Day 498

In Sales & Promotion, we learned that in 2011, the average adult in Ontario consumed 7½ litres of pure alcohol. While a lot of that was in the form of spirits, coolers and wine, the beverage of choice for many was beer. However, the reality of the situation in Ontario is that if you want your beer to be a part of that 7½ litres of alcohol per person, you have a very limited number of ways to sell it to the public: through your own brewery retail store (if you have one), through bars and restaurants, through the foreign-owned Beer Store, or through some or all of the 700 Liquor Control Board of Ontario (LCBO) stores that dot the landscape.

Given that the fastest growing segment of the craft beer market is via the LCBO,  it was time that we learned more about this vast and sometimes bizarre bureaucracy.

The LCBO, the largest purchaser of alcoholic beverages in the world, is divided into a wine division and a division for spirits and beers. In the Spirits and Beers division, each of those categories is headed by a Category Manager, who is responsible for strategy–that is, deciding which products will be carried. (Hint: get to know your Category Manager for Beer.) Day-to-day operations are handled by Product Managers, while Inventory Managers handle product flow and warehouse inventory.

Your main interface with the LCBO will be via their convoluted and distressingly non-intuitive on-line ordering and production submissions management system. I won’t get into the whole Kafka-esque scenario except to say, “Wow.” From submission of a product proposal to actually seeing your product on LCBO shelves can take nearly a year, although there are exceptions. The various deadlines for forms, labels, samples, etc. are absolute, and missing a deadline by one day will result in cancellation of the entire order. Not packaging your product to their warehouse standards will result in a return of your entire order–at your expense. (To be fair, LCBO warehouses are massive operations that use automated machinery to stack and store as well as to find and retrieve items, so putting your bar code on the wrong side of the box is a non-starter.)

Once approved, your product is usually introduced into 100 stores, the exact locations chosen by the Category Manager after some input from you. (Get to know your Category Manager!) Outside of these 100 stores, you can also convince other LCBO stores to carry your product by going to an individual store manager and convincing him or her to order the product.

As part of the submission process, you decide on the retail price for your product. The LCBO then calculates the wholesale price–how much you will keep–based on a standard formula for the type of product. The closer the wholesale price is to the retail price, the more money you make on each bottle. As it turns out, beer is a very profitable product. While a 750 mL bottle of wine that sells for $16 might net the vintner $7.50, in comparison, a 650 mL bomber of premium craft beer that retails for $11 might net the brewer $9. Woo-hoo! So once your beer is on the shelves, yay! Life is good, right?

However, before you start ordering the gold-plated bathtub fixtures for your home, be aware that if the LCBO hasn’t sold 75% of your product within 90 days, they will lower the price on your beer and come looking for up to a 25% rebate from you. They may end up de-listing the product, meaning you will have to go through the whole submission process again to get your product back on their shelves–if they even accept your re-submission.

To avoid this scenario, you can take advantage of several different ways to promote your product. Needless to say, bring your wallet, because all of them cost money:

  • You can purchase a ¼ page ad in the LCBO’s glossy high-end Food & Drink magazine for $18,000
  • You can pay for store displays, at a cost of $125 per store. (Make sure the stores that will have store displays also have plenty of your product in stock. If the store manager has run out and forgot to order more, your store display will still go up, even though it will be empty–and you will still pay $125 for that store.)
  • Sometimes the LCBO will allow you to do in-store tastings. However, if they agree to this, you will have to arrange for tastings to be done in 25-30 stores within four weeks.
  • The LCBO is an Air Miles partner, so you can get in on that by offering bonus Air Miles to purchasers of your product. The cost is 50 cents per bottle sold for each bonus Air Mile. So if you offered three bonus Air Miles on each bottle of your beer, and during the sales window for that offer, 556 bottles were sold, you would pay $0.50 x 3 Air Miles x 556 bottles = $834.
  • You can make a Limited Time Offer (LTO). Essentially, you drop the price of your beer, and pay the LCBO back the difference between the regular and sales price for any bottles sold. Oh, and there’s a flat $700 fee for the shelf tags that tell consumers about the LTO. So if you drop the price of your beer by fifty cents for four weeks and sell 556 bottles, your cost would be $700 shelf tag fee + (556 x $0.50) = $978
  • For about $9000, you can put a free-standing insert in a large daily paper like the Globe & Mail that extols the virtues of your beer.
  • For a fee, you can have your beer moved from the ordinary room-temperature store shelf to the special refrigerated beer area.
  • You might decide that to increase flagging ales, you want to add attractive and informative neck tags to the bottles that are already on store shelves. First you have to submit the artwork for approval. Once you have approval, you just mail a package of neck tags to each store, right? This pretty much guarantees that they will end up on the store manager’s desk. The best way to make sure the neck tags get on the bottles is to go to each store and put the neck tags on each bottle yourself.
  • It’s also a good idea to make nice-nice with the store employees at each store by holding special employee tastings, where they can taste your product while you extoll its virtues. Hopefully the employees will become more knowledgeable about your beer, and pass on the good word to the customers.

On to Brewery Management with Mike Arnold. Today was all about accounting. Balance sheets. Income statements. Cash flow. Mike isn’t going to spend a lot of time on this, but he considers the ability to create and read these statements to be an essential skill for a brewery manager. These can help with planning the brewery, planning an expansion of equipment or personnel, planning the release of a new product, or foreseeing the warning signs of a coming cash flow problem.

I have never taken any accounting courses, and found this information very useful. I wonder if, in addition to the very useful Math of Finance course in the first semester, we shouldn’t have also received a first semester course in basic accounting, perhaps in place of Workplace Communications. Or perhaps an accounting course should have been offered as one of our electives.

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