Presentation - Doing Business with LCBO

VintagesCentral Allocation ProjectOverview

Today’s Objectives• To communicate project scope and objectives• To demystify the new Vintages CentralAllocation process: explain how it will improveproduct distribution, sell-through, and overalloperational efficiencies• We ask that you please hold your questionsuntil the end

Change?.........Why?Change is born of necessity and propelledby vision

Change?.........Why?• Thanks to the tremendous support and hardwork of our Product Consultants and StoreManagers, Vintages sales have now outgrownour ability to manage the business throughmanual processes• Vintages Central Allocation (VCA) is envisionedas a key tool in helping move the Vintagesbusiness forward, to keep up with thedynamic needs of our customers

VCA - Category Benefits• Wider, more balanced product distributionthroughout the retail network• More inventory in stores at time of Release• More accurate sell-through reporting• Time-saving efficiencies for Inv Team: lessfollow-up with stores, reduced “rush” orders• Reduced residual whse inventory

VCA - Category Opportunities• Once VCA goes live we will be able to moreaccurately measure “true” sales, (i.e. lessinfluencing factors, such as limiteddistribution), so it will be much easier toassess under-performing and/or overpurchasedSKU’s, which will lead to improvedCategory purchasing decision-making in thefuture

VCA - Category Opportunities• Vintages will develop a more firm exit planstrategy for Release items, and execute it in amore timely manner than today to ensure thatstores are not stuck with slow-selling items• This will also ensure that we are in a positionto quickly remedy any potentially misallocateditems

VCA - Trade Benefits• Improved SKU distribution: right product,right store, at the time of Release• Future goal of 100% allocation in 6-8 weeks;no need to “solicit” stores to place orders• Increased sell-through and sales resultingfrom improved distribution

Current Process Gaps• While individual order requests may appear tobe appropriate at an individual store level, thesummary result of these orders may not beoptimal for the overall Vintages/LCBObusiness, (i.e. lost sales opportunities)• Orders often not submitted, requiring followup;(5-10% of stores every two weeks)• Vintage allocation team must review/reallocatemultiple SKU’s on every release

Current Process Gaps• Retail requested “No Force” list, (59% of total264 Vintages locations currently restricted),meaning store orders cannot be increased• This results in excessive residual warehouseinventory of saleable products, and/orexcessive inventory being sent to remainingstores• Stores often not “ready for business”, resultingin requests for last minute rush orders

Current Process - Average Release

Current Process Gaps• Current practice is to allocate 80% of the totalquantity purchased for each release• This results in excessive residual warehouseinventory on SKU’s with low initial store draw• New system will allocate 80% of total quantityof each SKU, reducing residual inventory byensuring stock is in stores, where it can sell, asopposed to warehouse

Vintages Central Allocation - New• Release information form will be sent out sevenweeks prior to Release, (same as today), insteadof store order form• Store allocations will be based on salesperformance, and guided by store capacity limits,(for both unit and SKU count)

Vintages Central Allocation - New• Each SKU in a new release will have an “ModelSKU” assigned to it for forecasting purposes• The “Model SKU” is a system-determinedbrand from a previous Vintages Release in thesame season, that most closely matches thesubset and price-point of the new release SKU• Vintages Essentials and LCBO brands are notused for modeling

Vintages Central Allocation - New• Allocation quantities are based on the firstthree weeks of sales of the Model SKU inapplicable stores; (each store’s ratio of salesof the model SKU is then applied to theforecast for the new SKU for each store)• If a store did not sell the Model SKU,allocation eligibility will be determined by themost recent 26 week sales history at thesubset level of the new SKU

Vintages Central Allocation - IPI• Intelligent Product Introduction, (“IPI”) is a newmodule in DCM, our corporate forecastingsystem.• IPI’s primary function is to determine the mostappropriate Model SKU to use when introducingnew products• IPI looks at each individual new product assignedto a release, and finds the ten best potentialModel SKU’s for the new item, based on predeterminedselection criteria

Vintages Central Allocation - IPI• This selection criteria is primarily based on:subset, price point, and seasonality• User-defined weighting is applied to allattributes used in the criteria table• Vintages user has the option of choosing analternative model SKU, if the best model SKU’sdo not appear optimal

New SKUEstablished SKUs

New SKUBestMatch

Vintages Central Allocation – New• Once Model SKU’s have been determined, DCMthen creates suggested allocation quantities foreach store, based on the forecasted sales of thenew SKU’s• The Vintages team then reviews the new AllocationCapacity Report to identify capacity issues at eitherSKU or unit level; capacity max settings created bySupply Chain, and will be validated by DM’s• Over-allocations are then reduced, so thatindividual store capacities are not knowinglyexceeded

Vintages Store SKU CapacityLCBO Retail Supply Chain has used the followingfactors in determining store capacities:SKU Count:• Vintages Release SKU’s on hand for eachlocation with inventory greater than 2 units,(excludes Gifts, and Vintages Ethnic brandsmerchandised in LCBO space)

Vintages Store SKU CapacityLinear Footage:• Includes all fixtures in a store dedicated to thepermanent merchandising of Vintagesproducts, (incl Essentials), with the exceptionof the Vintages Feature Fixture. Added to thisis the Vintages Incremental, which wasadditional footage collected in discussionswith District Managers. It includes Vintageslocations used on a permanent basis solelydedicated to Vintages products.

Vintages Store Unit CapacityStore Unit Capacity• Average unit capacity is based on theaverage weekly inventory in each storeover the most recent two year period• Maximum unit capacity = average +10%, a conservative seeding estimate tomitigate potential overstocks

Legend:Green = okYellow = under capacityRed = over capacity

Vintages Store Unit Capacity• Target Capacity (units) = (current on hand +current in transit + current on order + firstallocated quantity) – sales forecast, (salesforecast is based on estimated sales betweentoday’s date and release date)

Vintages Store Capacities• Store DICE orders will affect future allocationsas they are included in the capacitycalculations to ensure that there are no Healthand Safety issues at store level• Capacity numbers are not static values; if,after a few allocations, our original estimate isproblematic, the Store Manager should advisetheir District Manager, who can then adviseVintages

VCA - Final Store AllocationRelease DateAllocation

VCA – Questions & ConcernsExample of Major Issues – product notallocated or insufficient:• Wines of the Month• Cover wines• Food and Drink• Feature

VCA - New Store Set-up• We will utilize demographics and capacityinformation from Retail Supply Chain to assistin set-up, but will welcome input from theStore Manager and/or Product Consultantuntil the store establishes a definitive salespattern

VCA - Renovated/Relocated Stores• Historical sales will still be used to determineproduct assortment• Vintages will work with the SM and ProductConsultant to collaborate on post-renovationallocations, until the store establishes adefinitive sales pattern, (as required)• SKU count and unit capacities will need to bereviewed/updated to reflect new Vintagesselling space

VCA - Seasonal Stores• Certain stores have very dramatic sales shiftsbetween their in-season and off-seasons• These stores have been identified andconfirmed. Policies have been created toensure they receive a max of 24 units of eachstore-eligible release item during their offseason• This store list not static, can be revisited at anytime at the request of the SM/DM

VCA - Seasonal StoresOn an annual basis, (i.e. rolling 13 periods)(total # of stores with R13 VINTAGES sales = 628)LocationNoLocation No DESCSales $ NetR13Sales $ NetR13 RankSales LitresR13Sales LitresR13 Rank403 Port Carling Hwy 118 & Medora St $1,400,379 87 46,526 11180 Parry Sound Sequin & Miller $574,255 191 23,651 192On a seasonal basis, (i.e. sales for periods 3-6 only)(total # of stores with PT3-PT6 VINTAGES sales = 619)Location NoLocation No DESCPT3 - PT6 Sales$ NetPT3 - PT6Sales $ NetRankPT3 - PT6 SalesLitresPT3 - PT6 SalesLitres Rank403 Port Carling Hwy 118 & Medora St $989,347 20 33,445 2380 Parry Sound Sequin & Miller $341,277 103 14,172 101

VCA - Retail Benefits• Frees up valuable Product Consultant timethat can/should be spent on the selling floor• Reduced overstocks and residual inventoryat stores• Improved distribution of product, leading toincreased customer satisfaction and sales• Zero release orders missed due to ProductConsultant absence

Vintages Central Allocation - FAQ’s• Please refer to handout

VCA Focus Group Comments• The Vintages team met with a focus group of26 Store Managers and Product Consultantson March 14th to present this same overviewof the new Vintages Central Allocationprocess. Here is some of their feedback………

VCA Focus Group Comments• “no brainer choices based on history”• “less pressure on me to pick products”, (SMwith no Product Consultant)• “more effective distribution and uniformity”• “overall, a more accurate assortment”• “this will force me to spend more time onVintages….a good thing!”• “reduces hoarding”

VCA Focus Group Comments• “less guesswork at store level”• “more info for Buyers / demographics”• “fairer allocation”• “sell, sell, sell”• “levels playing field between new andseasoned Consultants”

VCA Focus Group Comments• “ no missed orders”• “more time spent on customer service”• More time to dedicate to: “Hello/Bonjour,staff and market education”• “lose ownership”• “best for company”

Vintages Central AllocationQ & A

Vintages Central AllocationThank you!