This report exists to help retailers and their suppliers better understand consumer behavior. It examines consumer spending patterns by breaking down baskets—the items purchased in a single visit—into granular data points. What individual price points go into overall basket spending numbers? What items from which categories are most frequently bought together? How many items are in the typical basket? This report answers those questions and more.
Topline sales numbers are straightforward. They tell you how a business is doing, but — and this is a big but when it comes to something as nuanced and complex as the cannabis industry — only very generally. While we of course keep close track of topline sales, as they’re the quickest way to understand overall sales performance, we’re also interested in the many component figures that go into that number. To truly understand how a business is doing, you must look at everything from total number of baskets to how many items are purchased in each basket and for how much.
If one of these numbers changes, topline sales can change drastically. Furthermore, each number depends on specific consumer behaviors. This report is dedicated to understanding those behaviors as they relate to the various stats that contribute to topline sales numbers. The four key metrics we examine are Number of Customers, Average Trips Per Customer, Average Items Per Basket, and Average Item Price (AIP). Each of these statistics has its own story to tell and can individually contribute to higher topline sales. A helpful way to think of this is that the number of baskets, which is composed of the number of total customers and the trips per customer, multiplied by average basket size, which is composed of AIP and Average Items Per Basket, gives you topline sales. Changing any one of these inputs affects the overall formula.
For example, we see that most customers purchased at least two categories last year, which demonstrates the importance of maintaining a diverse menu and introducing customers to new categories. Upping the number of categories per purchase is effectively the same as upping the Average Items Per Basket. We also see that discounts play a role in how many items people buy, in that they either drive people to buy low-priced, discounted single-serve items, or more items overall.
Beyond the basic metrics, we’ve also provided a detailed analysis of category sales across baskets, as well as demographic purchasing patterns. This report focuses on those individual baskets, but also the individuals carrying them, to extend the metaphor.
We hope that anyone reading it will leave with a better understand of what consumers want to buy, what they’ll spend, what impulse buying looks like, and how purchasing patterns differ across stats. There’s plenty of data on all those topics, so dig in and learn!
Data for this report comes from real-time sales reporting by participating Washington State, California, Nevada, and Colorado cannabis retailers via their point-of-sale systems, which are linked up with Headset’s Data Analytics Platform. Demographic data is from voluntary participants in store loyalty programs. Those data are cross-referenced with our catalog of over 330,000 products and $4.5 billion of transactions to provide detailed information on market trends.
Headset’s data is very reliable, as it comes directly from our partner retailers. However, the potential does exist for misreporting in the instance of duplicates, incorrectly classified products, inaccurate entry of products into point-of-sale systems, or even simple human error at the point of purchase. Thus, there is a slight margin of error to consider.
First off, we wanted to see who was making the purchases we’d be examining. The bands in this chart do not differ much from what we’ve reported in previous occasions. Millennials carry the bulk of the market share with ~50%, with Gen X and the Baby Boomers holding even parts of it, around 24% each, and the Silent Generation and Gen Z offering up their tiny bookends.
However, our second chart is what’s more interesting, when it comes to the demographics of cannabis. It’s no secret that Gen Z will be the next big consumer base for pot. Their cannabis-loving forebears, the Millennials, portend it. But here we see it playing out in the numbers: Gen Z has more than tripled their market share in a year, as more and more of them turn 21 (the purchasing age for pot in all US recreational markets). This trend will only carry on—the older they get, the more of them can buy pot—and anyone looking to the long-term in the cannabis industry would be wise to keep paying attention to Gen Z.
The following graph should be interesting for both retailers and their suppliers, as it illustrates what, consumers want, and how that’s changed over time. Flower, as we’ve noted many times before, has seen its role diminished, while vapor products like Concentrates and Vapor Pens have made gains. Flower is not totally dead, of course, with a presence in 49% of baskets in 2019, and steady gains made by the Pre-Roll category (up to 27% of baskets in 2019 from 3% in 2014), but the increasing appeal of non-combustible products cannot be denied.
Interestingly, the presence of Edibles in baskets has declined, with only 9% of baskets containing them in 2019, as opposed to 15% in 2014. This could be tied to the decline of Flower, as early cannabis markets consisted of pretty much only Edibles and Flower. Indeed, Beverages, Tinctures & Sublingual's, Capsules, and Topicals were all excluded from this chart, as they had no significant change in market share. And they’ve also failed to gain much, despite becoming more diverse within each category—they all still holding at around 1% to 2% basket penetration
Looking at loyalty program data can be revealing, because it offers us insight into how many times each customer comes into a store, once they’ve signed up for a loyalty program. Unsurprisingly, most loyalty program participants whose data is reported have come in for 1 to 3 visits. There are probably plenty of people who sign up just to get a one-off sweetheart deal, and don’t have any intention of becoming a regular customer.
However, about a quarter of the market comes back four times or more, which is promising. Those customers can be considered loyal, and their multiple visits will drive up topline sales. Likely, those customers had some experience other than getting a signup discount that encouraged them to join the loyalty program. It can be surmised that they’re the ones who signup because they plan to return and want to accumulate points or keep informed about upcoming specials. Just as in the bar & pub business, regulars can be created and cemented by engaging with the local community, and working with staff to ensure warm, personable customer experiences. Any store that enjoys more than 33% repeat business from its loyalty customers should consider itself successful at this.
Less than a third of consumers only purchased products from one category in 2018. This should catch the eye of anyone who sells anything other than Flower, Pre-Rolls, Vapor Pens, and maybe Edibles, as it presents enormous opportunity to sell add-ons. Add-ons are any product that consumers purchase in addition to the product that brought them to the store. A very stereo typical example of this would be the consumer who comes in for an eighth of flower, discovers that there is such a thing as 1:1 CBD:THC chap stick, and throws a roll in their basket.
This means that brands are not limited only to converting new customers to their cause, especially brands that make less traditional products. Instead, they can strive to engage with customers who are already coming into the store and buying common products. For example, a little under 40% of recreational cannabis consumers purchased an Edible last year, which means Edible manufacturers have a great opportunity to work their way into more baskets.
Distribution of basket size by state varies significantly and has a lot to do with the regulatory landscape in each state. California, the youngest recreational cannabis state, shows a wild spike thanks to a sell-off that was forced by new, stricter consumer safety regulations in Q2 of 2018. Other legal states, like Colorado and Nevada, have had relatively constant basket sizes, based on where they started, while Washington has seen a sharp decline after their 1st legalization year and is relatively stable ever since.
The Washington market likely dropped in price because it quickly conquered its initial product shortage, and its unique tied house system, which prevents growers and processors from possessing an interest in a retail outlet, forcing brands to compete fiercely on price. Colorado and Nevada both allow vertical integration, allowing cannabis companies to compete on quality and sell at whatever price they think that will earn them customer loyalty in their local market, instead of pressuring suppliers to provide lower prices for better weed, As seen in the graph below March 2019 average baskets sizes by state were: CA $68.70, NV $62.11, CO $59.45, WA $31.16.
As should be expected, with a maturing market and increasing brand diversity, the Average Items Per Basket number is going up across the board. Washington, Colorado, and Nevada have all climbed steadily since 2014 and 2017 respectively, and all sit at between 2 and 2.4 items per basket currently. California started higher than all other states, perhaps due to its novelty, but experienced a sharp decline after the selloff in June 2018. Consumers were, we would presume, flooding into stores to buy cheap flower that had to be sold, driving a reduction in basket category diversity.
Overall, however, consumers are purchasing upwards of two items per trip, which is a drastic shift from early legal cannabis buying patterns. Where people once came in for a single ounce of Flower, they now spread their dollars across Edibles, Concentrates, Topicals, Vapor Pens, and any number of other categories. This could be due to increasing consumer awareness of different categories, or the simple fact that more non-traditional products exist post-legalization than ever before. Legalizing cannabis opens it up to industrial innovation, and suppliers have gone to town. Average Items per Basket by state in March 2019: NV 2.42, CA 2.25, CO 2.20, WA 2.07.
How do we tell what’s an item that brings people to the store on its own—a “trip driver” and what’s a “trip passenger,” or something that’s typically added into a basket alongside other items? Easy: Look at how often a given item appears in baskets alone. This chart shows the percentage of sales for each category that go to single-item baskets, multi-item/same-category baskets, and multi-category baskets. Looking at single-item baskets and multi-item/same-category percentages together gives us an idea of how frequently that category functions as a trip driver
The graph descends from trip drivers at the top to trip passengers towards the bottom, with Flower being the principal trip driver and Beverages being the most frequent tagalong. Over75% of Flower sales go to baskets that only include Flower products, while 65% of Beverage sales go to baskets that include other categories. This makes sense, as Flower is the oldest, most common form of cannabis consumption, while Beverages are still very much a novelty. There are probably plenty of consumers who discover that infused Beverages exist for the first-time when they come in to buy Flower and see a fridge by the register.
Understanding how discounts affect consumer purchasing habits is key to applying them. Looking at the number of items per basket in relation to the total discount applied to each basket, we see that more discounts mean more items. The discount trendline is not sharp, but it clearly rises as the number of items in the basket rise. We also see that over half of all baskets are multi-item baskets, which is good news
The most interesting aspect of this graph, however, is how AIP affects the number of items per basket. The two most pronounced dips in AIP come at the opposite ends of the spectrum, in single-item baskets and baskets with 11+ items. This suggests that, while low-priced items motivate consumers to purchase more at once, there is also a large segment of the consumer base that is budget conscious, coming in for a single low-priced item. Pre-Rolls are the most likely candidate here, as a $3 Pre-Roll is pretty much the equivalent of the 24oz cans of beer that line the coolers at 7-11.
First off, being able to talk about “baskets” at all in the context of cannabis is noteworthy. A few short years ago, people did not buy products, they bought pot. In baggies, in jars, or in my lar bags; it was all just flower and often sold in bulk. Many states still allow this. But the legal states have developed into sophisticated markets, boasting a cornucopia of unique cannabis products. And just a few years in, we’re seeing marked trends in how those product categories interact, and how consumers navigate them.
Given where the market came from, it’s no surprise that Flower is still the principal trip driver in the cannabis economy, but an entire industry of impulse buys has sprung up alongside it. Consumers might not be flocking to stores just for Topicals, but they are curious enough to toss them in alongside whatever eighth they came to buy. Edibles also enjoy great success as an add-on. The theme, overall, is that combustible or vapor products tend to be trip drivers, while anything you eat or apply to your body is going to be more of a bonus buy. This should inform everything from the way discounts are structured—half off brownies with the purchase of a new Vape Pen, for example—to the way stores are laid out. The “Chapstick by the register” trick isn’t just for gas stations!
Looking into some of the other numbers that inform topline sales, we see that a lot of the industry’s success has been from getting more items into each basket. Average Items Per Basket has grown consistently over the years, except in California, which is an outlier. This explains how state markets can continue to expand, reaching into the billions, while also seeing a generally downward trend in AIP. Stores are selling more for less, essentially. This is borne out by the fact that basket sizes have stayed mostly stable, aside from an early drop in Washington. We can see this effect in action in the last chart, where low AIP is directly correlated with a high number of items in each basket.
In terms of the consumers holding those baskets, the industry still seems to suffer from a dearth of repeat customers, as most loyalty program participants have only made 3 visits or less in a 12 month period. This could change as more cannabis-focused consumers enter the market. Millennials are far and away the most avid consumers of cannabis, and all signs point to GenZ following in their footsteps. As we can see from this report, that’s going to happen sooner rather than later.
Going forward, it’s important to watch California, as the early data is volatile, thanks to regulatory foibles. More generally, the trend of Flower losing ground to other categories is borne out here in basket data, as it features in significantly fewer baskets than in 2014. This trend will likely continue apace with the entry of Gen Z, a generation raised with an even more acute awareness of the dangers of inhaling smoke, and a great deal of comfort with vapor products. But while consumers might be slowly moving away from smoking, this report suggests that inhalation is still going to be a major part of the cannabis experience, as all the trip drivers included here are inhaled products.
But while there are some interesting demographic trends on the horizon, anyone looking for success in the cannabis industry should stay focused on building repeat business, pushing addon purchases, and finding the right balance of pricing/discounts to encourage multi-item purchases. The big takeaway here is that, more than ever, the business fundamentals that drive sales in traditional retail industries do the same for cannabis.
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