What's Behind Yesway's CBD Strategy?

Inside the company’s plans for cannabidiol in 2020 and lessons learned so far

CHICAGO — After launching cannabidiol (CBD) products in its stores nearly six months ago, Yesway is moving full steam ahead with the ingredient in 2020.

Alan Adato, merchandising and procurement manager for Yesway, joins CSP’s Brett Dworski to discuss the lessons Yesway has learned regarding CBD in the past six months. Adato helps oversee the chain’s CBD portfolio, which was implemented in August 2019. Listen as they discuss how the chain plans to boost its CBD portfolio in 2020, where Adato sees the CBD regulatory landscape headed and much more.

This episode was recorded as part of a CSP feature, "CBD: One Year Later," which will appear in the March issue of CSP magazine.

West Des Moines, Iowa-based Yesway is No. 43 in CSP’s 2019 Top 202 ranking of c-store chains by number of retail locations. It owns and operates more than 450 c-stores and truckstops in nine states: Iowa, Kansas, Missouri, Nebraska, New Mexico, Oklahoma, South Dakota, Texas and Wyoming.

Twice a month, "At Your Convenience" brings industry experts and analysts together with CSP editors to discuss the latest in c-store news and trends. From mergers and acquisitions to foodservice and technology, the podcast delivers the story straight to listeners in short-format episodes, perfect for the morning commute or a quick break at the office.

Read the full podcast transcript below.

Brett: You guys started telling CBD in ... September 2019, in water bottle form?

Alan: Yes. So we started merchandising one particular item, and that was a product called CBD Living Water. We started that at the beginning of August 2019. That was our very first item [with which] we introduced the CBD-related item into our stores. We started stocking this item in 41 stores in four States: in Kansas, Oklahoma, New Mexico and Texas. The reason for that is ... we have 109 Yesway stores and 304 Allsup's stores. We started our merchandising of CBD products in the Yesway stores with just this one particular product, and more or less just to kind of get our feet wet and understand how this product would be perceived by our customers and by our stores. Since then, we have had great success with this one particular product.

Then as we fast forward to October, late October, we introduced several different CBD items. We have roughly about 17, 18 items in our stores today, anything from energy shots to gummies. We have a honey stick, we have Cannadips mint and we just introduced a new flavor of Cannadip pouches. We have freezes, tinctures, lozenges. We also have chocolate candy as well.

These past several months have been really just an opportunity to learn more about the product itself from a scientific standpoint to compliance, to marketing and merchandising. So all of these things that we think about in a c-store environment, we've been learning quite a bit about every aspect of this category.

As we fast forward to today with these items, we're now starting to focus on the future in 2020, in particular, and looking at what has sold well, what hasn't sold well, and starting to fine tune our assortment, our category. So items that haven't sold as well as others, we're going to replace those with newer items, with maybe a different set of items, just more or less the testing, the perception of those items.

Brett: Absolutely. What have been some of the top sellers?

Alan: Well, the water first and foremost had been our top seller. From there, the gummies have sold very well. The pouches have sold very well, the Cannadip pouches. From there, we have different items that they're selling, but they're not as strong as we would like. So as I mentioned before, we're just kind of tweaking the assortment, and it could be a number of different reasons for that. It could be price and price point. It could be the pack size, the package size, just several different things. So we're just kind of fine tuning those different aspects from a merchandising perspective to see if we can get maybe a little better price point on certain items.

Or maybe it's the pack size, it's a little different. That's been adjusted lightly. And so all those factors go into those kinds of decisions. Primarily gummies have been selling well, the Cannadip pouches. Based on this information that we do see, we are now interested in introducing a couple of more beverages to complement the water. It seems that beverages that are in the cooler seem to sell very well, so we want to take the next step in introducing or considering introducing additional items that would complement the water.

Brett: So the gummies are selling great, the water is selling great. There's a trend here. These are ingestible products; it's eating and drinking. What is it about these compared to a topical cream that you rub on your skin that consumers love? Why do you think these ingestibles are the top sellers compared to the others? Why are consumers really seeking these out specifically?

Alan: Yeah, I think, well as any consumer, there's an interest in understanding the new and innovative items that are coming out, whether they're digestible or topical. So I think it's just a kind of human nature as a consumer interested in understanding: What do these gummies tastes like, and how will it impact me in my everyday life?

So it's just something that really customers will take the time to purchase a package of gummies in whatever flavor they may be, because we do have one or two different flavors, and it kind of trends toward: If we look at our other items in the store, gummies are a very popular item in the c-store. So when customers see gummies enhanced with CBD, I'm sure there's an interest in just trying them. If they do like them and they're favorable, then they'll purchase more in the future.

Brett: Right. So since the ingestibles have been pretty successful to this point, do you think that there is a chance, whether it be this year, next year, that you guys explore CBD products in prepared foods?

Alan: Yeah, that's a great question. I think that's yet to be seen. I think we need to continue to understand how the FDA will respond to this particular category. So right now we're going to take an approach of the items that we do have. That's where we need to continue to look at the trends and look at the research to understand what's the next potential out there, not just for us but for c-store and other retailers. So I think it's yet to be seen.

It wouldn't surprise me that that is the direction that our environment will eventually get to, but I think right now it's just too soon to really know what the far future looks like with regards to CBD and how it expands into other parts of the retail sector.

Brett: Sure. What are your best practices in terms of monitoring the local regulations for your stores?

Alan: We work with a vendor partner, Betterment Retail Solutions. They have several years of experience in CBD in the industry, and they work with us closely to keep us abreast of all the different information, whether it's legislative information or updates, in addition to myself and others here at Yesway doing our own internal research. So we keep a pretty good pulse of the industry, what's happening in the c-store environment and making sure that we take the necessary steps to make sure that we provide quality products that are certified.

One example of that would be the certificates of analysis. We actually keep a record of those COAs on file so our stores can access them should they need them. Or if there is a customer that's interested in receiving more information about a particular product, we have those COAs available for stores to access. So we want to make sure that our stores are comfortable with the product, which, in turn, will make our customers feel comfortable that we're providing quality products that have been vetted and that are safe.

Brett: Absolutely. And speaking of being comfortable, I remember when we last spoke, one of the priorities you had was making sure store associates were comfortable with this. You said that you would have conference calls with managers, walk-through presentations done by your distributors. How has the education been in terms of your store employees and making them knowledgeable about CBD, so when a customer comes into the store and has questions, they're able to talk to them?

Alan: Yeah, great question. Our associates up until now have been very comfortable in the product, and the more that the product is in the store and the more interaction they have with our customers, they're becoming even more comfortable. In turn, we also want to make sure that we continue to provide them the education they need, kind of a continuing education. So we want to make sure that all the associates in our stores have the comfort level they need to be confident in what they're merchandising.

In addition, internally here at our home office, we had a CBD innovation event where we invited our partners that we merchandise in the stores to our home office, and they brought their samples, and they were here in our office to share their products with our entire office internally so our office could have a better understanding of CBD in general and the products that we offer in our store.

So both outside in our stores, most importantly, but we also wanted to make sure that our internal team here understood CBD, because many of them aren't in tune to everything that I may do and our merchandising team may do pertaining to this category. So obviously training is always important, making sure that everybody understands the product, and if there's any questions they can always reach me or our vendor partner to make sure that we give them the information they need to continue to become comfortable with the category.

Brett: Absolutely. Talking more about 2020 initiatives, obviously you've just said that you guys plan to grow quite a bit with CBD and you know what has performed, you know what hasn't performed. Do you have any specific goals for CBD in terms of do you want it to reach, and you don't have to give me specifically, but do you want it to reach a certain sales figure? Do you want it to bring in a new audience? What are your goals, if any, with CBD for this year?

Alan: Yeah, I think for 2020 this is going to be really the first full year of us working on this category and merchandising this category in our stores. As we talked about earlier, we started this category back in August of last year. So it's really only been several months of us understanding the category, and we learn more about it as we go forward. So I think 2020 is going to be a continuation of learning about the category and understanding the products that are available.

Obviously, as you can imagine, there's so many different suppliers that reach out to us, soliciting their product, so we're being inundated with many, many suppliers. So it's really taking the time to understand what these suppliers have and vetting them, and ultimately we're going to come up with a list of vendors that we feel comfortable in merchandising in our stores, so I think it's just a continuation of learning and understanding our data and making the best decisions that's in the best interest of Yesway and our customers.

Brett: Right. Because it really all is a learning process.

Alan: It truly is. It truly is.

Brett: And you guys are still early in the game. I mean it's been six-ish months since you guys first brought in the CBD, and obviously there's ups and downs to implementing any new aspect to your business, let alone something as controversial as CBD. If I were to ask you what have been your key takeaways so far, what have been the big lessons you guys have learned with CBD within these past six months you've been selling, what would you tell me?

Alan: Yeah, I would say the response of this category from our customers and from our stores has been very positive, and I think that's the biggest takeaway we can capture at this moment. I think that's the very first sign of us understanding that this could be a very viable category in the future and a category that shouldn't be overlooked. So I think time will tell as to how the category will expand, if it's able to expand and, to your point, does it expand beyond having just a counter display at the cashier to an endcap or an inline presence in the store? Those are a lot the things that we're going to be looking at this year and [how] we can expand the category in a responsible manner.

Those are really the first and foremost on my mind in making sure that we just take our time, understand what the research is telling us, but also at the same time, understanding the legislative aspect of CBD, and always understanding how that's progressing. We're going to have to, I think, take it step-by-step for the immediate future until we get a better understanding legislative-wise how this will all start to look as we go into 2020, further into 2020.

Brett: Yeah. Legislatively, that's really, at the end of the day, huge, because if those aren't in place, people won't act. Speaking of the c-store industry as a whole, holistically, where do you see the relationship between convenience stores and CBD headed by, let's say, the end of this year? Is it going to grow tremendously? Is CBD going to be as common as a bottle of Gatorade in a convenience store? Or do you think that ... these regulations are going to stall and it's going to plateau in this industry?

Alan: Yeah, I think looking at those two aspects from a c-store perspective, obviously we would love to see this category grow exponentially, but, again, at the same time, where we are today, we need to, as I mentioned earlier, just take it step-by-step. I think we're at a point in time now where we have a good number of items being merchandised in the stores, and that's a great start, and we're seeing great results from it. At the same time, I think 2020 is going to be a time of continuing to test the water somewhat as far as maybe replacing certain slow-selling items with other items just to see if we can fine-tune that mix.

Once we do that and once we're situated in a good assortment of product, then the next question is, legislatively, where are we going to go with CBD as a category in c-store?

I think once that question from a legislative standpoint has been answered—and it may not be this year, it could be next year or the year after—that’s when I think we'll start to see the whole category will possibly change, and I'm hoping for the better, because I truly see that there is a demand for the product. I think we just have to get to a point where it's regulated to a point where we have the flexibility to continue to merchandise the product in our stores, not just in convenience, but in all retailers. Because I think the next time we have a conversation, whether it's the end of 2020 or the beginning of 2021, no doubt, it's an evolving category and it will be changing. We just have to keep our eyes on it to understand how those changes are going to progress going forward. It's an exciting time for CBD and the category, and we look forward to being a part of it in one way or another.

My question to you is, I'm sure you've connected with other retailers. Are you getting the same sense of feedback that I'm providing you with other retailers? Or are you seeing other retailers just going in a completely different direction that could be like an aha moment?

Brett: It's back and forth a little bit. The retailers who have really dove into CBD have had a great experience with it. The only thing is a lot of retailers are still sitting on the sidelines waiting for Congress, the FDA, all these regulations to really come to fruition before they jump into it. I would say at this point it's like all or nothing. Those who have dove into it have had a great experience.

There's a retailer out on the East Coast who—they are replacing in two of their stores, Subway stores connected to their stations, with dispensaries, which is insane. That just shows how great their experience has been. To answer your question, those who are doing it are loving it, but there's still a great chunk of the industry who has not even explored it yet.

Alan: Sure, sure. And I can imagine with all the different suppliers that are out there that are knocking on our door, I just can't imagine what other retailers are experiencing, getting solicitation from these companies. I think at the end of this era that we're in with CBD being so new to c-store, ultimately, the suppliers and the vendors that really are doing a great job at CBD, you'll start to see these other vendors fall off and close doors, or be acquired by another company and will start to have a presence of suppliers that are just stronger and more focused. There may only be two or three big players once this is all said and done, but right now it's kind of everybody's in it, and just to see where it's going to go. So it's just an interesting time and exciting time to be a part of it.

Brett: That's a good point. I'm actually happy you just brought that up. Consolidation is something that people have been talking about for a while now with CBD. Last year [I went to] MJBizCon. It was the marijuana business conference, so it was a lot of dispensary companies there, not really a lot of retailers, but a lot of companies that just work with and sell cannabis as a whole, a lot of manufacturers and dispensaries.

They were saying how consolidation is almost inevitable in this industry, that right now there are so many small suppliers focusing on a single product or two, but eventually, the giant players like Coca-Cola, for example, not saying Coca-Cola is dabbing in CBD, just a name, someone like them, when the time comes, when the regulatory haze is gone and then it's open floor, companies of that magnitude will probably buy out some of these smaller companies or will just make their own products where those companies can't compete. It's going to happen.

Alan: Absolutely. Yeah. You think about, for example, the beer industry. If you have an Anheuser-Busch-type company, just a conglomerate, they typically buy these small breweries. Anheuser-Busch now has this small brewery making craft beer, and what a perfect part of their portfolio. And you would never know, the customer may never know that that's an Anheuser-Busch product, but they love this craft beer.

So, no, to your point, I think once all this legislative discussion and all the bills pass in probably the next year or two, that's when you're going to see some of these larger companies start to really consider, the Cokes and the Pepsis and the Anheuser-Busches, and that's just beverage. If we're talking the whole spectrum of our food chain, just imagine all those companies looking at this category thinking, "Oh, there may be some opportunities here," but I don't think any of that's going to happen until the FDA has put their blessing on this whole thing and put some laws together.

Right now, I think we're in just a kind of a hiatus, a time, which is, working with all these smaller companies, and then over the next year or two we'll start to see things really shape into kind of a more structured type of a business model.

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