How can we improve our supply chain procedures?

How can we better serve our customer?

How can we reduce our environmental footprint?

In 2007, these are common questions that beverage companies, marketers and distributors alike ask themselves on a daily basis. Companies are looking to reduce costs while boosting productivity, become more environmentally friendly and offer customers top-quality products.

The Liquor Control Board of Ontario (LCBO), a provincial government enterprise responsible for controlling the sale of alcohol throughout the province of Ontario in Canada, has implemented strategies and instituted practices over the course of its five-year strategic plan, which is coming to an end in March, to make the ride along the learning curve a little less bumpy.

At the forefront of the Toronto, ON, Canada-based agency’s initiatives is president and CEO Bob Peter. Peter took the reins in January 2007 after serving as the president and chief operating officer of the LCBO since 2001, and began to set the bar higher, one notch at a time, challenging not only LCBO employees, but its business partners as well
to think beyond the bottles on the shelf.

Peter points to investments made in supply chain practices, LCBO stores, employee training and packaging innovations as reasons why this year marked the 13th consecutive year the LCBO increased its dividend reaching a record $3.34 billion* in net sales—a growth of 6.4 percent.

The LCBO experienced growth across all beverage categories for its 2006-07 fiscal year from April 1 to March 31. Vintages, its fine wines and premium spirits business unit, saw double-digit growth with increased sales by 18.7 percent to $223 million. The wine category (excluding Vintages) topped the CAD$1 billion mark for the first time with sales 44 percent higher than they were five years ago, the company reports. Spirits, LCBO’s highest margin product, saw a 5.6 percent rise, and the beer, cooler and ready-to drink cocktail category was up 4.7 percent.

The LCBO also increased its dividend to the province to nearly $1 billion, which helps pay for health care,
education and other important government programs and services. (The total estimated value of Ontario’s alcohol
market is an estimated $7 billion; the LCBO holds more than 50 percent of the market share.)

“The supply chain and environmental packaging successes achieved by the LCBO add to its reputation as a leading retailer,” says David Caplan, Ontario Minister of Public Infrastructure Renewal, in a statement submitted via e-mail.

The Ministry of Public Infrastructure Renewal is the provincial government ministry that is responsible for the LCBO. “All Ontarians benefit when the LCBO succeeds as a fiscally and socially responsible retailer focused on environmental stewardship.”

The ‘F’ Word
The LCBO operates 602 stores throughout Ontario offering more than 3,600 SKUs from more than 72 countries—that’s a lot of inventory. Peter admits that before he joined the LCBO team, its supply chain procedures were operating well, but not as efficiently as they could be. Peter assessed a way to improve on the flow of inventory.

“The ‘F’ word is Mr. Peter’s favorite word,” says Lisa McGregor, director of supply chain, LCBO. The ‘F’ word is code for “Flow.” Keeping with that theme of flowing inventory, the objective was to get 80 percent of deliveries off the trucks and onto store shelves as opposed to being stored in stock rooms. The mission, “door to floor,” as Peter refers to it, was executed on many fronts.

In store, to achieve one-touch handling of inventory, the amount of inventory flowing into stores had to be reduced and category management training had to be refashioned.         

“We had to change the number of weeks supply stores carried and educate 602 store managers that we were going to operate with less inventory,” says Peter. Using a centralized inventory replenishment system, inventory managers oversee orders, making changes when necessary, that are delivered to stores more frequently (two to five times a week) enabling employees to handle smaller delivery loads on a daily or semi daily basis.

The idea was to get inventory “just in time,” explains McGregor. “That was a huge savings for us in inventory reductions, employee costs as well as increased service levels, sales and customer satisfaction,” she notes.

Peter reports that the LCBO is now turning inventory 7.6 times compared with 5.2 in 2001—a cost reduction of about $86 million, and about $1 billion more in sales.

“A big cornerstone of the five-year strategic plan was working much more closely with our suppliers,” says McGregor. To help get products to market faster, the LCBO provides its suppliers with an electronic submission system, NISS (New Item Submission System), instituted in 2003, that allows suppliers to manage new product submissions and track their status from a single point of reference. “Again, that was a huge contributor to our bottom line for reduced expenses and just getting better, new products to market faster,” says McGregor.

Managing close to 17,000 new product submissions each year, NISS, designed in partnership with QLogitek, helped save $1.18 million annually while generating nearly $130 million in new product revenue by logging, tracking and approving and declining new item offerings immediately. The system had a three-month return on investment where the LCBO saw an ROI of 340 percent, reports the Retail Council of Canada (Toronto, ON), which awarded the LCBO with its Retail Supply Chain Award for NISS at its 2007 Excellence in Retailing Awards.

To further work more closely with suppliers, the LCBO also made efforts in collaborative planning and forecasting. It instituted an 18-month promotional calendar to let the industry know ahead of time what events/promotions would be taking place. This would allow suppliers to forecast their own inventory, contributing to the “just in time” theme, and also plan on when and in which of LCBO’s dozen or so publications, including its bimonthly magazine, to invest their advertising dollars.

‘Discover the World’
“Our brand vision ‘Discover the World’ helps to recognize the fact that customers are a lot more knowledgeable and sophisticated these days,” says Chris Layton, media relations coordinator, corporate communications for the LCBO. “We have the challenge to take the mystery out of shopping and give them more information on products.”

The LCBO equips its customers with knowledge by offering three types of courses—wine appreciation, a program called Tutored Tastings and cooking classes—and by giving them access to 6,500-plus (3,280 full-time, 3,283 part-time) informed employees.

LCBO employees undergo mandatory product knowledge training, notes Layton, and, as a result of supply chain improvements, are able to spend more time on the floor assisting customers as opposed to stocking shelves.

One hundred and ninety employees are classified as product consultants, highly trained product experts that can offer in-depth information on products. In the top 300 stores, the LCBO has instituted WOW (World of Ontario Wine) leaders, notes Peter, who receive special training to promote local wines. Other select stores are equipped with Beer Guys and Beer Gals that can speak specifically to Ontario’s craft beer offerings. And there also are spirits advocates who can discuss distilled spirits, offer cocktail ideas and food pairings.

Customers also are experiencing bigger and better LCBO stores. In 2005 and 2006, the LCBO spent $25.3 million on capital improvements to its stores. It continues to open about 20 new, relocated or expanded stores a year and renovates about 25. Ranging in size from 10,000- to 18,000-square-feet, to 30,000- or 32,000-square-feet in larger communities, LCBO stores have added room for more products and extended offerings.     

“The biggest thing that has happened over the last five years is the amount of space we are devoting to Vintages,” says Peter. This year, Vintages will introduce more than 5,000 new products in addition to six specialized Vintages stores and more than 200 Vintages sections within stores.

“We’ve seen double-digit sales growth [in our Vintages unit] over the last couple of years and that reflects that consumers are trading up to premium products,” says Layton, “so we’ve tried to reflect that in our stores.”
Space also was allocated for refrigeration—from about 10 feet to about 100 feet—to house a larger variety of imported and craft beers.

The Three Rs
Reduce. Reuse. Recycle. At a time when environmental friendliness is at the top of everyone’s minds, especially in an industry that relies on packaging, those three words are often recited. For Peter, he wanted to challenge his counterparts to collectively come up with a way to significantly reduce the amount of packaging ending up in Canadian landfills.

Many companies rose to the challenge. One in particular was Boisset, a wine, spirits and liqueur importer and supplier. The company was the first to launch an AOC wine in a Tetra Pak container. Boisset’s 1-liter French rabbit line launched in 2005 and has since become one of the LCBO’s top-selling brands.

“It is a very big innovation,” says Jean-Charles Boisset, president of the company. “So far, we’ve saved the equivalent of more than 6 million pounds of solid waste.” French rabbit, which was launched in merlot, cabernet sauvignon and chardonnay varietals, is packaged in collapsible Tetra Prisma containers that reduce packaging by 90 percent in comparison to a wine bottle, relays the company.

“At the same time we have created a phenomenon behind us for many other wineries that have actually followed us in the process,” says Boisset.

Another successful Tetra Pak launch was with 20 Bees, a 100 percent homegrown winery located in Ontario’s Niagara region, that, with the support of the LCBO, has been able to thrive, now offering nine wines and continuing to bring new products to market.

The LCBO now carries approximately 100 different wines in Tetra Pak containers, notes Peter. “There is a movement underway,” he says, “and there are a lot of firms that all have the same objective of reducing.”

The LCBO set out to eliminate 10 million kilograms of waste within five years and reached that goal just after two years. Tetra Pak containers take up less space on trucks—they require one-third less cargo space than the same volume in wine bottles—and are recyclable so they can be collected as part of the Blue Box municipal recycling program in Ontario, which the LCBO helps support, contributing more than $25 million to date.

For consumers, Tetra Pak containers offer the added bonus of convenience. With a twist-off cap (and containing two extra glasses per container) Tetra Pak packaged wines serve as an alternative for those who like to experience the outdoors or try varieties of wine at home. Because the air is squeezed out of the package, the wine will last for at least five days, notes Boisset.

The LCBO also launched its first full-size PET wine bottle with Wolf Blass Wines of Australia in August 2006. The 750ml PET weighs 54 grams prior to filling, translating to an 85 percent reduction in packaging weight. Since the PET launch, Peter says about 40 different wine companies have begun using PET bottles, in addition to other products like Smirnoff Ice. Though the PET trend is still in its infancy, notes Peter, he does see an interest from retailers like Tesco, the UK-based international grocery and general merchandising retail chain, and Sainbury’s. Today, the LCBO offers about 140 wines in alternative packages and about 200 alternatively packaged products in total.

Interest in innovative packaging, however, doesn’t come by just stocking the shelves. It comes with consumer
education, employee dedication and that initial excitement generated by the retailer.

“Mr. Peter and his team were really behind us to help us explain to the consumer the message behind the package, and that is always the key when you have a new innovation,” says Boisset. “You can stay in the world of darkness if
you don’t have a retail partner who is really willing to invest with you and make a major difference as far as the communication at the consumer level. The LCBO really helped us to do that.”

The LCBO expects to see a 100-percent increase in sales growth for wines packaged in Tetra Paks and PET for the 2007-08 fiscal year.

With the February launch of the Bag it Back Deposit Return Program, the LCBO helped the government of Ontario tackle recycling issues surrounding beverage alcohol containers. Through the program, consumers can receive 10 or 20 cents, depending on the container size, by returning empty LCBO containers to The Beer Store, a privately run network within the province.

“Our Deposit Return Program is about recycling as much as possible,” says Lyle Clarke, manager of corporate policy, LCBO. “Our strategy there is to increase our recycling rate from about 65 percent, based on our curbside recycling program (the Blue Box program), to over 80 percent with the Deposit Return Program.” An estimated 70 percent of bottles sold are being returned to The Beer Store, according to the LCBO.

Within LCBO stores, the reuse of its cloth Envirobags is strongly encouraged. The shopping bags hold four to six bottles and 50 cents from the sale of each bag, combined with proceeds from other fund-raising efforts, goes to the LCBO National Heritage Fund, which supports community-based projects to preserve or restore wildlife habitat.
“We started promoting that strongly with our store customers following almost the same philosophy as a hotel,” says Clarke, “encouraging and persuading them to forgo a bag or use a reusable alternative.” The use of leftover cardboard boxes also is encouraged for larger purchases to further reduce packaging waste.

“In one store, by asking the simple question, ‘Do you need a bag?’ we were able to reduce the number of bags used in that store by 30 percent,” Peter adds. “There are lots of things that can be done simply by asking the right questions.”

VITAL STATS
LIQUOR CONTROL BOARD OF ONTARIO (LCBO)
PRESIDENT & CEO: Bob Peter
HEADQUARTERS: Toronto, Ontario, Canada
’06/’07 NET SALES: $3.34 billion*
EMPLOYEES: about 6,500
GOALS: To be a socially responsible, performance-driven and profitable retailer, engaging its
customers in a discovery of the world of beverage alcohol through enthusiastic, courteous and
knowledgeable service.

From Beverage World December 15, 2007