How could the LCBO be improved?
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Jan 04, 2015  |  Vote 0    0

How could the LCBO be improved?

The provincial retailer is under the microscope as the province looks at ways to increase revenues. Could it be more profitable?

OurWindsor.Ca

The recently opened LCBO store in The Beach is a pretty space, with high ceilings, plate-glass front windows that let in plenty of light and a robust selection of vintage wines lining the herringbone-tiled middle aisle.

At 8,500 square feet on Queen St. E. east of Woodbine Ave., it is the first outlet of its kind, an urban infill location designed to bring a wide selection of premium products into an underserved premium marketplace.

“I get a lot of ‘This is the nicest LCBO I’ve ever seen,’ ” says manager Monique Wilmott.

Since officially opening in June, it’s been a success, with crowds lined up to the back of the store during the summer jazz festival as cashiers at the six registers rang up sales as quickly as possible.

But while the LCBO is proud of the new location, it doesn’t want taxpayers to think that this is the beginning of an era of opulence for the province’s wine and liquor monopoly.

“The LCBO does not spend taxpayer dollars on such capital investments. In fact, all LCBO operations, including opening new stores and upgrading older ones, are fully funded from LCBO revenues,” according to spokesperson Heather MacGregor.

Earlier this year, former TD Bank Group president and chief executive officer Ed Clark, who chairs a provincial panel tasked with maximizing the potential of Ontario Crown corporations, said the LCBO could be doing better.

He said the LCBO needs to use its heft to negotiate better prices from suppliers, adding that it also needs to build its business around “what the consumer wants, not what it wants.”

MacGregor points to markers of progress: Twenty years ago, LCBO net sales were $1.765 billion, operational expenses were 18.9 per cent of net sales, and the dividend transfer to the provincial government was $630 million.

At the end of the 2013-14 fiscal year, the LCBO posted nearly $5 billion in net sales, operating expenses of 16.2 per cent and the dividend to government was $1.74 billion.

The LCBO also pays full-time permanent workers significantly more than retail workers in the private sector — as much as $25 an hour plus pension and benefits.

Not all on-the-floor employees make that much money, however. The Ontario Public Service Employees Union (OPSEU), which represents more than 7,000 LCBO workers, has brought a fight for better wages for occasional workers to the Ontario Human Rights Tribunal, said spokesperson Greg Hamara.

Occasional LCBO workers, hired mostly during December and the summer months, make significantly less money for doing the same job, something OPSEU wants to change.

Hamara supports the LCBO’s move to improve stores, pointing out that in the past, customers had to write alcohol orders on a slip of paper, which would be given to an LCBO associate who gathered the bottles. There was no browsing around a rich, retail environment, such as the flagship Summerhill store.

“It truly was a Gulag-type experience to shop at the LCBO. That’s what will keep it out of private retail hands, if we have a retail store experience that can outdo anything the private sector can do,” said Hamara.

Clark will weigh in on the LCBO again in the spring. In the meantime, The Toronto Star asked retail advisers how they think the LCBO could earn better returns for the province.

Anthony Stokan is a partner with Anthony Russell Inc., advisers and research-based trend forecasters for retailers, shopping centres and organizations worldwide.

Stokan believes that because the LCBO has a monopoly, it shouldn’t build premium locations. He suggests the LCBO adopt a more utilitarian concept, like Costco, which has staggeringly high sales per square foot compared to other retailers and shopping malls — $1,000 for Costco versus $500 for a typical mall.

“They’ve created an unnecessary luxury in terms of the destination . . . consumers feel they’re paying a premium to shop in that pristine environment,” Stokan said.

He points out that liquor stores in the U.S. are not elaborate, and in Europe, alcohol is sold in department stores, drug stores and convenience stores.

He said the LCBO could further reduce costs by cutting back on marketing, which he says is an unnecessary expense since it has no competitors.

The LCBO contends that it has increased profit margins by building the chain and offering more premium products, which have been well-received by customers. MacGregor also says LCBO marketing is based on extensive customer and market research and return-on-investment performance analysis.

Sally Seston is a director of Retail Category Consultants.

Seston thinks Ontario residents would be better served if the LCBO were privatized because ending the monopoly would lead to more competition and better prices.

She, too, questioned whether the LCBO is spending too much money on stores and ancillary items.

“Food & Drink magazine is a fantastic publication, and while the LCBO says that is funded by the vendors, the vendors are obviously rolling that into the price of the product,” she said.

“As a monopoly, why do they have to be paying for Air Miles to get people to buy alcohol?”

She said in markets where Costco is permitted to sell wine to consumers, even the premium wines do well.

“If you walk through a Costco, you will see products as premium as the LCBO has, offered in typical Costco fashion, and it slides out of there,” she said of her experience at stores in the U.S.

“What drives purchases at the LCBO is more the recommendations than the prettiness of the display.”

Antony Karabus is the chief executive officer of HRC Advisory, which focuses exclusively on working with retailers to enhance profitability.

Karabus believes investing in a good retail experience is a good idea, and believes the LCBO has significant opportunity to increase sales and margin dollars by selling more than just alcohol.

“Given the reality that numerous Ontario residents visit the LCBO dozens of times a year for seasonal, family and other occasions to meet their needs for alcohol to complement the meal or other occasion, it would seem logical that LCBO could create a well-curated general merchandise extension to its alcohol product,” said Karabus.

He says the LCBO should also sell more beer. Currently it is limited to selling six-packs; anything larger must be purchased at The Beer Store, which Karabus said is an archaic regulation originally struck to protect Canadian brewers. Now that the breweries are owned by international corporations, the time is right to move beer sales into LCBO stores, he said.

Toronto Star

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