Product co-occurrence: Impulse buying and upselling in the cannabis industry

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January 17, 2020
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Executive summary

This report dives deep into product co-occurrence—which products are bought together, which products aren’t, and why. It will help you understand the difference between “trip drivers” and “passengers,” and help you plan your store appropriately. Use it to push products that sell well together, understand which products are best on their own, and tap into the age old power of the impulse buy. The information contained in this report is based off of sales data collected in 2017.

What is co-occurrence & what can it tell us?

Product co-occurence is, essentially, the tracking of what products are bought together. Certain products tend to get bought solo—flower and pre-rolls, unsurprisingly—while others tend to travel in packs. Beverages, for example, are one of the likeliest of all product categories to be purchased as part of a multi-product basket.

Looking at the data on product co-occurence is interesting because it shows us that, even in the early days of product diversification in the cannabis industry, we’re starting to see the emergence of impulse buying and, to some extent, upselling. Indeed, smaller and medium-sized stores—where customers tend to have more involved interactions with a budtender—tend to have a higher percentage of multi-product baskets.

Furthermore, because Headset is able to track products by their individual SKUs, we can break down every basket we get data on to fully understand what items customers are purchasing, including when a single basket contains multiple items from the same category. A basket with three brands/sizes of pre-rolls would be a good example of this, and it’s important to multi-segment purchases within the same category from multi-category purchases in order to fully grasp trends in product co-occurrence.

Indeed, delineating the data by SKU helps us characterize each basket based on what type of “trip” it represents. Is the customer a regular smoker stocking up on flower and grabbing an infused soda because they’re already there and they might as well? Or are they a first-time user, trying things from a few different categories to see what they like?

Information like this will be especially useful to retailers for everything from basic budtender sales training to creating the perfect CBD-infused chapstick display. It also provides more general insight into consumer behavior as the cannabis market begins to broaden its offerings.

Methodology

Data for this report comes from real-time sales reporting by participating Washington State cannabis retailers via their point-of-sale systems, which are linked up with Headset’s business analytics software. This report is based on data collected from Washington state retailers in 2017. That data is cross-referenced with our catalog of over 50,000 products to provide detailed information on market trends.

Headset’s data is very reliable, as it comes digitally direct 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.

Multi-product baskets

Baskets containing more than one product made up 41% of baskets and 60% of sales in 2017 in Washington state.  Clearly, consumers aren’t just coming to cannabis retailers for a gram of flower and a pipe anymore. The large proportion of multi-product sales is representative of a burgeoning trend, as multi-product baskets have increased significantly over the past two years, from about 30% of total baskets in Jan 2015 to just over 40% in Jan 2017.

PERCENTAGE OF BASKETS AND SALES TO BASKETS WITH MULTIPLE PRODUCTS

Multi-product Baskets Continued

Though multi-product baskets are on the increase, it is also interesting to note where they are most prevalent. Some stores see fewer than30% of their baskets being multi-product, while there are others where more than 50% are multi-product.

HISTOGRAM OF STORES BY % BASKETS WITH MULTITPRODUCTS

HISTOGRAM OF STORES BY % BASKETS WITH MULTITPRODUCTS

Multi-product Baskets Continued…

Somewhat surprisingly, larger stores were not the stores with the higher percentage of multi-product baskets. In fact, the higher numbers tended to be concentrated in the small to medium-sized stores. One potential explanation could be that, because they cannot compete as well on volume, many smaller stores make an effort to offer personalized service. This translates to more one-on-one time with a budtender, which means more personal recommendations, more explanation of the different products available, and, potentially, more multi-product baskets.

PERCENTAGE OF MULTIPRODUCT BASKETS

Multi-Product Basket Trends

Our data shows some affinity between categories, and some categories that are more prevalent in multi-product baskets. Categories that commonly appear in baskets alongside other categories are likely impulse buys. Think infused cheese crackers here. Fudge, of all things, was universally purchased alongside other products and other categories in 2017. Products like these are generally added to the shoppers baskets in addition to the products which they came to the store specifically to purchase, which we refer to as “trip drivers.” We see trip drivers most commonly in single-category baskets, where one can assume that the customer came to the store specifically to purchase that item. Conversely, categories that we see only in conjunction with other categories are what we would call “passenger” categories. We can infer that they’re most commonly bought because the customer’s interest was piqued after they came to the store to buy a trip driver category. The graph below shows the percentage of baskets with each category that contain multiple items or multiple categories. Beverages were mostlikely to be purchased along with other categories—about two-thirds of baskets that contained Beverages also contained another category. This is in stark contrast to baskets that contain Flower, which was purchased in conjunction with another category only a quarter of the time.

PERCENTAGE OF BASKETS WITH MULTIPLE PRODUCTS OR CATEGORIES

Multi-Product Basket Trends Continued…

Clearly, Flower is a trip driver, while Beverages are a passenger category. Pre-Rolls are an interesting category, in that they’re something in-between. While over half the baskets with Pre-Rolls contain multiple items, only about a third of them contain multiple categories. This tells us that Pre-Roll, like Flower, is a category that drives customers to the store on its own, but that customers like to try different products/segments within that category.

As would be expected, the categories that are least likely to have multiple product baskets also have lower average items per basket, per the chart below.

AVERAGE BASKET SIZE BY CATEGORY

Multi-Product Basket Trends Continued…

The chart below offers insight into which categories tend to be purchased together, with the first, second, and third most common basket companions for a given category highlighted in green, yellow, and red, respectively. As you can see, nearly everything other than Flower is bought most commonly with Flower, with the only exception being Tincture & Sublingual, a category most commonly bought in conjunction with Edibles. Pre-Roll and Edible are the next most common companion categories, which makes sense given their relative familiarity to consumers. Note that the total percentages here can be over 100%, as there are baskets with 3+ categories.

Multi-Product Basket Trends Continued…

Multi-Product Basket Trends Continued…

Multi-Product Basket Trends Continued…

Multi-Product Basket Trends Continued…

Multi-Product Basket Trends Continued…

Conclusion and Predictions

As expected, given the explosion in product variety within the cannabis industry, multi-product baskets are beginning to be a much larger portion of sales. Though consumers are buying more products across more categories, flower will likely remain the dominant “trip driver” foursome time, as it is still the product format that consumers are most familiar with.

However, vape pens and concentrates are also showing promise as trip drivers, and it’s not unreasonable to suspect that newer, more health conscious cannabis consumers are driving that trend. Until cannabis is fully mainstreamed—thereby normalizing the use of edibles, capsules, tinctures, topicals, and so on—flower and pre-rolls will likely remain the dominant solo categories. That said, as consumers become more familiar with some of the industry’s newer offerings, we can expect to see more multi-product baskets overall.

While it is unlikely that Bath Salts, Soaks & Scrubs will be a trip driver anytime soon—sales are nearly 80% multi-segment and 75% multicategory—it is reasonable to assume that we will see more overall sales in such categories, probably by virtue of their “add-on” status. Savvy retailers will use data on product co-occurrence to position and push their “add-on” items in a way that drives multi-category sales, ideally increasing overall basket size and sales totals in general.

About Headset

Headset is market data and business intelligence for the cannabis industry. Our extensive Industry Report deep-dives into specific brands to help businesses better monitor the competitive landscape and perform exhaustive category analysis. Reports are generated via aggregate,real-time transaction data to get a unique and thorough analysis of what’s happening in the Washington market.

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