Another “flash discount” just hit my phone. That makes one discount alert every day this week. At this point, I don’t even open the text message to see the special. It’s another retail store offering product at or below cost.
As a retailer with a large amount of competition in one city, we are beginning to see a downward trend of pricing that doesn’t support the margins needed to sustain an industry that is taxed on gross profit. The driver behind this trend is farms sitting on inventory they cannot sell. Unsold flower means deals close to $1 per gram. Retailers are snatching up $1 gram deals and selling at $4 per gram. The strategy is to drive volume in the front door and increase market share.
The problem with this strategy is that the volume of cash flow will not support the quantity of retail shops in our town for the long term. Local stores and farms will be forced to close their doors. Just recently, a very large farm in our county had to close as it accumulated unsold product after being confronted with a retail market unwilling to buy its product. The shop next to us is for sale with specials at $4 per gram. It’s a harsh reality for a lot of us in this industry and bound to happen as everyone rushes to join the “green party.”
As I watch the market as a retailer, I remember a couple people in my life who taught me some valuable lessons. First is my grandfather, Burke Hayes, who founded CH2M with some friends from Oregon State University (Go Beavs!). He attended MIT as a graduate student and was voted Engineer of the Year in the 1980s. He was one of the best in his field, but all that intelligence and study was not enough to make a 100-acre hay farm profitable. Years of losses finally forced him to sell a majority of the farm. There are a lot of lessons from the sale, but one of them is that the market dictated my grandfather’s choice to sell, not a lack of understanding on how to grow hay.
The second person is Ron Kutella, a former partner of mine in the restaurant business. He attended Wharton and retired from a successful career in the insurance industry. Today, he is a partner in Cascade Lakes Brewing Company, a successful brewery in Bend. His lesson to me was always own a tap handle to ensure you can move product.
Today’s market is dictating a smaller field of competition in our town. Eventually, no matter how smart you are, the doors cannot stay open if there is not enough cash flow or “tap handles” to move your product. Your best bet, if your state allows it, is to be vertically integrated to ensure the best margins are in place to sustain your business in a turbulent market.
The “green party” is a lot of fun, but I remember something I was told before buying my first restaurant: “Do you know how most restaurateurs end up with a million dollars in the bank? They start with $10 million.”