Applying our proprietary SP+GTM algorithm, we confirmed that mainstream retailers from grocery stores to pharmacies, including clothing merchandisers are clamoring to stock hemp and CBD products. Even as the industry waits for federal clarification on making and using extracts, CBD is a hot product category. As an ingredient in food, beverages, and dietary supplements, retailers show no signs of pulling hemp products from their shelves. Winning shelf space for new products in mainstream retail stores is new territory with more factors involved than one might expect.
Trends from the SP+GTM prospective in hemp have created new rules: (1) Know the brand audience: Developing a product for a specific audience helps companies differentiate themselves. Companies that can identify a need in the marketplace and create brands that cater to that need have higher overall profit margins. Appeal to both specialty retailers and an audience that may not even know they need the products has gained traction. Examples (a) Yeti brand of heavy-duty coolers, which got its start with hunters and fisherman and initially targeted bait and tackle shops is supporting all things hemp. (b) Socially minded Tom’s shoe brand, which developed a cult following because it donates a pair of shoes for every pair purchased has offered a hemp-line. Some of the most successful consumer brands create a community around their tribe and develop loyal customers who turn into brand ambassadors. (2) Give retailers the right pricing options: Retailers carrying CBD products once stocked only one or two brands and comparable prices. No more. Our analytics suggest that hemp products are evolving very quickly. Brands looking for shelf space in the food, drug, and mass-merchandising retail (FDM) channel have improved retailer’s core demographics, its current product assortment, and what its competitors are selling have higher profit margins. Pricing strategy is one way to fill out a retailer’s inventory needs, and offering unique product formulations is another. SP+GTM suggests to focus on your greatest strengths and differentiating factor over your competition. If you could be at a 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. (a) Brands focusing on formulating other types of products along with CBD to help address different types of use cases that are in demand. Retailers are looking for products that serve different customer demographics and price points. (b) 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. 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. Thinking about categories and subcategories of CBD products and then the price segmentation within those categories and subcategories are rules to follow. Our analytics show a 74% increase in store traffic. (3) 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. SP+GTM says “yes.” Large retail chains often charge what is called slotting fees for stocking products. Slotting fees don’t apply universally, and there is no specific industry standard for how to determine shelf space. 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 depends on the retailer. Most have ‘free fills,’ with three pieces free per SKU per store. Others will have a one-time fee of $5,000-$10,000 per SKU. Negotiations to reduce or eliminate slotting fees are standard. But vendors will end up paying one way or another. There is a substantial cost associated with being placed in larger retailers. 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 the shelf. As a company, be dedicated to building partnerships with retailers to ensure we can remain a brand partner. Heavily invest in promotional efforts to garner customer awareness and sell through the products. Retailers may also invest in private-label brands to allow them to cut out or replace independent brands. Our data suggests that many fashion retailers are already working to develop their blends. Private labels are becoming the norm. Retainers are finding that a CBD topical product is an excellent foot-traffic driver for them. By the end of 2020 that we will substantially see most of the fashion industry participating in the space.
SP+GTM algorithm and associated platforms predict the hemp driven product market at the retail level can be a $1.7 billion industry within 36 months.
Note: Ask for our 940 report entitled “Retainer Trends in Hemp – 2020 to 2025” catalog number FB 1240R – price $450.00 postpaid.