Legal Cannabis and the Retail Experience

All across North America, the decriminalization or legalization of cannabis has given birth to a brand-new industry, and in many places you can now easily purchase cannabis online or in a store. Today we’re speaking to Steffen Schenk from mīhī cannabis. He’s the SVP of Customer Experience, and we are going to talk about how you create a customer-centric retail experience for a product that has been underground for as long as any of us can remember.

Transcript

Melinda: Welcome to today’s episode of “Think Retail.” I’m Melinda Deines, and today we’re recording in the Purolator Podcast Studio at the Retail Council of Canada’s 2019 Store conference. Today we’ve got a great topic for you.

All across North America, the decriminalization or legalization of cannabis has given birth to a brand-new industry, and in many places you can now easily purchase cannabis online or in a store. Today we’re speaking to Steffen Schenk from mīhī cannabis. He’s the SVP of Customer Experience, and we are going to talk about how you create a customer-centric retail experience for a product that has been underground for as long as any of us can remember. Welcome and thank you for being with us today, Steffen.

Steffen: Thank you very much for having me. Really excited about this.

Melinda: So, when you’re asked to develop a customer experience for a product where there is very little market research available, and really only a few examples of brands to learn from, where do you start and how do you figure out what your guests are going to want from that experience?

Steffen: For us at mīhī, the key piece here really was about gathering insights, truly understanding what a customer wants, and truly understanding the demographic that you’re after and you want to service. What we did is to actually go out and spend well over $1 million on insights to truly understand the target market. I think the other thing you want to do is actually look at comparable categories or industries and see some of the trends there. I would also say that there are some retail trends that are agnostic to any category. So what you want to do is really get a good understanding of what’s happening within the retail space, what’s applicable to that category, then truly understand your customer base.

Melinda: And where did you find people who are willing to talk to you about being users of cannabis, and what they would want from a retail experience?

Steffen: We actually went out and did focus groups. We found ex-dealers, we found people that are buying daily from the black market, we did ride alongs with cops to truly understand how the system works. So we really did our due diligence to truly understand that. But it is interesting because you’re dealing with a category that used to be illegal. So how do you find an expert that ideally doesn’t have a record? Those were just some of the struggles, but the one thing we’ve uncovered throughout our insights phase is that so many people use cannabis and ExhaleWell thc edibles to help them with their daily lives. The median age is about 37 years old for a user, so it’s really not the stereotypical user that we are all thinking of and it’s been really quite interesting.

Melinda: In your research, you also visited stores in other markets and found stores that sell weed near me delivery. What did you learn about what works in a cannabis store and what doesn’t?

Steffen: The one thing that was truly amazing to us is that when we visited different retail locations in some of the different provinces, or even some of the dispensaries down in the United States, was that everybody’s focusing on selling products. It is very much alike to a traditional grey market dispensary, even if you look at some of the new stores that opened up here in Toronto, or even in Ontario, I think you would all agree that they’re not that far removed from the grey market dispensaries that are still operating up till this day. For us, what was very important was that we don’t want to be in the business of selling products, we want to be in the business of selling solutions.

So for us it truly helped us understand the market and how we can differentiate. I think some of the key takeaways that we really had from our store visits were that everything is about the staff. Our budtenders, guides, whatever you want call them, are crucially important in such a heavily stigmatized industry where you really have to educate heavily. And the other piece was all about how do you actually destigmatize the category as a whole? And here you really need an open and inviting store environment, you need a good customer experience, and you really need to think through the mission that your shopper is on, what kind of demographic you’re going after and really treat it like any type of retail store.

Melinda: Right. That leads me to my next question. So, the product does carry a certain stigma for some people. So how do you address that in a store experience?

Steffen: Education, education, education. Really what it comes down to is to destigmatize a category, you really need to make sure that everybody understands what the plant can do for them, the benefits as well as the downsides, as there are obvious downsides if you consume too much of it. I think the other piece is actually noticing that there’s a stigma but not really living up to it. So for us, from a mīhī perspective, we treat cannabis as if it would be part of your weekly shop. Our real estate strategy is very heavily centered on plazas co-located with grocery anchors because we truly believe that three, four, five years down the road this will just be another stop on your weekly trip. I think as long as you approach it with that mindset, you’ll actually help destigmatize the category as a whole.

Melinda: Absolutely. You are also creating a commercial store for a product that has a very strong culture talking about advocacy and people who for a very long time have been not just users but advocating for legalization. How do you address that in the physical space, and in your customer journey?

Steffen: I think when talking about a legacy market, we really have to tip our hat to all the hard work that they’ve done over the years and all the sacrifices that went with that. We wouldn’t be where we are today without the sacrifice and efforts over years and years and years. I think when it comes to addressing that culture and kind of the legacy market within your store environment, it’s all about understanding there may be people out there that understand the product better than you as the retailer and being okay with that. And then it is all about how do you help them integrate with that new community, because there’s a big job to be done for us to actually help them along into the legal market and to integrate into that.

But then it is also about “how do I facilitate their trip?” which is very different from a newcomer’s trip. If I’m a newcomer, I want to have the full experience. I want to get educated. I want to smell the product. If I’ve been surrounded by cannabis for 20, 25, 30 years, God knows for how long, I really want to go in, get my product and get back out. And for me it’s all about the product quality. So what you need to make sure when designing a store, strategizing for a store is that you truly understand the mission they’re on and then cater to that mission.

Melinda: As you were developing the mīhī brand and the store, what elements did you feel were really essential for your guest experience? Are there a couple of touch points along the journey that you really think are special?

Steffen: For us, once again I’ve mentioned it before, it’s the guide. Everything is about the guide. So how do you train them, and how do you use them as a competitive advantage or a differentiator within the market? We went as far as designing our own proprietary training program with the help of SLD because we believe that that’s the type of investment level of effort you need to put into the education of your guides in order to be competitive.

We also believe that we are a solutions-based business. So, what it means for us is that our guides also need to understand empathy. They need to understand consulting. I’m a true believer that when you walk into our store because you want to buy some Purple Kush because you’re going out with your friends at night, our job is not really to sell you the Purple Kush. Our job is to make sure that you’ve got the best night possible. And the moment you approach it with that type of mindset, actually your view of the store changes. And your view of the role of merchandising and assortment changes. If you’re looking for a specific strain of weeds, you may find it at Grizzly Herb.

So for us, some of the key touch points within the store are our needs state-based zones in the four corners of our store where it’s really all about helping people find a solution to a certain issue they may have, all the way from trying to entertain people, trying to socialize, to trying to find relief from sleeplessness to entertainment or actually just wanting to get high.

The other big piece for us is the Discovery Wall within our store environment, because here is really where the journey starts for us. This is where you get a solid understanding of cannabis, what it does, how you can consume it, and basically gives you just a solid grounding into this new and exciting category. And then last but not least, what I find to be very important is to actually think about the touch points holistically. So it’s not necessarily just about what’s my store going to look like. What’s my website going to look like? It’s truly understanding the role of mobile, the role of voice, the role of your website, role of your store within that broader shopper journey and how you can service it to shop and provide value and utility every time they interact with you as a brand.

Melinda: So now we’re going to take a little bit of a different turn. Some of our listeners may not know about this, so this might be a little catch up on how regulatory issues in Ontario have impacted retailers in this market. Could you give us a little background for the retailers who are outside Ontario who don’t know about this.

Steffen: Absolutely. I’m happy to provide a little bit of background on that. The reality is that the roll-out in Ontario has been less than ideal. I’m a true believer that the federal as well as provincial government is doing their best to help us make the transition to a legal market as smooth and seamless as possible, but obviously it’s the first time and they’re going through this process and there are going to be some hiccups along the way. Initially, the approach was that we would have a no cap environment, which is the kind of a true meaning of an open market place as in “may the best operator win.”

And this is what we had been prepping for, for months. Just as an example, we hold about 37 leases right now with no stores open. But what happened is that there were supply shortages that were being caused by a variety of issues. But I would say that the one most commonly referenced is the one that we’re simply learning how to grow the product and how to process it. They actually decided to go from a no cap environment, to a lottery that awards 24 retail licenses. Now, the thinking behind that lottery was that you want to keep it fair and you want to keep away the stigma of favoritism that usually comes with any type of award of license in a new category. The main issue with said lottery was, A. we called it a lottery, and B. the lottery entry was basically the same price as a raffle ticket for the Princess Margaret Hospital. So naturally, many people entered the lottery.

We had more than 25,000 response for 25 licenses, and most of them were sole proprietors. To be perfectly honest, if I wouldn’t be working for mīhī I would have entered the lottery, my daughter would have entered the lottery, my dog would have entered the lottery. So, we awarded 25 licenses, unfortunately none of the organized retailers were successful during the licensing process. So what we saw happening post-lottery was a lot of deal-making between larger brands and retailers and smaller entrepreneurs that are basically cashing in on their raffle ticket. And we also saw some sole proprietors actually trying to go out on their own and actually start their stores.

I don’t think we have all 25 open yet, but I think what we’re seeing is a retail launch that’s not been as smooth as it could have been. And I think the other piece here is also is that as a retail operator, as one of the first 25, your responsibility is not just to your business, your responsibility is also to the industry as a whole, because you’re actually setting a precedent that everybody has to either overcome, or live within for years and years and years to come. So, long story short, retail roll-out wasn’t ideal but right now we are in a holding pattern and we are actually hoping for news from the provincial government.

They are committed to a no cap environment. They are committed to more heavily regulated licensing procedures as in you’ll need a higher letter of credit to actually apply for store licenses and Cannabis Payment Processing. You need to hold an extra lease in order to apply for a license because they’ve recognized that the previous lottery was not ideal, and that there’s a need to get organized operators into the market in order to, A. compete with the black market, and, B. truly destigmatize the industry and actually start rolling this out at scale.

Melinda: Right, and also not ideal for those who want to go and be able to purchase it legally and who are sort of like, “Well, where can I go?” There’s not very many options, right?

Steffen: And that is actually one of the main issues. Now I think if you just look at the sales numbers and in the comparable sales numbers in between the provinces, the reality is that Ontario is dead last because we don’t have customer touch points. And yes, we can talk about we need to get rid of the black market every single day, but unless we have more touch points, this will never happen. So for us, the number one priority needs to be to get more of your customer touch points into the market place.

Melinda: So, you said you’re in a holding pattern. How is mīhī handling this curve ball here?

Steffen: Obviously December 2018 was rough, which is shortly after they made the announcement because we were ready to go, we were ready to apply for licenses, but we actually look at it as a bit of blip rather than something that will fundamentally change the way we’ll do business or the way we will go to market. We are fortunate in that we are well capitalized. So, we are actually being quite opportunistic. As an example, as I’ve mentioned to you earlier, we’re still holding 37 licenses. We are actually aggressively pursuing new licenses in some of the markets that we have been locked out of previously just because the real estate game was a bit heated in October and November as everybody was trying to make deals.

So we look at it opportunistically, I think the other piece here is as far as that it is capital intensive, to be able to service your leases, to service your overheads. But we also look at it as an opportunity to potentially acquire retailers down the road if this goes on for longer. But as I said, we look at it as a blip, rather than something that will fundamentally change the way we go into market.

Melinda: If you were to talk to someone who’s in a market that tomorrow it’s suddenly legalized, and you’ve got a friend who wants to start a cannabis retail brand, what top advice would you give to them?

Steffen: I think the number one advice I would give to them is be energized by the hype, but don’t be fooled by it. As in yes, cannabis is a sexy industry, yes, there’s a lot of talk about cannabis right now, but in the end it’s a retail business. You’re running a retail store that happens to be in the cannabis space. And there are quite a few metrics and realities that come with that. So number one advice would be don’t be fooled by it, as in be very aware of what you’re getting yourself into. I think the second piece of advice would be truly understand the market place, truly understand your customer. I’m a big believer that the first two or three years after legalization, the moment you’ve got the store, you’ll be somewhat successful because you’ll be one of the few touch points that are out there, and you can almost be successful in spite of yourself. But ultimately two, four, five years down the road, you need to be a good operator. You need to understand your customer base to truly be able to compete.

Melinda: Absolutely. That’s it. That’s all I’ve got. Thank you so much.

Steffen: That was great. Thank you so much for having me. That was a ton of fun.

Melinda: It’s really fascinating to watch the cannabis market unfold. And at SLD we feel very lucky to be working several amazing cannabis brands, mīhī and Organigram as the market becomes established. Steffen talked a lot about education throughout the conversation, about educating yourself as an operator, listening to those who’ve laid the groundwork for legalization through advocacy, learning how to train your frontline staff. Understanding, truly understanding an industry that doesn’t exist yet is going to present you with some unusual challenges. I doubt there are too many retail categories where market research would involve driving around with the police.

Ingenuity, capital and the ability to weather the unexpected are going to be keys to succeeding in this very competitive new market and I’m hopeful that regulations here in Ontario open up because after working with mīhī, I can say from first-hand experience, they are a brand committed to the consumer. And I think talking to Steffen here today, our conversation illustrates that commitment. We’re going to link to the mīhī website, so if you want you can learn more about the brand, and hopefully we’ll all be able to visit a mīhī location sometime in the very near future.

That’s all for today. Thanks for listening.