VINTAGES PRESENTATION TO OIWSBA Presented by Tom Wilson & Kate Mallett-Thomas September 24, 2009
AGENDA Vintages Sales Update Kate Mallett-Thomas Vintages Inventory Update Tom Wilson Vintages Program Update Kate Mallett-Thomas Questions and Answers Tom Wilson Questions from the Floor Tom Wilson
Vintages SALES UPDATE Kate Mallett-Thomas, Director, Sales & Purchasing, Vintages
Vintages Net Sales vs General Purchase 2008-09 Category VINTAGES Sales General Purchase Sales VINTAGES Market Share Imported Wines $293.0 M $830.0 M 26.1% Ontario Wines $15.7 M $289 M 5.2% Imported Spirits $17.1M $687 M 2.4% Domestic Spirits ----- $887 M ---- Beer and Ready-to-Drink ----- $1,040 M ---- Total $325.8 M $3,734 M 8.0% *Private Stock Excluded
Vintages 2009-10 Forecast by Program Program Net Sales 2009-10 % Change to LY Market Share Front Line $186.5 M 0.4% 57.8% Essentials $112.2 M 6.4% 34.8% Classics $7.3 M (38.2%) 2.3% Futures $6.5 M (58.2%) 2.0% Internet $5.7 M 222.8% 1.8% Virtual $4.8 M (21.1%) 1.5% Total $323 M (0.8%) 100%
Net Sales by Program YTD P6, 2009-10 3.1% $80M 2.9% $60M $40M $20M (6.6%) (53.0%) (49.1%) (54.5%) Front Line Essentials Internet Classics Futures Virtual $134.1 M, (3.1%) 2009 2008
Net Sales by Buyer YTD P6, 2009-10 Sales $ Net % Change European Wines $36.5 M (8.7%) Essentials - European Wines $17.3 M (7.9%) New World Wines $43.6 M 3.1% Essentials - New World $31.7 M 9.8% Futures And Directs $5.1 M (40.2%) Total $134.1 M (3.1%)
Net Sales by Top Sets Sets YTD P6 Sales 2009-10 Change Market Share California Red $16.7 M 11.3% 12.4% Italy Red $16.0 M 0.8% 11.9% France Red $15.4 M (29.1%) 11.5% Australia Red $10.8 M 1.9% 8.1% New Zealand White $7.2 M (0.7%) 5.4% Italy White $6.7 M (5.5%) 5.0% Argentina Red $5.6 M 25.2% 4.1% Subtotal $78.4 M (4.4%) 58.5%
Net Sales by Top Subsets Subset YTD P6 Sales 2009-10 Change Market Share California Red - Cabernet Sauvignon $9.3 M 18.0% 5.4% Australia Red - Shiraz $5.9 M 12.9% 3.4% New Zealand White - Sauv. Blanc $5.7 M 1.2% 3.3% Italy White - Pinot Grigio $5.6 M (3.5%) 3.3% California White - Chardonnay $3.9 M 3.6% 2.3% Argentina Red - Malbec $3.6 M 37.8% 2.2% France Red - Bordeaux-Medoc $2.8 M (37.3%) 1.7% Subtotal $37.0 M 4.0% 21.6% *Total Subsets 260
Top Performing Subsets Subset YTD P6 Sales 2009-10 Change Rosé Wines Old World - France $1.5 M 28.7% Spain Red -Other $1.4 M 43.1% Argentina Red - Cabernet Sauvignon $1.0 M 30.0% Italy Red - Sicily/Sardinia/Islands $1.0 M 25.2% Australia White - Chardonnay $889 K 74.9% South African Red - Syrah $685 K 111.4% Ontario Red - VQA Pinot Noir $639 K 59.7% Ontario White - VQA Riesling $552 K 46.0% Rosé Wines New World - Ontario $504 K 32.7% Chile White - Chardonnay $435 32.8%
Poor Performing Subsets Subset YTD P6 Sales 2009-10 Change France Red - Bordeaux-Medoc $2.8 M (37.3%) Sparkling Wines Old World $2.6 M (29.3%) France Red - Bordeaux-Pomerol/St. Em $2.2 M (43.5%) Italy Red - Tuscany Other $2.2 M (32.9%) Australia Red - Cabernet Sauvignon $1.7 M (20.7%) France Red - Rhone Chateauneuf Du P $1.1 M (39.3%) California Red - Shiraz $987 K (21.6%) France Red - Burgundy Cote De Nuits $723 K (61.3%) Fortified Old World - Premium Port $705 K (31.5%) Italy Red - Veneto Other $672 K (24.5%)
Wine Net Sales by Price Band YTD P6, 2009-10 Price Range YTD P6 Sales 2009-10 YTD P6 Sales 2008-09 Change vs. Last Year $0.00 - $9.99 $231 K $398 K (42.0%) $10.00 - $14.99 $18.3 M $17.9 M 2.3% $15.00 - $19.99 $54.6 K $51.9 M 5.3% $20.00 - $24.99 $17.9 M $15.8 M 12.8% $25.00 - $29.99 $6.6 M $7.6 M (13.8%) $30.00 - $49.99 $12.6 M $14.1 M (10.1%) $50.00 - $99.99 $8.8 M $10.4 M (15.5%) $100.00 and above $4.8 M $10.0 M (52.6%) Total $123.8 M $128.1 M (4.3%) *Excludes Bordeaux Futures
Ultra Premium Assortment Program $100 plus price point has been most impacted by recession Will continue to invest but much more judiciously Need performance terms and high third party scores Will expand our virtual offerings as risk-free strategy
Net Sales By Period P1-P6, 2009-10 (10.5%) (10.7%) (4.0%) 5.5% (3.6%) 5.3% $25M $13M P1 P2 P3 P4 P5 P6 2009 2008
Vintages Release Performance $ Sales $5 June 20 $4.9 M $ Million $3 $2 June 6 $4.25 M $0 2 Weeks 4 Weeks 12 Weeks May 23 $4.24 M May 23 June 6 June 20 July 4 July 18 August 1 August 15
Vintages Release Performance % Se# Through 75% June 20 75.88% ST 55% June 6 74.22% ST 35% 2 Weeks 4 Weeks 12 Weeks May 23 73.60% ST May 23 June 6 June 20 July 4 July 18 August 1 August 15
Bordeaux Futures $20M $16.9 M $15M $6.6 M $2.1 M $5.1 M $10M $5M Vintage: 2005 2006 2007 2008 $0M
Essentials Collection: Under review Objective of program review: Take a more strategic approach to grouping Essentials by product attributes: Continuously Available Products: Champagne Iconic International Essentials Acknowledge the unique attributes of each collection. Develop objectives (including sales targets) and plans for each collection
Essentials Collection: Under review Also under consideration: review of current sales targets. The current system will be replaced by a more sophisticated matrix of key performance indicators (KPIs) that will form a scorecard, that will be reviewed biannually with agent and category management.
The Environment Light-weight Glass Organic Biodynamic Sustainable Agricultural Practices
Vintages INVENTORY UPDATE Tom Wilson, Vice President, Vintages
Inventory Team Christine Botham Inventory Manager Gord Froner Store Allocations Nancy Pybus Teige Reid Ruth Simpson Product Flow Specialists
Retail Inventory March 31, 2009 (Cost $) Actual Budget Variance %Variance % Last Year $26.57 M $20.20 M $6.26 M 30.8% 36.2% Retail inventory at historic high level Over-weighted with high price points Lump will take some time to normalize Stores receiving what they order - no forcing
Warehouse Inventory March 31, 2009 (Cost $) Actual Budget Variance %Variance % Last Year $33.30 M $28.58 $4.72 16.5% 19.2% Front Line Program Over 700 active front line release product available; 1301 total skus Direct Programs - Classics, VSO, Futures 1,881 skus in total 94% pick slot utilization
Warehouse Inventory cost $ (% compared to Plan) (5.6%) (7.8%) (5.6%) (2.7%) $55 $28 $ Million P6 P7 P8 P9 Actual/Forecast Plan Last Year $0 P6 Actual: $40.6 M P6 Last Year: $48.4 M
Retail Inventory cost $ (% compared to Plan) 11.8% 10.9% 6.2% (1.4%) $37 $19 $ Million P6 P7 P8 P9 $0 Actual/Forecast Plan Last Year P6 Actual: $25.4 M P6 Last Year: $21.2 M
Total Inventory cost $ (% compared to Plan) 0.5% (1.1%) (0.6%) (2.1%) $80 $40 $ Million P6 P7 P8 P9 $0 Actual/Forecast Plan Last Year P6 Actual: $66.0 M P6 Last Year: $69.6 M
Retail Inventory Situation September, 2009 Retail inventory exceeding plan and last year Portion attributed to load for new/ renovated stores Significant portion of super-premium inventory is dead or close to it Release allocations: we have returned to forcing product Release ship thru s are in the 90% range Will review super-premium inventory in January
Warehouse Inventory Situation September, 2009 Warehouse inventory below plan and last year Reflects lower price points for releases Essentials turns have increased/lower safety stock August Bin End sale helped 17,000 cases Pick slots are still an issue for Retail and Directs programs
New Letter of Commitment Process Agents and Suppliers will be notified by email when an LOC is ready Agents will be able to view the LOC Suppliers will be able to view and reply to an LOC online The new process will allow Suppliers to delegate to Agents the responsibility of replying to a LOC Implementation October 2009
Web-Based Purchase Order Process Simplifies the Purchase Order Process Eliminates faxes, reduces paperwork and calls Provides the Suppliers on-line access to view and confirm the status of purchase orders, request changes and much more Notifies the Suppliers via email when POs are issued Each Supplier will have the ability to grant access to others Agents will continue to receive Narrowcast Implementation January 2010
Vintages PROGRAM UPDATE Kate Mallett-Thomas, Director, Sales & Purchasing, Vintages
Vintages Program Update Premium LTO Classics Re-features Bin End Results Rosé Results Summer Store Ontario P7 Forecast In-Store Tasting Program
Premium LTO Results Objective: Reduce large lots of high value retail inventory through LTO initiative, protecting Vintages margin dollars P4 Sold 6,004 units Sell Through 30% of remaining inventory Net Sales: $229,829
Premium LTO Results
Premium LTO Results Beringer Chardonnay Sold:1,121 units Sales: $38.0 K D Arenberg Dead Arm Shiraz Sold:1,012 units Sales: $42.9 K Fattoria del Barbi Sold:1,433 units Sales: $48.8 K
Premium LTO Results P5 Opening Inventory - 14,845 units Sold 3,557 units Sell Through 24% of inventory Net Sales: $142,130
Premium LTO Results
Premium LTO Results Elderton Command Shiraz Sold: 268 units Farina Amarone Sold: 326 units Sales: $18.1 K Sales: $19.7 K Banfi Brunello di Montalcino Sold: 874 units Sales: $47.7 K
Premium LTO Results P6 Sold 3,623 units Sell Through 30% of inventory Net Sales: $97,037 Other Benefits Allowed head room at retail to move residual inventory out Presented discount program in novel way to customers Deeper than average discounts offered
Premium LTO Results Mitolo Shiraz Sold: 1336 units Sales: $45.3 K Carte Verte Champagne Sold: 545 units Sales: $21.8 K Clos St. Jean Chateauneuf du Pape Sold: 438 units Sales: $15.7 K
Classics Re-feature 10 products refeatured under a theme. Goal to keep the Classics program visible and active in between programs given the shift from 5 to 3 campaigns
Classics Re-feature 10 products refeatured under a theme. Goal to keep the Classics program visible and active in between programs given the shift from 5 to 3 campaigns
Classics Re-feature Wonderful Whites (P4) 1st feature in the July 4th release Sales to date: $8840, 183 units sold Great Reds for the Grill (P5) August 1st release Sales to date: $13,160, 276 units sold Fireside Sippers (P6) August 29th release Sales to date: $7274, 136 units
August Bin End Update Number of products:176 Case Volume:17,000 (Retail & Warehouse) Discount range:11% - 40% off original price, ($2.00 - $60.95 off original price) Value of inventory: $3.74 million (Net) Stores involved: 100 stores allocated product Net Sales through Week 25: $1.75 Million; 46.7% Sell Through
August Bin End Update Strongest sales coming from products priced less than $25 Reds are selling the fastest Notable styles are hot buys: Chablis, Brunellos, California cabs, Australian shiraz Well-known suppliers are also customer favourites: D Arenberg, Hess, Banfi, Zind- Humbrecht
Rosé Program June-September 55 Rosés in Program Program Net Sales YTD Plan Net Sales Difference European Rosé $1.94 M $1.22 M 59% New World Rosé $1.17 M $1.22 M (5%) Total $3.09 $2.43 27%
Summer Store Results Total Sales P6: $ 154 K; +26.5% Year to Date Sales P6: $ 3.7 M; +4.5% Number of Stores: 95
P7 Ontario Forecast Program P7 2009-10 Plan Net Sales P7 2008-09 Net Sales % Change Ontario Total $1.6 M $1.4 M 12% Ontario White $704 K $604 K 17% Ontario Red $513 K $428 K 20% Icewine $397 K $403 K (2%)
In-store Tastings Program Powerful tool in boosting sales through word-of-mouth advertising Can now apply online for In-Store tastings using In-Store Tasting Program website Must apply for access (form on Trade website) Website outlines participating stores, eligible products, application deadlines and fee information
Questions and Answers Tom Wilson & Kate Mallett-Thomas, Vintages
OIWSBA Member Questions Key Topics of Discussion Consumer Behaviour Licensee Sales Monday Tasting Process Essentials Classics Catalogue, VSO and ISDs Forced Distribution of Inventory
Consumer Behaviour Q - Does Vintages have a strategy to return to an up-sell approach, or has there been a more permanent shift to value? A - As highlighted at the Vintages Trade Day this spring, customers had shifted their purchasing down into the $15 - $35 price bands. To date this purchasing pattern has not changed. Given the lead-times, Vintages has only recently been able to re-align the retail product price points down to where the customer is currently purchasing. Consequently sales for Vintages have been rebounding and more recently are trending above last year. Vintages has and will continue to offer products of great value at all price points including premium and ultra-premium prices, allowing customers to trade up as they see fit. When the market begins to shift more consistently upward, Vintages will follow with deeper purchases of those premium products. As a hedge, many ultra-premium products will be purchased through an expanded Virtual program.
Consumer Behaviour Q - Is Vintages concerned that consumers may expect to see sales on a regular basis? A - Vintages will continue to use various promotional tools to help drive sales and keep inventory flowing through all its channels. These tools include rebating products that have not met their sell through targets and having our regular retail sales at key times of the year: early winter (February) and late summer (August). This is not new for customers, and allows them to trial more premium priced products.
Consumer Behaviour Q - Given the studies the LCBO does regarding customers shopping baskets, can you please provide some insight into Vintages consumer purchasing behaviours? A - We did not have enough time to accurately respond to this question. Our Customer Insights department has current Vintages shopping basket information and we will make this information available as soon as possible.
Licensee Sales Q - Can you please provide some insight into Vintages licensee program objectives? A - The mandate of the Licensee program is to develop and grow Licensee sales by marketing existing programs and products. Develop novel business opportunities and programs to meet the needs of the Licensee (educational seminars, staff training). Foster positive relationships/partnerships with Licensee customers by offering ultimate customer service, customer appreciation.
Licensee Sales Q - How can our members assist Vintages staff in meeting the Licensee program objectives? A - The Trade can focus their efforts in supporting Vintages licensee sales by ensuring that with each purchase from their product portfolio, that they are driving their own sales to Licensees to ensure the 10% holdback of inventory is sold through.. We would encourage agents to contact Robin Sirutis in Toronto and John MacKinnon in Ottawa to discuss possible collaborative Licensee strategies
Monday Tasting Process Q - Can you please describe the tasting panel process on Mondays? A - Through the pre-submission process approximately 100 wines are chosen for tasting. The wines are sorted in a progressive manner from white (light to full bodied) to red (light to full bodied) then sweet to fortified and spirits. The vast majority of products are directly related to the specific theme of the open pre-submission call i.e., Australian reds, Tuscan reds, etc. The tasting will also include a small group of ad hoc offers unrelated to the main theme. The panel members taste individually and at their own pace.
Monday Tasting Process Q - How are decisions made? A - Prior to tasting day the respective Category Manager and Product Manager determine the number of sku's to be purchased and total value of the spend. This is based on the trends, thematic plan, financial forecast for the respective Set Subset and current inventory position. The participating panel members review and score each wine. Each taster uses the same system and method of scoring. The wines are not tasted blind. Tasters are aware of origin, price, and packaging. The Category team compiles the panel scores and makes their final decisions based on all inputs.
Monday Tasting Process Q - Who participates in these tastings and how are bottles evaluated? A - The tasting panel consists of the respective Category Manager, Product Manager, Product Advisor, as well as Senior Product Consultants from retail. The wines are evaluated on overall quality which would include varietal characteristics, origin, price/quality, packaging, marketability, etc.
Essentials Q - Can you please explain how the Essentials quota system functions? A - The current Vintages sales targets are set on achieving a net annual dollar sales amount based on the style of the product i.e., red wine ($750,000), white wine ($500,000), Icewine ($300,000), Champagne, Spirits etc. The sales targets are staggered such that the expectations for the first year are slightly less than the final target, as this allows time for the product to become fully established in the marketplace. For example a red wine is expected to achieve a minimum of $600,000 in net sales in the first year and $750,000 in the second year. It should be noted that targets are a minimum sales requirement to remain on the VINTAGES Essentials portfolio. Also under consideration is: promotional support, store distribution, licensee contribution and light weight glass. The current VINTAGES Essentials sales target system is currently under review for net sales contribution amount as well as other pertinent metrics. The new system will be communicated in the New Year.
Essentials Q - With new releases featured on block pile displays, Essentials products seem to be less prominent on store shelves. Concern has been expressed about a downward sales trend for Essentials products. Please comment. A - Market conditions have changed significantly over the past year and front line releases have been adjusted to reflect current customer demand. In our discussions with the Trade, the VINTAGES category management team has communicated the need for Essentials support to increase in order to ensure that they remain competitive in this market place. Brands that have responded with increased promotional activity or competitive price points are faring better than those that have not responded accordingly. Essentials agents need to understand that while they enjoy the position of being one of the limited numbers of continuously available products in the VINTAGES channel, they have to work harder for each sale during these economic times.
Classics Catalogue, VSO and ISDs Q - Are these sales channels meeting your expectations? If not, are there plans to make any changes to improve their performance? A - Based on this year s Business Plan, the objectives outlined for these programs were adjusted according to the new economic reality (not against last year) such that with the exception of VSO, results are on target. That being said, the Vintages team is always looking for novel opportunities to drive sales above those set out by the plan. As for Vintages Shop-On-Line, as mentioned in the presentation, Vintages is looking to make short term changes along with long term changes. Shortly, a change to the landing page will be introduced. This will be more promotionally driven with a focus to drive sales.
Classics Catalogue, VSO and ISDs Q - Do you have many instances where demand exceeds supply for the Classics Catalogue, and if so, have your customers expressed frustration with the purchase process? A - For 2009-10, Vintages had intentionally reduced the purchasing strategy and sales targets for the Classics Catalogue Program. Some of that business was going to be shifted to Virtual Offers and VSO. This enables Vintages to be more nimble with offers, better manage customer s expectations, reducing disappointment and the need to commit to and carry expensive inventory. Shortfalls in meeting Classics customer demand for typically high third party score products continues to be an ongoing problem for Vintages and a huge driver of customer dissatisfaction. We believe increasing our Virtual offers may be a method to alleviate some of these customer issues.
Classics Catalogue, VSO and ISDs Q - The standard Vintages need letter is not very specific for either the Classics Catalogue or Internet programs. More information would assist Members if making better offers. Can you please provide insight into which wines are best positioned for sale through this channel? A - Vintages Needs Letter provides as much information as we feel is necessary for each of the purchasing calls. The open and broad Classics and VSO parameters are intentional to allow the buyers to purchase products for a broad range of needs in one go, to cast the net wide and to allow the Trade to showcase the best they have in their portfolios. The products that are best positioned for these channels are the premium, ultra-premium wines and spirits, with high third party accolades.
Forced Distribution of Inventory Q - At a previous meeting, you informed us that the forced distribution of inventory for product releases was changing. Can you please provide an update of what the current procedure is? How much is being held back? If stores order 100% or more of the ordered inventory, do you still hold back stock? If an order is undersubscribed, do you force more out to stores? A - Since June of this year, with stronger sales of business, the percentage of the release orders shipping out to stores has increased to between: 85% to 90%, with the remaining being kept back until the Monday after release day, for Licensee and Customer orders. From the Monday onwards, agents can work with stores to pull remaining inventory out into retail. We have returned to our release strategy of forcing products as that are undersubscribed. However we want to reiterate that we see it as the role/job of the agent to be out at retail, engaging with the product consultants and their Licensee customers to get them to place orders of the product to ensure a strong pull of the inventory.
Questions and Answers From the Floor Tom Wilson & Kate Mallett-Thomas, Vintages
Thank You