Beyond the Dispensary: Three key strategies for getting hemp products on shelves

(Editor’s note: This is part of an occasional series on retailing trends in the hemp industry. To read the previous installment, click here.)

(This story has been updated to correct the spelling of Jennifer Culpepper’s name.)

Mainstream retailers from grocery stores to pharmacies and even clothing merchandisers are clamoring to stock hemp and CBD products.

Even as the industry waits for federal clarification on making and using extracts such as CBD as an ingredient in food, beverages and dietary supplements, retailers show no signs of pulling hemp products from their shelves.

But while cannabis entrepreneurs are used to dealing with dispensaries, winning shelf space for new products in mainstream retail stores is new territory with more factors involved than one might expect.

Hemp Industry Dailytalked with retail and marketing experts as well as hemp and CBD companies that have had success securing retail shelf space.

Here are three of their tips for getting hemp products on the shelves of mainstream retailers:

Know the brand audience

Developing a product for a specific audience helps companies differentiate themselves, according to Jennifer Culpepper, founder and chief creative director of Brand Joint, a Baltimore-based branding agency.

Companies that can identify a need in the marketplace and develop brands that cater to that need will appeal to both specialty retailers and an audience that may not even know they need the products, Culpepper told attendees of the Hemp Industry Daily Conference in June.

As an example, she pointed to the popular Yeti brand of heavy-duty coolers, which got its start with hunters and fisherman and initially targeted bait and tackle shops.

Another example is the socially minded Tom’s shoe brand, which developed a cult following because it donates a pair of shoes for every pair purchased.

Some of the most successful consumer brands create a community around their tribe and develop loyal customers who turn into brand ambassadors, Culpepper said.

Give retailers the right pricing options

Retailers carrying CBD products once stocked only one or two brands and similar prices. No more, says one Oregon-based hemp extractor.

“It’s evolving very quickly,” said Mark Elfenbein, chief revenue officer for Woodburn, Oregon-based hemp-extract processor Socati Corp. “Every time you walk into a known retail brand and look at the CBD section, it seems like it’s growing every month.”

Brands looking for shelf space in the food, drug and mass-merchandising retail (FDM) channel should research a retailer’s core demographics, its current product assortment and what its competitors are selling.

“Where it used to be just two high-end brands selling the same product for the same price four months ago, now you have 10 to 15 brands that are being offered, each with maybe three SKUs.”

Pricing strategy is one way to fill out a retailer’s inventory needs and offering unique product formulations is another, he said.

“Focus on your greatest strengths and differentiating factor over your competition,” Elfenbein said.

“If you could be lower price, you could extend the option for different economic income (levels) for (customers at) drugstore chains, as an example, where people aren’t walking in with $60 for a bottle, but maybe they have $25 or $20.”

“We’ve seen other brands focusing on formulating other types of products along with CBD to help address other types of use cases that are in demand.”

Retailers are looking for products that serve different customer demographics and price points, according to Sasha Kadey, chief marketing officer of Greenlane Holdings, a cannabis distributor in Boca Raton, Florida.

“It’s very difficult, even yearly from a time-management perspective, for a retailer to sort through all of these different brands and make sure they’ve got the right assortment at the right price points, addressing the right categories,” Kadey said.

Rather than approaching retailers on their own, companies can also opt to work with distributors, which can aid manufacturers in winning retail shelf space while serving as category managers for retailers to help them find the right products to connect with their distinct customer base.

“We’re really thinking about the categories and subcategories of CBD products and then the price segmentation within those categories and subcategories,” Kadey said.

“We’re trying to develop an offering that really is a one-stop-shop solution for any retailer that wants a CBD category in their store, so we can take all that challenge out of determining what those products are.”

Slotting fees may apply

Product manufacturers that want to get their products into mainstream retailers have to ask themselves if they’re willing to pay for it.

Large retail chains often charge what are called slotting fees for stocking products.

Retail experts who represent vendors with large chain contracts told Hemp Industry Daily that slotting fees don’t apply universally and there is no specific industry standard for how to determine shelf space.

However, they said, in many cases big-box retailers will charge vendors for the shelf space in addition to the consignment fee – or the retailer’s percentage of the product sale price.

Slotting fees are typically a one-time cost that depend on the retailer, according to Jesse Karagianes, director of sales for San Diego-based hemp company CV Sciences.

“Most have ‘free fills,’ with three pieces free per SKU per store,” Karagianes said. “Others will have a one-time fee of $5,000-$10,000 per SKU.”

Negotiations to reduce or eliminate slotting fees are common. But vendors will end up paying one way or another, according to Karagianes.

“There is a substantial cost associated with being placed in larger retailers,” he said.

“Free fills, slotting fees, and ‘fair share’ costs for endcaps (shelves at the ends of aisles) … are a requirement. One of these three will typically be required.”

Even with the fees, shelf longevity is never guaranteed, and it’s up to the manufacturer or vendor to fight for their space.

“Manufacturers have to demonstrate that they are willing to invest in efforts to help ensure turns of products on shelf,” Karagianes said.

“As a company, we are dedicated to building partnerships with retailers to ensure we can remain a brand partner, so we heavily invest in promotional efforts to garner customer awareness and sellthrough of our products.”

Retailers may also invest in private-label brands to allow them to cut out or replace independent brands.

Many fashion retailers are already working to develop their own blends, said Socati’s Elfenbein.

“We are in discussions with many retailers – especially a lot that are in the fashion industry specifically – that are looking to launch a topical line and are looking to have a private label,” he said.

“They’re finding that a CBD topical product is a good foot-traffic driver for them. So I would guess that by the end of 2020 that we will substantially see most of the fashion industry participating in the space.”

Laura Drotleff can be reached at [email protected]

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Original author: Laura Drotleff

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