Grocery is on track to miss out on one of the biggest category launches in a decade, letting the spoils of the burgeoning CBD market go to the convenience channel, says Thom Brodeur, CEO at Sky Wellness, a Scottsdale, Ariz.-based company specializing in THC-free CBD products.
While grocery has lagged in bringing CBD products to market, as several major chains dip their toes into THC-free products, the tide may be turning.
Sky Wellness is currently scheduled to roll out to several thousand major grocery locations by year's end, and more than 10,000 total retail locations across all channels, including grocery, by the end of 2021.
To find out why grocery has yet to make the most of the rapidly expanding market for CBD products and what the industry can do to stake its claim in this profitable sector, WGB recently sat down with Brodeur to get his take and five tips on making grocery a CBD destination. The following has been edited lightly for clarity.
Jennifer Strailey: Unlike the convenience channel, which is off and running with CBD products, grocery seems hesitant to embrace the category. We also continue to hear there’s confusion around what’s allowed and what isn’t with CBD products in the marketplace. What’s your take?
Thom Brodeur: What we’ve found in our journey as a brand or as a portfolio of brands in the category is that grocery and drug have been slower to move in the category than convenience.
I think there’s a couple of reasons for that. One is that there’s no real federal guidance around the CBD category. In December 2018 the Farm Act was passed, which said CBD is good and you should be able to grow it and make hemp-derived CBD products for the market. But much like the THC cannabis side of the industry, states get to make the decisions they want to make about how CBD is regulated in consumer packaged goods.
We’ve seen convenience lean into this category because they take more risks, whereas grocery and drug tend to follow the bouncing ball of FDA regulation, and because there’s been very little FDA regulation in the CBD category, they’ve been slower movers.
Those grocery retailers who have taken early-adopter steps in the CBD category in last 24 months didn’t have a lot of choice in terms of what brands they took in or what brands they didn’t because there’s still quite a bit of Wild, Wild West in this category. There’s still a lot of mom-and-pop shops whipping up CBD oil in their second bathtub and sticking a label on it and saying, "Gosh, I know Bob who’s the category manager for consumables at Safeway; let’s see if I can get my stuff in the door."
What we found is that some of the early bets that grocery made were made on companies that didn’t have fully supportive infrastructure to be able to maintain an appropriate inventory cadence, to be able to support in-store marketing, to support exterior foot traffic marketing to actually drive consumers to the category. These were mistakes that were made early on by a lot of retailers including [those in] the grocery channel.
The second thing we’ve seen [that’s deterred the growth of CBD in grocery] is that the category is kept behind lock and key. There’s all this shrink fear and concern and this idea that it’s going to be a higher-theft item. Because of that, CBD hasn’t been highly accessible to the consumer.
Sky Wellness is about to launch in hundreds of major U.S. grocery stores. What approach have you taken in bringing CBD products to grocery?
We took a very strategic pause. Ninety percent of our competitors are e-commerce first and retail is an afterthought. I wanted to go in the complete opposite direction of that because distribution in retail at a mass level is as valuable as the tens of millions of dollars in digital marketing spend those e-commerce-oriented CBD brands have spent their time and money on.
My view was if we take a slower walk to the market and we approach retail as our go-to-market strategy with e-commerce as the backup singer to that strategy, it will allow for a couple of things—No. 1 it will allow us to take a more thoughtful approach to R&D, product development, and the science that needs to go into that product development to make more-conservative retail partners comfortable.
The second piece is our COO Toby Noiles, who has spent 30-plus years on other side of table at Safeway and Sam’s Club. She’s a very gifted c-suite executive in grocery, c-store and big box, mass-market retail. Having a person on our leadership team who is a powerful advocate for the retailer because she has been a retailer has been invaluable.
Thirdly, we have one of largest legal matrices there is in this industry to understand [state-by-state] regulations, so when we go into a retailer who has 1,100 stores, we can tell them what markets they should focus on and what product assortment will work in those states.
What are your five tips for grocers looking to break into or expand in the CBD category?
1. Lean in. Grocery is being too conservative, and c-store and drug are going to beat them in the market for consumer mindshare.
2. Don’t lock it up. Early grocery retailers who’ve participated in the category have put all CBD under lock and key to prevent shrink. What have they done? Prevented sales.
3. Make bold choices on assortment. Another mistake this channel has made historically is to only take skincare and topicals; the consumer is asking for access to their gummies and soft-gels and other ingestible products that they can now buy from competitors in other channels. Listen to your consumer, and if you are risk-averse, have your CBD partners support you with buyback or takeback programs—make them stand behind their products and your reputation.
4. Mix it up. This goes back to assortment. Grocery retailers have been too thin on their assortment, typically three to four SKUs. Get half-a-dozen to a full dozen SKUs per CBD brand into your stores and place the products in multiple locations to see where your customers’ feet do the walking. We recommend three locations: the pharmacy area, the OTC area, and the register for impulse products like CBD lip balms, etc.
5. Promote it. Don’t be afraid to go big on your CBD investment by including it in your circulars, in overhead in-store radio and audio advertising and in big directional signage. Let your customers know you’re in the CBD business and put some volume to the promotion and in-store marketing. This is a new category—an opportunity for grocery to create loyalty in a new segment and among a generationally diverse customer set.