From us to you, Hello!

Drinks Ontario Fall Members Meeting November 27, 2014

Your Presenters Shari Mogk-Edwards Vice President, Products, Sales and Merchandising Kathy Cannon Director, Vintages Edison Yon Manager, Inventory Business Development Pat Paraninfo Manager, Accounts Payable/Receivable and Capital Assets Chris Robertson Director, Spirits & Beer Carolyn O Grady-Gold Director, LCBO Wines Wayne Leek Project Management/Publisher FOOD & DRINK Monica Singh Financial Supervisor Accounts Payable/Receivable and Capital Assets

AGENDA Finance Overview Food & Drink Opportunities Products, Sales, & Merchandising Overview By Category IMAGE Changes Lightweight Glass Questions submitted by Drinks ON to LCBO Best Practices

ACCOUNTS PAYABLE UPDATES

Overview What s new?...everything! isupplier video isupplier attachments Banking Payments Vendor Profile form

isupplier Five new videos: 1. Introduction 2. Log In 3. View Invoice Details 4. View Payment Information 5. Administrative Options

isupplier

isupplier isupplier newly added attachments Supplier Delists (PA) Supplier Rebates (PA) There are now 10 different types of invoices that are instantaneously available

Banking Introduced one bank to facilitate wire transfers No Cheques and Drafts

Banking Enhancements to the collection of banking data Provide the LCBO a first level of validation rather than waiting for the bank to reject a payment

Banking Multi-currency wire payments is now available Can accommodate multiple currencies with one bank account Banking information for each currency required if account designated for one currency

Banking Intermediary banking details will be required when foreign currency payments are issued to countries not in their host currency

Payments Coming in January, 2015 Weekly payments

Vendor Profile Form Coming soon New Vendor Profile form

Working with Food & Drink Wayne Leek Publisher, Food & Drink November 27, 2014

Who am I? Wayne Leek, Publisher, Food & Drink Look after the business side of Food & Drink With LCBO since January, 2001

The Food & Drink Team Nancy Cardinal, Publication Director Jody Dunn, Editor Leslie Virdo, Senior Planner Piper MacFadyen, Pub Asst.

Who are our advertisers? Non-Beverage Alcohol Advertisers Beverage Alcohol Suppliers Unique situation: You are LCBO suppliers and F&D customers Independent process & relationships Partnership: Success means WIN WIN for all

The Relationship(s) Products, Sales & Merchandising Teams AD AGENCY AGENT SUPPLIER J. Cipelli Wines & Spirits Inc. SALES REPS ADVERTISING

Why Food & Drink for your products? Part of your Marketing Mix LCBO promotional opportunities InStore Programs (on shelf, tastings) Marketing Programs (FSI, etc.) Food & Drink reaches your customers at a different, lean back moment: Food & Drink presents your products to customers when they are relaxed & engaged, enjoying a quality entertaining lifestyle magazine on their own time

Engaged Readers Food & Drink compares most favourably with other leading Canadian paid-circulation magazines in terms of reader engagement: Editorial Interest Score (1-10) Time Spent Reading (Minutes) # Reading Occasions % of Readers Who Read it at Home FOOD & DRINK 7.1 45 2.7 80 Canadian House & Home 6.8 44 2.4 42 Canadian Living 6.8 46 2.3 43 Chatelaine 6.7 46 2.3 47 Style at Home 6.9 42 2.4 50 Toronto Life 6.8 50 2.3 38 Source: PMB 2014 Fall

Media Value One of Canada s leading magazines in terms of quality, circulation, readership and value. High-quality oversized stock and perfect binding to better present advertised products Circulation of 512,000 English and 23,000 in French (CCAB) PMB measured with 2.1 million readers in Ontario (61% female; 59% age 25-54; 42% with HHI of $100k+) 821,000 readers in Toronto - #1 in PMB Delivers desirable consumers... affluent, educated homeowners who enjoy the finer things in life Highly engaged readers who love the magazine; they read, save, cherish and re-use their issues

Opportunities

We can help. wayne.leek@lcbo.com 416 365-5892 Thank you.

PRODUCTS, SALES & MERCHANDISING

WHO WE ARE The Products, Sales and Merchandising team are a high performing team that delivers a SUPERIOR CUSTOMER EXPERIENCE through our unrelenting focus on world class assortment, superior inventory management and strong supplier collaboration.

To provide THE BEST BEVERAGE ALCOHOL Assortment in North America, while providing value to the customers of Ontario and effectively managing LCBO assets

Plan and implement strategies to grow sales and profitability Buy and manage inventory for LCBO and VINTAGES Select and manage in-store supplier programs Provide direction on shelf management and planograms

THE WAY IT IS

$6.0 $5.0 $4.0 ANNUAL SALES GROWTH IN BILLIONS +1.1% +5.4% +4.7% +2.2% +2.9% +4.1% $3.0 $2.0 $1.0 $0.0 2010/11 2011/12 2012/13 2013/14 2014/15 (P) 2014/15 (A)

SALES BY BUSINESS UNIT YTD (TO PLAN) VINTAGES $0.3B +6.5% BEER & CIDER WINE $0.7B +1.6% $0.8B +0.9% TOTAL YTD $3B 1.1% SPIRITS $1.2B FLAT

$5,000 SALES AND GROWTH 3.4% 2.2% 2.8% 4.2% 5.1% LCBO $2,400 $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 0.9% 2.4% 4.1% 2.2% 1.4% 3.6% 5.2% 7.6% YTD 1.7% 2.7% 3.8% 3.2% 2.9% 4.3% 5.1% 6.3% 3.3% 5.7% 6.0% 7.5% SPIRITS WINE BEER & CIDER 2013/14 2014/15(p) 2015/16(f) 2016/17 (f)

IMAGE changes

ONE SIZE FITS ALL TO SEGMENTED EXPERIENTIAL TRANSACTIONAL

EXPERIENTIAL STORES TRANSACTIONAL STORES 157 STORES 191 STORES Urban Suburban Higher Income & Education Wine Trade Up Sub-urban Rural Combo Urban small Big Brands

EXPERIENTIAL

TRANSACTIONAL / BIG BRAND STORES

PLANNING AND OPERATIONS EDISON YON MANAGER, INVENTORY BUSINESS DEVELOPMENT

Delisted in Ottawa Warehouse Week of Nov 17 Collaboration with Retail and Logistics 65 delisted SKUs, 1200+ cases Deep discounts, markdowns effective Monday, Nov 24 One truck, Store 1, Crossroads Plaza Pallet dropped, Friday, Nov 21 65 pick slots opened up

PILOT: P10 Mobile Tastings P10 In-store tastings conducted first two weeks only Spirits Summit recommendation to conduct mobile tastings Presented at RU Stores who have scheduled tastings Guidelines sent to Tasting Companies Focus on Social Responsibility

Potential SOD Programs 2015/16 In addition to current packages, potentially new reports: Product margin Warehouse to Store Shipment Same timelines for subscriptions, Feb 2015

SPIRITS & BEER CHRIS ROBERTSON DIRECTOR, SPIRITS & BEER

Almost $1.3Billion YTD, +1.5% LY +4.0% -1.0% Imported spirits Domestic spirits

Premium Categories Driving Growth Canadian Whisky and Vodka Sales Flat Scotch +3.2% American Whiskey +11.5% Irish Whiskey +17.6% Brandy/Cognac +3.7% Tequila +6.5% Gin +6.9% Vodka +0.8% Canadian Whiskey -0.2%

TOTAL SALES ARE DECLINING 1993-94 56.5% 2013-14 41.5%

Spirit Summit

Spirits Summit Six Key Takeaways

A Spirited Holiday Increased focus on staff picks and endorsements Pilot mobile tastings

Beer & Cider Exceeding Expectations $519 Million +6.5%

Market Share Continues to Grow Home Consumer 2014 2014 26.5% 73.5%

Drivers in Beer & Cider Imported Beer +6.3% Ontario Craft Beer +33.3% Ontario Beer +2.2% Cider +21.4%

Updating craft beer merchandising

SEGMENTATION UPDATE NEW CIDER MERCHANDISING FLAVOURED PERRY APPLE ONTARIO CRAFT

LCBO WINES CAROLYN O GRADY-GOLD DIRECTOR, WINES

Period 8 YTD WINE SALES YTD $000s Compare to Plan Compare to LY Plan Actual LY D % D D % D European Wines 262,115 261,586 253,879 (529) -0.2% 7,707 3.0% New World Wines 324,022 324,562 318,783 540 0.2% 5,779 1.8% Ontario Wines 236,400 243,688 228,324 7,289 3.1% 15,364 6.7% TOTAL 822,536 829,836 800,985 7,300 0.9% 28,851 3.6%

P8 TURNS 6.61 + 0.16 V. Plan + 0.24 V. LY P8 IN-STOCK POSITION 98.9%

SERVICE LEVELS ALL CATEGORIES LY 90.4% TY 91.6% 1.2% vs. LY LCBO WINES 94.1% As of P08

Global Leader In Lightweight Glass Initiative

The Details Program Parameters No price threshold all 1L & 1.5L wines from LCBO Wines & Vintages Essentials portfolios are affected Weights 1 Litre, 550g (+/- 20g) 1.5 Litre, 700g (+/- 25g)

The Details Implementation Date April 1, 2016 Fines for non-compliance beginning on September 1, 2016

The Details Vintage 2015 & later Northern Hemisphere 2016 & later Southern Hemisphere

The Details Exemptions Champagne/Sparkling Wines Vintages Front Line Releases Fines $1.00/bottle over the threshold (550g/700g)

The Details 750mL Threshold As of April 16, 2016, all LCBO & Vintages Essentials priced $16.00 and under Fines will remain the same

LCBO WINES SALES TARGETS

FORMULA Sales in Top 90 th percentile PERFORMING BRANDS Sales in bottom 10 th percentile NON- PREFORMING BRANDS

Consistency Largest increase Standard Australian Red Blend $495,000 Largest decreases Deluxe Australia Shiraz Deluxe Australia Cab Sauv Deluxe Australia Shiraz Cab -$450, 000 MANUALLY INCREASED MANUALLY DECREASED

Fairness NWW EW WITH THE OLD TARGETS Percentage of Wines not Making Target Standard 13% 26% Deluxe 52% 23% Standard 29% 27% Premium 39% 30% Deluxe 48% 41% WITH THE NEW TARGETS

Ontario ICB ONTARIO ICB EXISTING MODEL CATEGORY ADJUSTMENT/ NEW TARGET Pinot Grigio 695,000 1.685 Million 725,000

Imported Wine AUSTRALIAN SHIRAZ Standard </=$11.95 Premium $12-<$16.95 Deluxe $17+ EXISTING $695,000 MODEL CATEGORY ADJUSTMENT $1,300,000 $845,000 $515,000 $525,000 $215,000 $245,000

Sparkling If Sparkling became one combined subset SPARKLING MODEL ACTUAL ASTI 3.4M 405,000 SEKT 2.9M 500,000 CAVA 1.9M 550,000 CHAMPAGNE 550,000 330,000 PROSECCO 655,000 500,000

Segmentation ITALY RED- AMARONE PRICE BAND RANGE ACTUAL MODEL Standard <$10 315,000 0 Premium $10-<$20 315,000 0 Deluxe $20+ 315,000 $800,000 ITALY RED- BLEND PRICE BAND RANGE ACTUAL Standard <$10 450,000 Premium $10-<$20 400,000 Deluxe $20+ 450,000 This target was manually reduced by $50,000 from the previous year.

Summary It is crucial that the sales target formula used to determine the success or failure of a product is transparent, mechanical and free of any bias or discretion. -Drinks Ontario

KATHY CANNON DIRECTOR, VINTAGES

Frontline Sales Holding Strong $132.8M + 0.1%

Essentials Sales on Fire $112.0M + 19.1%

Vintages YTD Over Plan $224.9M + 8.0% Plan +3.0%

New and Existing Essentials Growing New Essentials: $17.9M 166.2% Existing Essentials: $94.1M 7.8%

Direct Programs Classics: $5.6M 5.2% Events, Virtuals & Directs: $7.2M 28.2% Total: $13.8M 4.5%

Growth Drivers YTD California California represents the largest growth: +34.2% or +$9.8M Spain Spain is leading growth for European Wines: +32.8% or +$2.9M New Zealand New Zealand: +2.3% or +$1.2M

Customers Trading Up $15.00 - <$20.00: $58.5M 4.7% $20.00 - <$25.00: $24.4M 18.5% $25.00 - <$30.00: $12.3M 14.4%

Net per Litre Net/litre: $26.12 $0.31

Vintages VCA Score 90+ Allocating 90+ percentage of every release Monthly purge of less than 25 cases

YOUR QUESTIONS FOR VINTAGES AS SUBMITTED TO THE LCBO BY DRINKS ON

INVENTORY What are the benefits of holding back inventory in the warehouse for Vintages releases? Could the complete Purchase Order not be allocated to stores, thus eliminating the extra work for Product Consultants to re-order and provide the best chance for sell-through?

INVENTORY 1. Release doesn t fit in stores 2. Product Consultants fill section gaps 3. Customer request orders

PRE-RELEASES It has been the practice of Vintages to stop permitting the pre-release of Vintages products in the 10 weeks (or so) leading up to Christmas. This appears counter-productive in prime selling season when the agent community has the best opportunity to capitalize on events and parties? Can this policy be reviewed for next year?

PRE-RELEASES DONE

PRE-RELEASE REQUIREMENTS Inventory team needs your requests six weeks prior to the release Stock must be in the warehouse Must be labbed Must be priced

VSO & CLASSICS ORDERS VSO and Classics orders currently have a two-to-three-week turnaround time. Is it possible to establish an express or priority system for agents to pick up at Store 217 or the Toronto Warehouse in order to expedite service to licensees and thereby promote faster inventory turns?

VSO & CLASSICS ORDERS LY = 4 6 weeks No system prioritizes orders based on when they are placed SUGGESTION: Plan events and manage licensee expectations based on our delivery timelines

PRODUCT CALLS Product calls are extremely competitive for every category, especially those in Vintages. With so many products available, it is difficult to understand how Product Managers select the products that best meet their needs. All agents face the task of explaining to their suppliers why their submissions were declined even if they had strong accolades from notable wine writers. Can you please take us through a typical product call to give members guidance into formulating the best possible submission for LCBO?

PRODUCT CALLS An average VINTAGES call = competitive 1,000 1,2000 submissions 100 tasted (less than 10%) 15 30 products purchased There is no Magic Bullet

SUBMISSION SUGGESTIONS Make sure you are submitting products that fit into the call parameters Include scores Include past performance results and the LCBO number of the product Any other compelling information: Well respected winemaker? New wine? Opportunity to be first to market? The strength of your submission is relative to other submissions in the call Keep trying!

PURCHASING Does the Vintages buying team find it beneficial when agents submit wines that have been in Private Ordering and have a strong sales history? Does this information enhance their interest in tasting? YES

CALLBACK DEADLINES In the last few months, members have noticed delays with LCBO call backs- beyond the stipulated deadline. These delays create difficulties from small producers with very limited stock, and cast agents in an unfavourable light (with the delays being blamed on them). Please advise regarding the steps being taken to address these delays.

CALLBACK DEADLINES Drinks ON has proposed that the timelines in the buying process be tightened up as follows: Three weeks from pre-submission acceptance to sample submission; one week for actual tasting; and two weeks for the NTP to be issued after tasting acceptance (which includes the approximate order quantity). The whole process should take a total of six weeks under this proposed timeline. Is this something that Vintages can adhere to in order to ensure that allocations are not lost?

Call Back Deadlines Current Process = 15 17 Weeks 1 wk 6 7 wks 1 wk No timeline Presub call back Call back sample deadline Tasting Quantity for purchase New Process = 11 Weeks 2 wks 5 wks 1 wk 4 wks Presub call back Call back sample deadline Tasting Quantity for purchase

YOUR QUESTIONS AS SUBMITTED TO THE LCBO BY DRINKS ON

INDUSTRY-SPONSORED LCBO SUPPLIER VISITS Sometimes, members do not find out that the LCBO has visited ad tasted products with one of their suppliers until after the fact. With the current system, members are not able to provide much guidance to their suppliers. Can we improve the system for LCBO visits to our suppliers when buyers are on industry-sponsored visits? Can we find out in advance who is going on the trip and what sort of products they ae interested in (e.g. varietals, prices, etc.)?

INDUSTRY-SPONSORED LCBO SUPPLIER VISITS Perhaps there could be something left behind with the winery with a product call number which indicates the wine to be submitted and whether it is for Vintages or LCBO. Can we have a more formal system for product submissions as a result of LCBO visits? What trade shows is LCBO staff planning on attending in 2015?

PRODUCT SUBMISSIONS Would the LCBO like to see a selection of imported Bag-in-Box products on its shelves? If so, how can we assist in moving this agenda item into a discussion with the powers who can act on this? The additional revenue from an imported product assortment would help grow the LCBO s business.

LCBO Store Formats Can you comment on the Big Box Stores, with warehouses attached referenced in Ed Clark s speech? He suggested that this was an idea emanating from the LCBO.

COMMUNICATION WITH RETAIL OPERATIONS What interaction is there with the Retail Division about SMi s product selections and category plans? Do you meet regularly to discuss the big picture and to ensure buy-in from Retail of your plans?

LCBO PLANOGRAMS What planogram/merchandising steps has the LCBO taken to prevent growing categories like Cider and Craft Beer from stealing space from RTD that are more profitable?

LCBO PRODUCT ASSORMENT At the end of the summer, the RTD category tends to be crowded with new brands that did not succeed. This leaves less shelf space available for proven category leader brands. What is being done to prevent/change this?

PRODUCT PRICING Can suppliers increase the price of their product by a nickel (where appropriate) to move up into another price band, and therefore a different quota level or to avoid paying lightweight glass penalties? What are the rules surrounding this?

AD-HOC TASTINGS In next year s product call, can the LCBO please not include the Ad Hoc tasting information, since it confuses suppliers who think they are able to submit products to these calls? Product calls are not only circulated to suppliers by agents but also by country representatives, so even if we explain it to suppliers, others so not necessarily do the same. Since they are by invitation only, why not just provide the call number at the time the buyer asks for the submission?

Best Practices

Cancelled New Items

Providing Promotional Forecasts

Shipments versus Sales

Details

Supplier Closures

Vintages Tastings on Mondays

Utilize LCBO App

From the LCBO to you, Thank You!