As retail competition increase, cannabis companies need to think more about their customer

When Simon Reid and his business partner opened Boondom in October, it was only the fourth legal cannabis store in Windsor. Now, there are nine cannabis shops with 32 more either authorized to open or with applications in progress — in a city of just 217,000 people. 

“We knew very early on there would be lots of competition,” says Reid, who has carefully branded his store to appeal to working-class customers, with a straight-talking blog that highlights that the owners are locals. “Having a sound strategy early is now showing its worth.”

In December, the Alcohol and Gaming Commission of Ontario announced it will begin approving 80 new retail outlets a month, doubling its pace. With roughly 300 authorized stores open in the province now, the province could see well over 1,000 in operation by the end of the year.

With that kind of increase, Reid, and many other retailers, are concerned about market saturation. Toronto, for instance, already has 99 stores with 219 more active applications for new outlets. Some parts of the city’s west end already have multiple stores on a single block.

“The pace of store openings is outpacing the growth of the market,” says Reid. “Everyone is getting a smaller and smaller piece of the pie.” 

As the government ramps up openings to stamp out the illegal market, cannabis retailers will face increasingly stiff competition and be forced to double down on strategy. It doesn’t mean you can’t make money in cannabis retail, but it does mean newcomers have to work harder. 

“We’ve seen competitors open up next to each other in other industries,” notes Krista Raymer, co-founder of the Vetrina Group, a retail consultancy in Toronto. “We need to change what our definition is of what’s possible in these retail stores as more open. Companies need to build their own niche.”

The increasingly competitive retail landscape for cannabis is pushing entrepreneurs to focus more on specific customers, carefully watch their budgets, build in efficiencies and think a bit more modestly about potential profits. 

Cater to your customers 

How companies will fare in the face of increasing competition will depend on some old-school retail strategies. Location is important, of course, but just like two coffee shops on the corner of the same intersection must differentiate themselves to attract customers, so too do cannabis stores that live on the same block. 

“The old concept of ‘just build it and they will come’ isn’t enough,” explains Raymer. “You have to build it for a particular customer.” 

Like any retail business, do the research: find out as much as you can about your target market and cater to local tastes. Also think about how your business can evolve along with your clientele.

“We have to ask not just who the customer is, but who was the customer yesterday and what is the customer today and who is the customer in six months,” says Raymer.

Go smaller

COVID-19 is presenting new opportunities for cannabis retailers who are getting into the game. Rather than having to spend money on large and expensive stores, they can now set up smaller shops with e-commerce capabilities. Lower rent costs will certainly help in a more competitive environment. 

That’s Chris Jones’s approach, who in September sold his stake in Star Buds Cannabis Co., which had stores of between 1,000 and 3,000 square feet, to open a retailer with a smaller real estate footprint. 

“I realized it doesn’t really make sense to have these large stores,” he says, noting that customers are overwhelmed by hundreds of products. “If I can have stores that are much smaller, I can charge less.”

His new venture, Cannabis Xpress, will feature outlets of just a few hundred square feet and 50 or so SKUs. These locations will cost around $30,000 to build out — he sees competitors dropping as much as $1 million on a store — and will run with a small staff.

He welcomes being neighbours with a larger concept store, and believes that post-pandemic customers may browse the bigger location, but stick with the smaller store when it comes to buying as it’ll be faster to buy and cost them less, he says. 

Stay nimble and scale up 

As retailers in other sectors have learned, often the hard way, success depends on how quickly you can adapt and how well you can scale up. The cannabis industry is still rapidly evolving, which means retailers need to be prepared for anything, notes Raymer. 

“There’s been a lot of unknowns,” says Raymer. “When we meet with clients we tell them to prepare for changes to store approvals and regulations. There needs to be a level for agility baked into the foundation.”

As well, one of the advantages of more stores, is that retailers with more than one location, can spread their marketing, payroll and IT budgets across a larger operation.

That’s Reid’s plan. He wants to open a second location of Boondom in spring and a third by the end of 2021. They’ll be local to Windsor and surrounding Essex County, but the company will soon expand into other small-town markets, he says.

While he fully expects any new outlets to be located close to competitors, he’s fine with that. He knows his customers and plans to give them products they care about. 

“We’re creating a model,” he says, “that’s repeatable and profitable.”