If you were to walk into a local grocery store, you would find that the retailer would possibly have already arranged the products on the shelf by name and brand or even by color. You probably did not know that shelf space in retail establishments have already been negotiated by the manufacturer and paid for – prior to the shelf being stocked. This is with good reason, of course. In saturated commodities, having face time with a consumer is not guaranteed nor is it always great.
One of the reasons is the competition and then it could be poor product margins. In the state of California, cannabis retailers are the only ones that are allowed to sell cannabis to the public. And so, it is very important for distributors and wholesalers to have the ideal shelf space in cannabis dispensaries.
There is a lump sum cost for shelf space that the supplier has to pay to the retailer in order to reserve this coveted space. Many competitors vie for the same shelf space. It is like a ‘pay to stay’ signed agreement or slotting fee that usually takes specific things into consideration such as promotion, advertising, marketing, failure fees, inventory and extra fees to keep your competition at bay. There are certain things that would be put into these contracts made with cannabis dispensaries. It is similar to most agreements. The supplier has to make certain choices such as exact placement, periodic placement, inventory schedule, product failure, products with the best performance that are closer to yours, and what occurs when inventory is scarce or unavailable. These are just some of the things that owners of cannabis dispensaries and the supplier have to put in the contract or agree on.
The retailer will often have the most leverage because they are the ones with the cannabis license and they are the ones with the shelf space that suppliers are seeking. They also provide suppliers with a place where consumers congregate to make their purchases. As a supplier, you will have leverage, if your products are quality tested and potent as well as fairly priced. You will also have extra leverage, if the cannabis dispensaries where your products are showcased have a lot of consumer support, especially those looking for products like yours.
The companies that have the money to pay the highest shelf space fees in cannabis dispensaries will be the ones that get the most leverage. Retailers will choose these companies because they too want to survive financially in the industry and market in its regulated state. The agreement to pay slotting fees for shelf space is another source of income for cannabis dispensaries. Which retailer would refuse the highest paying fees? And so, these contract agreements are competitive; going to the highest bidder. If a supplier has a known brand, this too will be enough leverage to be among the competition. The slotting fee is only a way to sift through the competition to see which companies deserve to get space on the shelves of these cannabis dispensaries. This contract agreement puts the dispensary owners and the supplier coupled with the consumers and the competition into a binary relationship, which means that one cannot do without the other.
There are risks to paying for shelf space in cannabis dispensaries in the state of California or elsewhere, but the benefits outweigh the risks as most suppliers have discovered. As you embark into a contract agreement to get shelf space, do realize that it is best to pay close attention to the fine print, especially with anti-competitive terminology and conditions.