As the number of cannabis products continues to skyrocket, the battle for shelf space in cannabis retail and medical dispensaries across the United States gets exponentially fiercer. Already in California and Nevada, some retailers are charging marijuana manufacturers $500 to $15,000 per month for premium shelf space.
Charging fees to manufacturers in exchange for retail shelf space isn’t a new phenomenon. It’s been happening in the consumer products industry for decades, and there are no signs it will end. In fact, shelf space fees will likely become more common (and more expensive) in the cannabis industry in the very near future.
Common Shelf Space Fees
When there are more brands than retail shelf space, retailers can charge a variety of fees to manufacturers, and sometimes, those fees can get very expensive. Remember, retailers need to know that they’re going to have the right products to meet customers’ wants and needs but also that they’ll sell enough products to meet their revenue goals.
By charging shelf space fees, retailers are guaranteed to generate a certain amount of revenue regardless of sales. Some of those fees include:
Slotting Fees (Paid to Get Shelf Space)
Also referred to as listing fees, slotting fees are paid by a manufacturer to appear on a retailer’s shelves. Paying a slotting fee doesn’t guarantee shelf availability at all times though. That means even if a business can convince a retailer that their brand and products are worthy of shelf space, they still need to monitor shelf space closely after paying the fee.
Slotting fees typically depend on which shelf position the product is on, the total linear shelf space for the product, and the number of stores the product is in (for multi-store retailers).
Pay-to-Stay Fees (Paid to Keep Shelf Space)
Pay-to-stay fees are paid by a manufacturer whose product is marked for shelf removal. This may happen if the product underperformed or is expected to be less successful on the shelf in the future than another product could be.
A manufacturer may be able to convince the retailer to keep the poorly performing product by paying a pay-to-stay fee, but then, it’s up to the manufacturer to up its marketing game and boost sales at the shelf level.
Display Placement Fees (Paid to Secure Special Shelf Space)
Display placement fees are charged to manufacturers for special secondary shelf space like end-caps, promotional displays, or seasonal displays (in addition to primary shelf space).
The goal of securing special shelf space is to boost short-term sales and introduce new customers to the brand. A display placement fee is typically charged by the day and can vary significantly depending on the product and category.
How to Win Shelf Space in the Cannabis Industry
The key to winning shelf space in the cannabis industry (and most other industries) is proving to the retailer that:
- Consumers want your product.
- Your product is better than or different from competitors’ products.
- Your brand reputation matches the retailer’s brand promise.
- Consumers will actually buy your product if they see it on the retailer’s shelf.
If you can prove these four things to a retailer, they’re far more likely to believe that offering your product will result in more sales and revenue for them. Here’s how to do it:
Do Your Research
The battle for retail shelf space starts with research. You need to understand the retailer’s customers, the products already on the retailer’s shelves and their price points, the industry and future trends, and how your product not only fits into the space but will make the sales and revenue potential of the space even better.
Use Data as Proof
You also need data to win shelf space. Loving your own products isn’t enough. To convince retailers to give you valuable shelf space, you need to prove to them that your product will drive new and repeat sales better than other products that could sit in that space.
To that end, collect data on your product’s past sales and revenue, past marketing strategies, customer demographics, and more. Your goal is to show the retailer that your product fills a need that they have (even if they don’t know they have the need yet).
Show Your Investment in Success
In addition, show retailers how you’ll invest in and promote your products to help them increase consumer awareness and sales. Build your marketing strategy and make it abundantly clear that you’ll be supporting the retailer through targeted marketing investments.
Present the results of your past marketing initiatives to show sales lift and ROI so retailers know you have a track record of marketing and sales success.
Be a Partner
Importantly, retailers need to know that you won’t secure shelf space and then disappear. Build partnerships with retailers so they understand you’re committed to shared success.
Key Takeaways for Cannabis Brands
The battle for shelf space in the cannabis industry is only going to get more competitive in the future. Fees will likely become the norm, but that doesn’t mean smaller brands can’t win shelf space. Do your research, gather your data, show you’re commitment to success, and be a partner to retailers so customers are happy and sales increase.