Day 574

In Human Resources, we covered discipline. Yes, when an employee has broken the rules, you, the manager, have to decide what discipline to invoke–anything from a verbal reprimand to dismissal.

It was pretty straightforward stuff.

Last week in Brewing Industry, we had a visit from the president of The Beer Store (TBS), who told us what a warm and fuzzy place TBS is for craft brewers.

Today, we had a visit from two representatives of the Liquor Control Board of Ontario, Leanne Rhee, Category Manager (Beer & Cider), and James Hume, Product Manager (Beer & Cider). Not surprisingly, they were there to tell us what a warmer and fuzzier place the LCBO is for craft brewers.

Like TBS, the LCBO is big business in Ontario, the largest purchaser of alcoholic beverages in the world, doing $4.3 billion in sales last year via 617 stores and 5 distribution centres. Beer actually only makes up about 20% of their total sales, or about $914 million last year.

And like TBS, the LCBO has also evolved over the years. Up until the 1980s, LCBOs were horrible places. You walked into a harshly lit room with a counter at the back and a single table in the middle of the room. There were no bottles on shelves, just a list of available products on the table, each with a product code. You wrote the product code on a slip of paper and took it to the cashier behind the counter, a man in a short-sleeved white shirt and fake bow tie. He looked at you suspiciously. If you passed muster, he went into the back, emerged with a bottle of something, quickly slipped it into a brown paper bag, took your money and handed you your ill-gotten goods. You emerged from the store and slunk home to have a shower in a vain attempt to wash away the sin of alcohol.

Needless to say, LCBOs are now much friendlier places with a distinct “boutique” feel–much nicer that The Beer Store. However, whether you decide to place your product in TBS or LCBO (or both) requires some number-crunching on your part. As we heard last week, TBS has a rather stiff placement fee and volume fee that adds up to tens of thousands of dollars for each SKU you want on their shelves. However, once you’ve paid your fees, you get to keep the entire sales price of the beer. (So if you sell a six-pack for $12.95, you keep $12.95.) You also tell TBS which stores will carry your product.

The LCBO, on the other hand, has no placement fee, but they keep part of the purchase price–they decide how much they will keep–and they decide which stores will carry your product.

TBS versus LCBO–which one will be more profitable for you depends on the number of products you want to sell, where in Ontario you want to sell them, and how much volume you plan to sell.

Leanne and James were good enough to share some of the thinking that goes into their purchases of beer each year. First of all, beer is treated a little differently than wine and spirits. For instance, if you’ve been in an LCBO, you know that spirits are subdivided by type (vodka, gin, rum, etc.) with the premium brands placed at eye level, while less profitable discount brands are placed on lower shelves. Wine is grouped by country and region. In contrast, beer is all grouped together at the back of the store, subdivided by packaging rather than by place of origin or type.

Why the back of the store? Partly for the same reason that dairy products are placed at the back of the grocery store–so you are forced to walk by all the other groceries to get to them. Yes, beer is the eggs and milk of the grocery store. While spirits provide the best profit margin, beer is what drives traffic to the store. Get people to walk by the wine and spirits on the way to pick up a 6-pack, and you have an opportunity to up-sell them the latest spiced rum or birthday-cake-flavoured vodka.

(I’m not kidding about the birthday-cake-flavoured vodka–I saw it at a recent party. But I digress…)

In addition, the beer at the back of the store is closer to the warehouse, meaning workers don’t have to carry those heavy cartons of 6-packs as far.

What are the latest trends in beers, as seen by the LCBO? Single serve cans, especially 500 mL cans, have been hot sellers over the past five years, and now make up 36% of all beer sales at the LCBO. Craft beer itself is the fastest growing segment at the LCBO. Strangely, another hot seller has been discount brands of fizzy yellow industrial beers. (Sigh.)

Leanne and James also outlined the submission and acceptance process for new products–something we have covered in other classes–but it was interesting to hear the process from their perspective. For instance, each year they receive over 700 submissions for new products, end up tasting about 300 of them, and approve 150-200. (Last year saw a bit of an up-tick, with 277 approvals.)

Now think about that–tasting 300 new products each year–that’s almost one for every day of the year. I suppose that wouldn’t be bad if the products were tasty. However, I question how the birthday-cake-flavoured vodka slipped through.

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