As the cannabidiol (CBD) category grapples with unusual circumstances, retailers must implement new tactics when selling CBD products.
CBD sales were rolling along until two unusual circumstances caused a blip. First, the illegal tetrahydrocan- nabinol (THC) vaping crisis of late 2019 practically eliminated sales of CBD vaping items and negatively im- pacted sales of other CBD products. Then, just as many c-store retailers were adding the CBD category, the COVID-19 pandemic struck, minimiz- ing store traffic and the potential for their shoppers to be exposed to this new line of products.
Nonetheless, Management Science Associates (MSA) is starting to find re- vived consumer interest in CBD, most recently evidenced by an uptick in Google search trends. Typically, this increase in search precedes purchase intent, so as the stay-at-home orders start to recede, it will be a good time for c-store retailers to capitalize on sales of CBD, with the realization that their current product mix and market- ing approach may not maximize sales.
C-STORES HAVE AN EDGE
An MSA analysis of Consumer Re- search Around Cannabis data shows consumers purchase CBD items for health-related reasons — relief from pain, reducing stress and assisting sleep. These top reasons for purchase are fairly ubiquitous and suggest a broad audience for these products.
In addition, this Consumer Research Around Cannabis data shows the demographics of the most-likely CBD purchaser is a younger, blue-collar, self-employed person, which closely s the profile of the most likely c-store shopper. Further evidence that c-stores have a strong opportunity with the CBD category, the average tobacco consumer is far more likely to have an interest in purchasing a CBD item as compared to the general population.
Source: MSA, Distributor Shipment to Retail data w/e 1/5/2019 – 3/28/19
These advantages for the c-store retailer do not mean that this category is a sure win given the current retail climate — but do suggest a strong potential if the category is managed appropriately.
BY THE METRICS
Looking back at Q1 of 2019 prior to the illegal THC vaping crisis, MSA’s InfoMetrics data shows the top-selling CBD item in c-stores was gummies, with a 31% share of all CBD dollar sales. This item served as a trial-generating product, was typically sold at a lower dollar amount and offered a convenient way for consumers to try CBD.
The second-highest-selling item, with a 22% share of all CBD dollar sales, was the CBD vape, which provided a significant enhancement to c-stores’ vapor lines. The vape items were closely followed by sales of tinctures as the third-best-selling CBD item. Notably, CBD pills and topicals (body lotions and rubs) were tied for the fourth-best-selling items. When consumers were looking to purchase a CBD item in early 2019, they were most interested in items they could ingest or inhale for a more immediate benefit.
Source: MSA, Distributor Shipment to Retail data w/e 1/5/2019 – 3/28/19
The illegal THC vaping crisis of fourth quarter, 2019, changed all that — as shown in the bar chart below — the CBD items selling during first quarter of 2020 are very different than those selling just one year ago.
The THC vaping crisis appears to have generated consumer concern around inhaling and even ingestion of something unfamiliar and caused consumers to be more cautious in the trial of new items. This significantly affected the sales of nearly all ingestible CBD items. Topicals (lotions and body rubs) are now No. 1 in c-store sales by a large margin. Gummies, the best- selling item prior to the vaping crisis, has fallen to No. 3 in sales, and CBD vape items now account for less than 2% of CBD dollar sales.
A further complicating factor for c-stores, MSA has seen online sales of CBD products grow during the pandemic as consumers are in stay-at-home mode and adjusting their preferred purchase location to online vendors. So what do c-stores do?
Source: MSA, Distributor Shipment to Retail data w/e 1/5/2019 – 3/28/19
CHANGING TACTICS
A new approach for c-stores is key. Topical items have recently started to top the list of items being ordered by c-stores.
Retailers need to reorient their product mix so the largest number of SKUs are in those items that can be applied externally to the body to meet this new consumer prefer- ence. These topicals need to be featured front and center in the CBD section. Make certain there is an entry-level price point to the topical products to re-invigorate the trial purchases that used to occur with gummies.
C-store retailers also need to re-position their CBD category for maximum shopper visibility and employ signage to re-educate shoppers as they return to the store. This visibility and re-education will be critical to changing the online ordering behavior shoppers have developed over the past few months. While fears over the THC vaping crisis will eventually fade, and consumers will again return to in-person shopping, the retailer that adjusts their product mix and CBD marketing approach to this current reality will be best-positioned to capitalize on robust CBD sales in the more normal times to come.
Don Burke is the senior vice president of Management Science Associates (MSA). He can be reached at DBurk[email protected].
