets across North America. In the early days following legalization, curious consumers will pay 2-4 times as much for the variety, peace of mind, and novelty of legal weed. In this environment, even terrible retailers are able to realize short-term profits.
If you build it, will they keep coming?
As markets mature, they enter a second, more sobering phase. Rising supply drives down prices. Increased retail competition leads to discounting and margin compression. The novelty of “legal weed” fades, and the black market proves resilient thanks to lower prices. Consumers who stick with legal weed gravitate to retailers who earn their trust by offering consistent value, inventory, and service. The performance gap widens between winners and losers. Soon the market is littered with retailers on life support, desperately searching for an investor or buyer.
Case study: Seattle
A rising tide does not lift all boats. Washington state cannabis sales through the first 11 months of 2020 were up an incredible 30% over 2019. At the end of 2020, the median monthly revenue for the 55 cannabis stores operating within the Seattle city limits was a little over $240K ($2.9M annual run rate). The top ten Seattle stores (all in at least their third year of business) saw sales rise by more than 40% during this period. These already profitable retailers saw sales grow by an average of $2.7 million in less than a year! On the other end, 33% of Seattle stores saw sales decline, with 18% declining by double digits. Even in a market with 30% overall sales growth, a third of existing retailers are facing declining sales and a crippling loss of market share.
The cannabis market is no different from any other retail market; only the pace of market development and maturation is different. As markets mature, customers vote with their wallets. The results aren’t close. How does a cannabis retailer… how does ANY retailer… thrive in a competitive market? Retail winners and losers are separated by their ability to efficiently deliver on something as fundamental as it is overlooked: a compelling customer promise.
Common customer promises include: largest selection, lowest prices, highest quality, best value, deepest discounts, most convenient, exclusive products, knowledgeable staff, and best shopping experience. Even a promise to be the cannabis retailer “for people like you” can be incredibly compelling for customers who identify strongly with a consumer niche (seniors, veterans, environmentalists, social activists, medical patients, partiers, connoisseurs, etc.).
Some retailers make their customer promise explicit through marketing materials, customer communication, and brand and design choices. Others quietly live by a strong internal code that drives behavior and decision making. Even retailers that have never consciously defined their “customer promise” still communicate who they are and what they value through every choice they make about how to manage and present their business.
Over the past five years I’ve toured hundreds of cannabis retailers across North America, and seen the books for half of them. Retailers committed to delivering on a compelling customer promise are often shockingly successful. These companies have a clear competitive advantage, and they promote and defend that advantage with obvious intention.
Unfortunately, it’s also true that most cannabis retailers are unable to articulate a unique or compelling customer promise. I’m often told that a store has the “best staff” or “best assortment,”but when pressed to defend that claim with evidence, the owners and managers stare back blankly. These companies have an aspiration, but no clear competitive advantage. As performance stagnates and the staff lose heart, they grasp at an ever-changing menu of tactics in search of a winning strategy.
Top four failures of customer promise
Many cannabis retailers are clear on who they want to be, and they work hard to deliver on their promise. But the competition is often just as motivated. The only way to win in a competitive market is to be clear about where and how you intend to win, and then closely track competitive behavior to ensure that you’re staying one step ahead. In a mature market where customers are familiar with local retail options, there is little value in being the store with the second lowest prices. You may be able get away with this in a new market, but it’s just a matter of time before word spreads and your customer finds your competition. It’s critical to commit to customer promises where you have the will and ability to deliver better than your local competition.
Failing to consistently deliver on your claimed customer promise is worse than having none at all. Inconsistency destroys customer loyalty and drives away business. Even one bad experience can shake a customer’s relationship with your brand and cause them to consider alternative stores. The last time I shopped at Lowe’s was eight years ago. I bought a microwave at 20% off, and was horrified to discover the next day that Home Depot’s regular price was even lower. Both stores are convenient to me, so I’ve never been back to Lowe’s. They broke my trust. It’s not enough to have great prices some of the time.
One of the more common and pervasive failures occurs when a retailer’s culture does not match up with or support their customer promise. A retailer that claims to offer the best quality or value but refuses to mark down stale product is communicating to staff and customers that they’re perfectly willing to trade customer satisfaction and loyalty for short term profits. A retailer that promises the best-educated budtenders and great customer service undermines that promise if they clear inventory by pushing budtenders to “promote” unpopular products with questionable efficacy. On the flip side, a strong culture that is aligned with your customer promise is a powerful way to ensure long term performance, employee engagement, and customer loyalty.
Efficiency is a catch-all for your ability to make the customer experience as smooth and easy as possible: Easy to find, easy to see, free parking, clear signage, clear and informative menus and merchandising, short lines, quick service, etc. Efficiency is not a measure of cost but of customer experience. Making all product information available at an in-store digital kiosk may be supremely efficient for the retailer, but it’s a tremendous source of friction and frustration for a senior who just wants to talk to a real person. The opposite of efficiency is anything that creates friction or irritation in the customer’s experience. If two stores have similar assortments and prices, customers will overwhelmingly choose the one that makes shopping easier.
It’s common sense to suggest that happy customers translate to financial success. Most unsuccessful retailers make the mistake of trying to serve every customer, and in doing so end up delighting no one. Successful retailers understand the importance of carefully selecting a compelling customer promise, communicating that promise clearly, tracking performance against the local competition, and consistently following through on delivery. A well-realized customer promise IS your competitive advantage. It will attract employees and customers who value the same things you do. Retailers who find their niche and serve it better than anyone else take the first crucial step to building an iconic brand and an enduring business.