How to Sell Cannabis in a Regulated Retail Environment (Automated Dispensing Systems)

Author: Markus Merrill - General Manager (Canada) - Vend Data Media Solutions

Publish Date: October 10, 2018

Tell us a little bit about Vend Data Media Solutions and what type of products/services your company offers.

Vend Data Media Solutions (VDMS), as its name suggests, provides automated product dispensing for retailers and is a digital media platform for in-store advertising. The term “vending” leads people to believe that we are providing a customer-facing, interactive kiosk, which is not the case. Our systems are installed behind the counter, in back offices or storage areas to help protect, control and automate the sale of high-regulated products. They are designed to streamline the sale checkout process making it more convenient and efficient.

All the data from our systems is captured in real-time and made available to clients through our cloud-based technology and mobile app. This information includes product sales, in-store product inventory through our management program (such as low or out-of-stock items) as well as the health and operations of our machines and devices within a retail shop. Alongside the automated dispensing systems, we provide a digital media platform that allows retailers to display product information, advertising campaigns related to ancillary products and brand specials. We like to think of ourselves as a turnkey solution, making it more convenient for retailers while also shaping the overall customer shopping experience.

When we first met you mentioned that VDMS Canada primarily aligned its product with the tobacco industry. How does that better align your products with the cannabis industry? Where do they differ?

That is correct, VDMS has provided solutions for the convenience, grocery and petrol retail channels globally and we have been doing so for the last 4+ years to help retailers in those markets to secure, control and speed up the sale of tobacco products. One example of this is with respect to packaging, specifically when selling a high volume and heavily regulated products like tobacco. In Canada, Australia, the UK, Ireland, France and New Zealand, all tobacco products must be hidden from the consumer with the packaging all plain in terms of colouring and font. Next year in Canada all cigarette packs will look the same making it difficult to distinguish between brands. So you could imagine the difficulties for retail staff to find tobacco products when they can’t see where they are. On top of that, they must remember where all 200+ SKUs are, potentially leading to long lines for customers and delays in a business that prides itself on convenience. With an automated dispensing system, a new staff member can start selling tobacco their first shift, where traditionally it would take them 3-4 weeks to remember the location of the products, and more often than not would only really remember the top 20 SKUs.

In recreational cannabis stores, and retail in general, one of its biggest overheads is labour, and one of the biggest inefficiencies is the time it takes employees to locate and select the right products within the store. Automating this process would allow more employees on the floor to interact with consumers and ensure their shopping experience is a positive one. It would also save time and money on finding the right cannabis product. With a touch of a button the customer’s request is dispensed to a central location behind the counter where the staff (or budtender) then collects the product and finishes the checkout process. Customers are not waiting in long cues to get their products in their hands, and leave with a positive experience.

How does cannabis and tobacco differ?  

Good question. There are many similarities. Both are consumables and technically plants, but they’re also similar especially with respect to controls and legislation: plain packaging, no advertising, health warnings, excise stamps, etc. All these legislative controls create challenges when trying to inform and sell these products to customers. It makes them difficult to find products, manage inventory and ensure that shrink and external threats are not disrupting operations. We are looking to have these conversations with retailers, manufacturers and other stakeholders in the cannabis industry to let them know they do not need to reinvent the wheel. Look to other industries and learn what solutions are making it easier for them to sell their products into the market.

What are some of the laws/regulations that private cannabis retail stores will have to consider when it comes to securing, storing and transferring/distributing cannabis?

As you know the laws/regulations will vary by province and depending on these laws, there may be a few different models or approaches. For instance, in Alberta retailers will need to make sure that all their products, samples and inventory is in a secured storage/safe area when the store is not open. That means that retailers will have to remove all product from shelves, display cases etc. when the store closes and bring all these products out when the store opens. This will be a very time consuming and daunting task.  

Security is something retailers need to be thinking about, not only perimeter and in-store security measures (e.g. cameras, store layout, back-office design, etc.) but also how they are always going to secure their inventory and products. Burglaries are going to happen, it’s inevitable. These retailers need to be looking at solutions that protect their employees and their inventory.

The Federal Government has already put into place a well-designed seed-to-sale program with companies like Ample Organics that have a great foothold in the Canadian Market and are innovative leaders in this space. The tracking and management of the production process all the way to retail is already there because of the existing ACMPR regulations. They have also just announced a Canadian Cannabis Tracking System that all manufacturers, distributors and retailers will need to be part of so that Health Canada can follow and measure the impact of cannabis sales in Canada.

Can you go into more detail about how your products differ from other products in the market?

When it comes to our secured dispensing systems, VDMS is the only company in the space that are leading the way with an automated solution that is designed around helping retailers. We are providing a connected intelligent solution that helps manage the category and eliminates inefficiencies in the operation.  All of our systems can only be operated by store employees and the data collection from our machines is available in real-time. This is something we believe can be integrated into other data sets to provide better insight of the manufacturing and distribution supply chain.

Our equipment also has the ability to provide real-time Out-of-Stock (OOS) data, so when a product goes OOS in our machines, we can send push notifications, text messages or emails to retail management alerting them that products are no longer in-stock within the machine. This is very powerful data, eliminating OOS that is on-shelf OOS gives retailers and licensed producers a great advantage over their competition. If you can ensure that your customers’ product is always available, you will not lose sales nor will customers decide to switch to a different brand. Out-of-Stock is definitely something people in the retail and manufacturing space need to be thinking of and keeping an eye on.

How do these automated dispensing products differ from traditional merchandising methods?

Bill Gates has a quote: “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.”

It’s very difficult to manage 200+ SKUs with a variety of strains and products (e.g. capsules, oils, flower).  Also the weighing of product in-store will not be allowed. All products will come prepackaged from the LPs and distributed to retail. When we talk about traditional merchandising methods, the ones we’ve seen are out of date and time consuming. As mentioned before, it’s cumbersome to have retail staff spending time looking and searching for products in the back-storage area. It’s going to negatively impact the shopping experience for customers and unless they have a very efficient system in place it will be difficult to manage and control their inventory.

Automated dispensing systems allow for more staff on the floor to support and educate customers, ensuring all your product inventory is under lock and key and that you are protecting your most valuable assets, your employees. We believe that if customers see or know a store has an automated dispensing system installed, this will correlate with a positive shopping experience, shorter wait times, knowing your product is in-stock and a accurate and efficient check-out process.

Given your experience in the tobacco industry (or in general with respect to retail) do you foresee any shortcomings / pitfalls once legalization happens come October?

I believe many of the same issues that retailers face when selling tobacco products will be evident in the cannabis retail space as well. What we have seen in the convenience space are the following issues:

Security:

  • How will retailers protect their inventory and their employees?
    • Tobacco is high-value controlled product, that has a street value that thieves, gangs and organized crime can profit from
    • Often when retail convenience stores are broken into the thieves are after cigarettes, cash and lottery tickets
    • Cannabis retailers will need a secure way to protect these assets, both in-store and outside the store, the best way to combat burglaries is by being proactive and making it difficult for people to rob your store

Shrinkage:

  • In-Store Employee theft
    • This is a reality in all retail sectors, people steal from their employers and this will be the same for cannabis
    • How do you prevent store employees from taking product, it doesn’t matter how many cameras or how good your stock management is, people always find a way to steal
    • In the retail space for tobacco it is estimated that shrink is anywhere from 1-3% of total sales

Out-of-Stock (OOS):

  • On-Shelf OOS
    • It is estimated that on-shelf OOS is around 8%, that means the product isn’t on the shelf when customers are looking for them, and often cannot be found in the store
    • This is a costly factor that retailers spend thousands of dollars to combat, and depending on the inefficiency in the distribution and supply chain, it is often difficult to determine how to fix the problem
    • This is most evident at the store level, the product may be in-stock but it hasn’t been brought to the front or put on the shelf, product is in the store but not in the store system, or the product is in the wrong location and it cannot be found
    • The time spent looking for product cost money for labour, the loss of the sale because the customer gets frustrated, or the customer may look to an alternative brand with the same attributes
    • If a product is OOS it usually means that there are issues within the operation and this problem affects retail operators/owners, manufacturers and ultimately the customer

Convenience:

How to do you keep your customers happy?

  • By ensuring you always have their products in-stock and that it is convenient for them to buy the products they are seeking
  • Long lines, delays in finding products are a few issues that really frustrate customers, it is great if your store is appealing and makes the purchase enjoyable but, you can often lose customers in the last few minutes of their in-store experience and that is the check-out process
  • This process needs to be seamless and effortless, tell the person behind the counter what you would like and then the product is provided and paid for
  • In the tobacco space, with 200+ SKUs I see this customer frustration all the time, employee behind the counter cannot find a product (products must be hidden, and soon plain packaging) therefore they are searching sometimes up to 5 minutes to find a product especially if it isn’t a big seller, or if they haven’t sold that product before

Many retailers will find out the hard way when it comes to shortcomings and pitfalls within the retail landscape.  We have to remember that this is the first time recreational cannabis will be sold legally in a retail storefront, and with this will come loads of learning from both retail operators and consumers.

There are still many questions about how the sale of recreational cannabis is going to pan out. Keep in mind that the consumer will shape all of these by their purchasing habits, and those products that are selling the most will also be the ones that need to be stocked and understood. I would say in about a year you will see some rationalization of products and strains, once customers find what they like to consume. Licensed producers need to be careful not to confuse the customer by flooding the market with multiple strains and products. My advice to them would be keep it simple. Quality, Price and Convenience will be the factors that drive product sales.

Markus Merrill

General Manager – VDMS Canada