On Tuesday Cuttwood announced it would be lowering the retail price of its 120ml bottles of e-liquids by $15 (from $84 to $69 )and its wholesale pricing by only $7. As an industry name of recognition other start up juice manufactures tend to follow suit on what Cuttwood does as it has a MAP structure and is currently placing distribution centers in place that will hold the margins that they set.
We brought the 120ml bottles into retail last year and the sell through was extremely slow. Diving into the reasoning behind this was multifaceted. Cuttwood’s 5 brands consume around 4% of the display space and hold around 7% of the per bottle sales in the 30ml size. So name recognition does help the brand outperform its competitors. When we compare it to all bottle sales though it drops to 1.5% of the sales and that is where have to add in value vs flavor vs guilt.
We found that the average customer avoided 120ml bottle not because of its value but because of its size. It was too much juice at one time. The average buyer for the 120ml bottle was the cut and repackage customer. Who is that? 18-22 year olds who buy bulk and repackage it in 10ml bottles to sell to underage customers or pass it off as their own custom flavor. This is the underbelly of any industry , in the gun industry we called them kitchen table dealers and with the vape industry being so young taking on the same profit destroying problems is just an unwillingness to learn from others mistakes.
So why 120ml bottles then? Besides the obvious attempt to overreach the retailer with kitchen table dealers there is an industrial problem with bottling quality juice. The 15ml has a high bottling cost as the price difference between 15ml and 30ml is very small. The profit margin for this has been consumed by the manufacturing side and there is an ongoing attitude when you interview the staff at manufactures that retail margin is some kind of charity or gift. I do not believe that Cuttwood sponsorship of drag racing has brought a single customer to my store (which I also own a high performance auto parts shop),yet that is where MY margin is going. There is a significate increase in margin capable at the 120ml bottle size this is a common bottle and its why it was chosen. Labels are industry standard size in 120ml where the 60ml Boston round bottle is hard to get, labels and machines to apply them are not standard without customizing and simply packaging the 60ml bottles into a shipping box becomes an issue because standard cardboard box designs are 1/2 inch to short to close the bottles without special inserts for oversized boxing, all eating into the profit per ml cost on the manufacturing side. Even though the 60ml bottle has the best potential for the largest retail margin. Manufacturing talking about profit per ML and retail talking about per bottle/Inch of display space( that’s the gap in the conversation)
Neither the area rep Michael nor his boss Eric at Cuttwood could be reasoned with and at the point where logic and math backs them into a corner they copped attitude and asked for an order to end the conversation.
So what did Cuttwood do to the retailer? They took $8 per sale. Remember the target customer of this bottle size either the kitchen table or the value added customer saving on bulk. With the low rate of return on the value added customer that $8 is not spent inside the vape industry. While it is a value to retail customer Cuttwood should keep in mind THEY DO NOT SELL TO RETAIL CUSTOMERS. Those customers are the retailers customers.
The math has worked out to be that a vape shop should be spending around $200 per linear inch on product on display with a 100% markup in order to bring in 20% return. Meaning 5 bottles of 30ml at $10 each selling for $20 each will yield around $2 profit for the vape shop/ bottle/week. These will sell-through at 30 times the rate of a 120ml bottle. Yielding $60 profit or around $30 per inch. per week. The 120ml slow move rate would need to bring margin on that bottle to $60 per bottle to justify the SKU holding shops money for such a long period of time while it only brings in $.24 cents per bottle per week at its sell through rate. The only way for a shop to overcome this is to target the Kitchen table dealer or worse yet become one in order to increase turnover rate.
Keep in mind when you argue like all money is profit and forget that people sleep indoors and eat AKA salary. Rent, Insurance. Create price structures that expand the underbelly of an industry you have to take ownership of that reasoning. Cuttwood announcing lower prices has placed the label of thief onto retailers who can not just lower their margins on the whim of a third party.