Ideal LCBO, inspired by The Bay, not Costco

The Costco model, a Toronto Star article with the help of a pair of retail experts suggests, is the antithesis of what the LCBO should be striving for, if profit is the goal of the Ontario government.

Costco’s simplified utility model offers many product categories, but with a limited selection in each category. For example, if you like strawberry and banana, cherry or pineapple yogurt better, you’re out of luck. Costco sells Astro Balkan-style plain yogurt and has all the yogurt on an extra-large-format shelf to itself, with no competing brand names in sight. Either buy Astro Tub Yogurt, the multi-flavor mini-pak yogurt that occupies the next position on the shelf, or don’t.

Note that the rack also comes with unrivaled physical space, creating a neat and easy-to-locate shopping experience.

Costco is in the business of selling mostly staples, with some discretionary categories, with head office-mandated markups no more than 14-15 percentage points. That’s why you pay the prices you pay at Costco, with minimal advertising and in-store support, in a sparse and unassuming environment.

Now ask yourself how many brands of vodka are available on the LCBO shelves. in how many flavors at how many price points? That selection in a single category would never be available at Costco.

For the sake of discussion, let’s take that sparse setup, add the myriad beer, wine, or spirits selections you have at the LCBO. It has created confusing and cluttered shelves that are difficult to navigate, with few premium-priced items in any category and little customer service to help decipher which wine is best served with which food. You have basically created the private liquor store in the United States. A private liquor store set up to sell you products.

LCBO, on the other hand, is selling aspirations and experiences. discretionary wines, spirits and beer.

The LCBO is selling you an experience. The joy of cooking and drinking with friends, family or colleagues, at gatherings in your home or backyard. They inspired cooks with recipe ideas and suggest wine/food pairings for hosts on their website and in their glossy magazine (more on that later).

They are marketing premium priced wines, brandy and spirits, and cleverly designed themed gift packs as aspirational discretionary items for you to enjoy or give away. These discretionary items, by the way, bring in very healthy margins for their owners, you and me. Margins that wouldn’t necessarily hold up in the Costco model, despite what the retail experts mentioned in the same article tell you. Psychology affects purchasing decisions, including what a consumer is willing to pay at a clothing-minimum retail store like Costco, versus one with the presence the LCBO establishes in its stores, similar to The Bay. What selling point do you think the destination would be for $150 plus a bottle of wine or fine cognac?

For the record, operating expenses of 16.2% in a retail environment is a reasonable figure. As for the suggestion that the LCBO reduce its marketing spend, readers should keep in mind that every time a retailer like the LCBO, Metro, Wal-Mart, or Costco produces a flyer or magazine, the vendors cover the cost of production. paying for advertising space. Marketing also helps communicate the experiences that the LCBO sells.

If the LCBO wanted to improve the returns it provides to the Ontario government, it could consider some of these options.

Negotiate with suppliers

The current model of predetermining margins, while setting the purchase price on top of that margin, is a curious choice for any retail entity. Why not take advantage of its role as one of the largest liquor buying entities in the world to negotiate the best price? You can then decide to use the difference to lower retail prices or generate higher profits for the Ontario government. That’s potentially another $500 million to a billion dollars in our coffers.

Build relationship with the food industry

The LCBO’s website and monthly magazine feature wines, spirits and pairings, with recipes geared toward home cooks. Why not expand that relationship and invite those food producers to run sampling programs with liquor vendors at LCBO stores, similar to Costco’s food sampling efforts? Buyers become more familiar with the products being tested and receive recipe ideas they can try at home, while you charge vendors for the privilege of direct access to your customer base. Sampling efforts also drive incremental sales, 10-40% above what those products would have sold without sampling.

I would also suggest working with, for example, Loblaws Kitchens on a co-branding opportunity, selling a selection of gourmet foods exclusive to LCBOs, hosts and hostesses could serve their guests. That selection could be updated twice a year, supplemented by other products like novelty ice cube moods, swizzle sticks and serving napkins.

Both retailers could feature these LCBO spirits paired foods (another opportunity to charge participating liquor sellers) on PC Insiders Report, the Loblaws website, the magazine and the LCBO website.

Develop segment of craft brewers

Craft beer represents one of the fastest growing segments in the LCBO, with Ontario craft brewers alone growing 20-30% annually for several years. Why not duplicate the successful Vintages model at LCBO for a store-within-a-store selection of domestic and international craft beers? Featured in store and online, it can drive repeat traffic, sales, and merchandising. It does not compete directly with Beer Store, which primarily markets value beers, while supporting not only local brewers, but also higher-margin producing products.

Today’s merchandising of craft beers in the form of individual bottles or cans, often cluttered on shelves or on the floor, can make for a confusing and cumbersome shopping trip. Create an exclusive section in the store, encouraging craft brewers to offer multiple variety packs of their beers or as premium priced singles and will create momentum and destination positioning in the market for beer lovers and fans.

Improve the LCBO website

Leveraging the LCBO’s aspirational positioning, and in addition to the larger food presence mentioned above, build a larger interactive presence, with how-to videos on recipes and lodging, including fun facts about featured spirits, including historical narration of its origins.

Try online ordering options for in-store pickup on case orders for beer, wine and hard liquor.

Sell ​​memberships for exclusive access to select premium wines and spirits not available anywhere else in Canada.

The LCBO may also encourage site visitors to sign up to receive continuous information updates on new products prior to market launch or special online coupons for in-store purchases. With stated permission, the LCBO essentially creates a database of its customers (one of the largest sellers of liquor globally), which it can then license to selected sellers.

LCBO as agent or broker for other public or private liquor retailers

Why not harness the buying power and liquor industry acumen of LCBO head office staff, at a brokerage fee you can charge other public liquor retailers or smaller private liquor entities? If provincial health ministries can negotiate better drug prices through bulk purchases, then there should be a similar opportunity in the liquor market, only in this case the LCBO could charge a fee or charge a percentage for services. loaned to other liquor retailers.

Some of these ideas may not be feasible within the LCBO framework and provincial laws. The point is that many ideas can be explored to further develop the highly successful and profitable LCBO positioning.

Costco’s model, which ironically encapsulates The Beer Stores, eliminates those possibilities, and likely at a revenue disadvantage for the Ontario government. The Bay model accentuates the lifestyles and experiences consumers buy, at prices the government relies on to pay for the many public services citizens depend on.