Focusing your cannabis retail strategy for 4/20

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February 22, 2021
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Introduction

April 20th (4/20) is the biggest day of the cannabis industry. For most people, it is a day to celebrate cannabis culture and to further the fight against prohibition, but for cannabis businesses it is a critical sales opportunity to maximize. 4/20 has been the single biggest day of sales each and every year since the recreational cannabis market began. For example, sales on 4/20 last year were nearly double that of the average sales on the previous four Mondays. Purchasing cannabis is clearly one of the most integral parts of the 4/20 celebration to many cannabis consumers in recreational markets.

The holiday this year will be our second 4/20 during a pandemic, which allows us to use last year's trends to predict similarities and differences to previous years. This report will help cannabis retailers prepare for 4/20/21 by not only examining the long and short-term trends of previous 4/20s, but by also diving into the importance of different types of customers based on our Recency, Frequency, Monetary Value model (RFM) available in Retailer Premium, in order to create targeted and more effective promotions for the holiday. To better prepare for 4/20 this year, sign up for a demo of Retailer Premium and learn how you can attract more customers to your store.

Executive Summary

Looking at previous 4/20s, we find that average daily sales during the week of 4/20 has steadily increased since 2016, with a 31.6% increase in sales during the week of 4/20/2020. Despite 4/20 falling on a Monday in 2020, it was still the biggest day of sales during the week by $9M. Larger baskets and more customers were the main drivers of sales growth, indicating the importance of creating promotions that are targeted towards your customers. For example, using our customer segmentation dashboards in Retailer Premium, we found that the most loyal customers (or 'Champions'), contributed 50% of all recreational sales in the four weeks leading to 4/20 in CA, CO, NV, OR, and WA, but the sales share of this customer segment dropped to 36.8% during the week of 4/20. New and visiting customers, on the other hand, had the largest increase in sales share from about 30% to almost 40% of total sales during the 4/20 week. Using information like this, cannabis retailers can better understand their customer base and create promotional campaigns that will bring more customers through the doors during the holiday week.

Methodology

This report examines 4/20 retail sales data from our Insights Premium markets in the US: CA, CO, NV, OR, and WA. The data in the graph on slide 8 titled "Sales share by RFM customer segment" is sourced from a subset of retailers in CA, CO, NV, OR, and WA that collect customer data, primarily through the use of loyalty programs.

4/20 sales growth since 2016 in Colorado and Washington

AVERAGE 4/20 WEEK INCREASE SALES AND DISCOUNT (CO, WA)

Let’s start by looking at some long-term sales and discounting trends during the entire week leading up to and including 4/20 (4/14 through 4/20), and compare to the previous four weeks. On this graph we can see that in Colorado and Washington, the two most mature recreational cannabis markets, the lift in average daily sales has steadily increased over the last five years, all the way up to a considerable 31.6% increase last year. The trend in discounting is less linear, but it seems that a relative increase between 20% and 30% is likely to continue.

Why we look at sales for the whole week of 4/20

PERCENT OF TOTAL 4/20 WEEK SALES AND AVERAGE DISCOUNT ON 4/20 (CO, WA)

In the first graph we examined the entire week of 4/20. Why? We can see here that in the last two years, and especially in 2020, the importance of the actual date of the holiday itself has diminished significantly. In 2018, when 4/20 fell on a Friday, the holiday captured nearly one-third of the entire week’s sales. That value fell closer to one quarter of sales in 2019, and then dropped off drastically last year to less than one-fifth of the week’s total sales. This lessening of proportional sales on 4/20/20 was likely due to the COVID-19 pandemic, since customers were less inclined to gather at stores and wait in long lines due to social distancing guidelines. The fact that 4/20 fell on Monday last year also certainly contributed to this trend, as Mondays are typically one of the lowest days of sales in any given week.

Retailers should expect a similar trend in 2021 as we are still living through the pandemic and, while vaccinations are rolling out, it is likely that social distancing guidelines will still be the norm in mid-April. Additionally, 4/20 will fall on a Tuesday this year, which is another traditionally light sales weekday.

4/20 sales and discounts in 2020

4/20 WEEK SALES AND AVERAGE DISCOUNT BY DAY (CA, CO, NV, OR, WA)

To continue our analysis let’s look at 2020 more closely, now expanding the dataset to all five of Headset’s US Insights Premium markets: California, Colorado, Nevada, Oregon, and Washington. On this graph we can see that despite the pandemic and the fact that it fell on a Monday, 4/20 was still the biggest day of sales by nearly $9M.However, we also see that both sales and discounts were trending up during the week, with Friday (4/17) showing strong sales and relatively high discounts (13.9%),indicating that 4/20 promotions were probably already underway at many retailers.

Knowing this, retailers should not wait to launch 4/20 promotions on 4/20 itself, because they will have already missed out on considerable holiday-driven revenue from earlier in the week.

What contributed to sales growth on 4/20?

4/20 WEEK BASKET METRICS (CA, CO, NV, OR, WA)

We know that the week of 4/20 saw huge growth in revenue last year, but how exactly did that happen? On the table above we can see one thing that definitely did not contribute to the sales increase: more expensive products. The Average Item Price during the week of 4/20 was exactly the same as it had been during the previous four weeks.

The big contributors to growth were larger baskets, which in turn was driven exclusively by an increase in the average total items customers purchased per basket, as well as a 22.5% increase in total transaction volume. There were simply many more customers walking into recreational cannabis shops during the week of 4/20 than there had been during the previous four weeks.

More customers and more baskets means more opportunity, which makes it even more critical to target your marketing campaigns and promotions as strategically as possible.

How to target key customers: RFM segmentation

GEN Z 2019 VS 2020 CATEGORY WALLET SHARE BY GENDER

Now that we have a general idea of what will drive sales on 4/20 this year, and when those sales increases are likely to occur, let’s discuss a new strategy to target specific groups of customers during the big holiday week. Headset’s Customer Segmentation module in Retailer Premium allows you to use our RFM model to better understand and engage your customers.

RFM stands for ‘Recency, Frequency, and Monetary Value.’ The model we use gives customers scores based on how long it has been since they last visited your store (recency), how often they have visited your store in the last 365 days (frequency), and their total spend at your store in the last 365 days (monetary value). Based on these scores, customers are grouped into meaningful segments as shown above.

For example, ‘Champions’ are customers that have visited very recently, shop frequently, and have the highest value of all customer groups. ‘Loyal’ customers, are the next highest value group, spending large amounts and coming to your store frequently. With a little extra enticement to come to your store regularly, you should be able convert customers from the Loyal segment into Champions.

Sales share by RFM customer segment

SALES SHARE BY RFM CUSTOMER SEGMENT (CA, CO, NV, OR, WA)

For this analysis, we look at the aggregated data from a sample of retailers in CA, CO, NV, OR, and WA that collect customer loyalty data. We can see that during the four weeks before 4/20 last year, Champions contributed a whopping 50% of all sales despite being only a small portion of total customers. During the week of 4/20Champions were still a critical customer segment, but less so than during the previous weeks, with their sales share dropping to about 37%.

New and visiting customers had the largest increase in sales share, jumping up from about 30% to almost 40% of total sales during the 4/20 week. This indicates that we should expect much of that increase in transaction volume to be driven by visiting or extremely occasional shoppers who will decide to participate in the 4/20festivities, even if they aren’t frequent cannabis purchasers.

4/20 does appear to be a great time to engage Loyal customers as well as customers in the less ‘valuable’ segments, as last year we saw a significant rise in their sales share during the week of 4/20.

Promotional strategy suggestions by segment

With that context, allow us to suggest some data-driven strategies to help engage your customers on 4/20 this year, whether they are your best regulars or have never been to your shop before.

Champions:

You shouldn’t need to entice your Champions with special discounts or deals, since they are likely already looking forward to celebrating 4/20 with a purchase at your store. However, exclusive early access to a new premium product could help cement their loyalty even further. Giving too steep of a discount could lead these customers to stock up while prices are low and ultimately result in lost profit.

Loyal:

These customers are second only to your Champions in importance. Offer them a special deal, like a discount on their favorite category, to help them convert into Champions in the near future.

Potential Loyalists:

These customers have come to your store recently but are not yet heavy spenders. Offer them an exclusive discount to build positive association with your business.

Can’t Lose:

These customers are high spenders but have lapsed in their return visit cadence. Pull out the big guns to encourage them to revive their relationship with your business. Consider a bigger discount than you would consider for anybody else to get them back.

New Customers/Visitors:

As we saw in the previous graph, these customers, most of whom have never visited your store (or at least aren’t committed enough to join a loyalty program), are going to drive the bulk of your 4/20 sales. How can you make sure that you capture their spend rather than your competition ?As we saw throughout the report, much of the 4/20 sales lift and discounting will begin well before the actual day of the holiday. Use your most effective marketing channels to make sure that every possible customer knows what special products and deals you’ll be offering. Finally, make sure to start these promotions early! Friday(4/16) and Saturday (4/17) will rival 4/20’s sales this year, so don’t wait to start your promotional party. Also, don’t forget to offer your new customers a reward for signing up for your loyalty program, then hit them quickly with a discount for a return trip. Converting onetime shoppers into return purchasers is critical to driving revenue.

Conclusion

It’s obvious that 4/20 presents an important opportunity for your business to drive revenue. 4/20 is notoriously chaotic for cannabis retailers, but remember, you can simplify your retail strategy by focusing on a handful of core customer segments. Ready to build your most successful 4/20 strategy yet? Sign up for a demo of Retailer Premium today and discover more opportunities to succeed.

Key Takeaways

• The sales lift during the entire week leading up to and including 4/20 has increased year after year.

• The importance of the specific day of the 4/20 the holiday decreased last year, likely due to the COVID-19 pandemic as well as the day of the week it fell on (Monday).

.• Begin your 4/20 promotions and festivities well before the actual holiday, at least as early as the preceding weekend, to make sure that your most loyal customers don’t decide to shop elsewhere when it is more convenient.

• The sales increase during the week of 4/20 last year was primarily driven by an increase in total transaction volume, meaning there were simply more customers shopping that week than during the previous month.

• Champions drive the majority of your revenue most of the time, but new and/or visiting customers will be the ‘champions’ of your business’s 4/20 this year.

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Category Data
Basket Trends and Analysis
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Sales Analysis
Sales by Weight
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