Strategic Plan

Transcription

1 Strategic Plan

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4 2 Bob Peter

5 As we work towards being recognized as the world s BEST beverage alcohol retailer, we must chart a course that anticipates changing market conditions and realities. In looking and planning for the future, LCBO finds itself at a crossroads. The beverage alcohol market in Ontario is becoming more competitive, and the LCBO is now serving as the wholesaler to new business-to-business (B2B) customers. We start 2016 with 60 grocery stores authorized to sell beer and that number is expected to rise to 450 in the next few years. Further, the Ontario government recently announced that wine will also be sold via grocers starting in the fall of These grocers are sophisticated marketers, good at what they do, and many have experience in retailing beverage alcohol outside Ontario. They also have high expectations of their suppliers just as we do and we are committed to meeting their wholesale service needs quickly and efficiently. At the same time, it is up to us to draw on our strengths and close to 90 years of experience to maintain our market-leading position. Message from the President & CEO Our customers and their expectations of us are also changing. For today s consumer, young and mature, savvy or inexperienced, retail means a fast-paced global marketplace. These consumers expect to have access to near-unlimited choice, available from anywhere, facilitated by on-demand access. They want highly personalized content and recommendations from brands and peers, all wrapped in an inspiring and seamless omni-channel experience. With these factors in mind, it is no longer business as usual. In such a shifting environment, with new challenges and tremendous opportunities ahead of us, we must increasingly focus our resources on the most critical strategies will see the launch of the LCBO e-commerce channel, bringing a wealth of product selection to our customers. The LCBO s senior leadership team has identified and prioritized the areas with the greatest impact on our business, and therefore these areas are the most important for us to pursue in formulating our strategic plan. These undertakings are the ones that ladder up, span across the entire organization, and align and synchronize our collective efforts and ambitions. While divisions and departments will pursue detailed initiatives, our collective efforts must ultimately contribute towards the pursuit and accomplishment of these key objectives and strategies. We head into this new competitive marketplace with confidence, and from a position of strength. We offer wide product assortment, a modern store network, strong supplier relationships, valued contribution to Ontario, an inspiring shopping experience and unparalleled reputation in the area of social responsibility. And our biggest competitive advantage remains our knowledgeable and caring workforce. The LCBO rightly views itself as a world-class retailer, and the following plan is our route to ensuring our leadership for the future. March

6 4 LCBO STRETCH GOAL Excellence in the Customer Experience & Excellence in Operational Efficiency

7 The Mission We make a difference in Ontario by being a best in class, socially responsible, customer focused and profitable retailer of beverage alcohol. The Corporate Vision To be the world s BEST beverage alcohol retailer The Brand VISION Let s Get Together ESSENCE Responsible PERSONALITY The Generous and Responsible Host Welcoming, Responsible, Outgoing, Creative, Connected PROMISE Inspire, Guide, Delight The Core Values Customer Service Social Responsibility Excellence Integrity Health & Safety 5

8 Ontario Market Overview EVOLVING COMPETITIVE MARKETPLACE In the 2015 Ontario Budget, the Ontario government announced its commitment to introduce the sale of beer in up to 450 grocery stores across the province. In February 2016, the Ontario government made another announcement about wine sales in up to 150 grocery stores. These grocery stores enter into a wholesale agreement with the LCBO to purchase beer and wine for resale to the public. In addition, up to 150 existing wine retail shops, already located next to grocery stores, will be able to move inside grocery stores and offer an expanded selection of products. As of the start of 2016, there are currently 60 authorized grocery stores selling beer. By the fall of 2016, an additional 70 grocery stores will be authorized to sell wine, beer and cider. Over the coming years, up to 450 grocery stores will be authorized to sell beer, up to 300 of which will also sell wine. Authorizations will be allocated with the goal of ensuring fair competition and distribution, including independent and large grocers from across the province. The LCBO will run a competitive allocation process for 70 new authorizations in summer Grocers will compete to sell wine, beer, cider and fruit wine. Although we now face additional retail competition from the grocery store sector, we will also receive revenue from our role as the wholesaler of beer and wine to this new channel. The LCBO is planning for the future with this new marketplace in mind. Implications to the LCBO include the need to provide first-rate wholesale customer service to grocers, while at the same time continuously improving our retail customer experience in order to compete successfully with them for our share of the beer and wine retail market. LCBO will leverage our strengths staff expertise, product selection and marketing to deliver a best-in-class beverage alcohol shopping experience in a socially responsible manner. 6

9 ECONOMIC OUTLOOK As of the start of 2016, the national economic outlook appears challenging. The price of oil has plummeted, the Canadian dollar has fallen to a level not seen in a decade and the TSX has hit its lowest levels since mid Despite this backdrop, in 2016, Ontario is poised to continue to outperform most of the other Canadian provinces for the second year in a row. However, not all regions will grow equally due to differences in economic drivers. Overall, though, the low Canadian dollar will benefit Ontario through an increase in exports and stronger U.S. demand. This, in turn, will benefit the Ontario manufacturing sector. The low exchange rate has also helped the Ontario economy by encouraging Ontarians to spend money at home. The increase in purchase of durable goods, such as automobiles, demonstrated this during LCBO sales performance has been solid and is expected to continue on this positive path should see continued growth in Ontario. Household spending is expected to remain steady despite record high household debt levels. Employment levels are expected to improve slightly and low interest rates will continue to support consumer spending over the medium term. The retail environment in Ontario looks positive going forward. Unless there are any major changes to consumer optimism and the economic climate, beverage alcohol sales should remain steady over the medium term. 7

10 LCBO Mandates 1 2 CORPORATE SOCIAL RESPONSIBILITY To be a socially responsible retailer, recognized by Ontarians for our actions that support: Responsible retailing and moderate consumption of alcohol; Product quality and safety; Environmental sustainability; Community involvement and fundraising. MAXIMIZE RETURNS TO THE PEOPLE OF ONTARIO To maximize returns to the people of Ontario by generating a total of $6.4 billion in net income over the next 3 years (2016/ /19). 3 SUPPORT OF LOCAL ONTARIO PRODUCTS To provide ongoing support to grow the sales of local Ontario products. 8

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12 LCBO MANDATES Corporate Social Responsibility OUR CORPORATE SR MANDATE The LCBO works continuously to make a positive difference across its four CSR pillars by evolving, integrating, evaluating and reporting our corporate social responsibility strategies, raising awareness and support, and encouraging desired behaviour from our communities, partners and company. CORPORATE SR KEY PERFORMANCE INDICATOR WEIGHTING Responsible Retailing & Moderate Consumption Product Quality & Safety Environmental Sustainability Community Involvement & Fundraising 10

13 PILLAR 1 RESPONSIBLE RETAILING & MODERATE CONSUMPTION There are three strategies under this pillar, with all being measured, tracked and reported with transparency against KPIs: 1 Culture: The Way We Live It Mobilize the LCBO s scale and influence as a Power for Good by creating a Coalition of Care that unites our employees, trade partners, suppliers, licencees, other liquor boards, the public and the Ontario government. 2 Front-line Staff: The Way We Do It Ensure our point-of-sale remains a clear point of difference by providing LCBO front-line staff with the tools they need to be empowered, supported and valued, and share these tools with Agency stores. 3 Customers: The Way To Enjoy It Market our products in a way that grows the business responsibly, while encouraging a culture of moderation. METRIC/KPI Annual Totals Challenges and Refusals. PILLAR 2 PRODUCT QUALITY & SAFETY At the LCBO, we ensure all LCBO products are authentic, safe for consumption and compliant with federal, provincial and LCBO standards for composition, quality, and packaging and labelling. METRIC/KPI Number of customer complaints requiring investigation. Average investigated customer complaint response time. PILLAR 3 ENVIRONMENTAL SUSTAINABILITY We continue to take proactive steps to promote environmental sustainability in all our locations, and through partnerships and leadership of environmental initiatives that produce positive change. Over the next three years, we will continue to lessen our environmental footprint and reduce operating costs through waste reduction, energy efficiency and other sustainability initiatives. METRIC/KPI 1% reduction in same store energy use per year. PILLAR 4 COMMUNITY INVOLVEMENT & FUNDRAISING We take great pride in supporting our communities and our ability to partner with our customers and business partners to support and raise funds for worthy causes. 1 METRIC/KPI Total fundraising dollars raised (with detailed breakdowns). 11

14 LCBO MANDATES Maximize Returns to the People of Ontario OUR FINANCIAL CONTRIBUTION MANDATE The LCBO will continue to maximize returns to our owners the Government of Ontario. We will grow our sales and ensure maximum profitability by further improving operational efficiency and tailoring products and services to customer interests. We will continue to invest in technology, including e-commerce, logistics and retail facilities and other capital improvements to keep operations running efficiently and enable us to support growing sales. We have accomplished this in the past and we will keep the momentum going in the face of added competition. SALES PERFORMANCE AND PROFIT Income Statement ($ 000,000 s) 2014/15 Actual 2015/16 Forecast 2016/ /18 Plan 1 Forecast 2018/19 Forecast Total Rolling 3-Year Plan 2016/17 to 2018/19 Net Sales $5, % $5, % $5, % $6, % $6, % $18,252 COGS 2, % 2, % 2, % 3, % 3, % 9,051 Gross Margin GM % 2, % 50.3% 2, % 50.1% 2, % 50.4% 3, % 50.4% 3, % 50.4% 9, % Divisional Expenses as % of Net Sales % 13.1% % 12.9% % 13.1% % 13.2% % 13.2% 2, % Other Expenses as % of Net Sales % 2.9% % 3.0% % 3.0% % 3.0% % 3.0% % Total Expenses as % of Net Sales Operating Income Other Income Net Income % 16.1% 1, % 33 (42.7%) 1, % % 15.9% 1, % % 1, % % 16.1% 1, % 46 (4.9%) 2, % % 16.2% 2, % 35 (24.5%) 2, % 1, % 16.3% 2, % % 2, % 2, % 6, ,359 Profit Ratio 34.9% 35.1% 35.1% 34.8% 34.7% 34.8% Capital Expenditures Notes: (1) Excludes Sale of Head Office Properties. 12

15 SALES TARGETS $ 000, /15 Actual 2015/16 Forecast 2016/17 Plan 2017/18 Forecast 2018/19 Forecast Spirits Yr/Yr % Change $2,015.1 $2, % $2, % $2, % $2, % Wine Yr/Yr % Change 1, , % 1, % 1, % 1, % Beer Yr/Yr % Change 1, , % 1, % 1, % 1, % Vintages Yr/Yr % Change Private Stock, Direct Delivery, Other Total Corporate Yr/Yr % Change % % 5, , % % % 5, % % % 6, % % % 6, % $6,600 $6,400 $6,200 $6,000 $5,800 $5,600 $5,400 $5,200 $5,000 $4,800 $2,400 $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 ~ 4.3% 2.5% 2014/15 Actual 6.4% 2015/16 Forecast 4.9% 2016/17 Plan 4.5% 4.0% 4.5% 3.4% 3.5% 5.7% 5.7% 10.9% 3.7% 8.4% 3.7% 7.1% 2017/18 Forecast 4.5% LCBO 3.9% SPIRITS 3.5% 6.6% 2018/19 Forecast WINE BEER 7.8% 7.3% 6.5% 5.4% 5.6% VINTAGES PRIVATE 9.1% 2.7% 2.9% 2.8% 2.4% STOCK 2 13

16 LCBO MANDATES Support for Local Ontario Producers OUR LOCAL ONTARIO MANDATE Through collaborative efforts, the LCBO will continue to elevate product assortments, originality and the quality image of Ontario s local products. Customers are now embracing local products like never before and the LCBO takes pride in supporting local Ontario vintners, craft brewers and artisanal spirits producers. 14

17 We have 20 Our Wine Country Ontario Boutiques that reside within select fullsize LCBO stores, offering customers an expanded selection of quality Ontario wines, including shelf space for hard-to-find wines from smaller producers. These boutiques, along with other select stores, offer specialized staff called WOW (Wonderful Ontario Wine) Leaders. We have a target to launch 25 Craft Beer Zones. These reside within LCBO stores offering customers all (or most) of LCBO s craft beer assortment; limited product releases from local suppliers (customized to trade areas); a rotating assortment of exclusive craft beers; highly-sought-after and limited edition special releases, and customized staff training through our Beer Ambassador programs. In 2015, we launched our first growler experience at our Summerhill location in Toronto, which our customers have responded to positively. We will add two more growler experiences in Ontario this year. We continue to leverage the strengths and popularity of our focused promotional strategy for local micro-distilled spirits. We have a Spirits Advocate program designed to deliver an engaging customer experience. SALES TARGETS SALES $ 000, /15 Actual 2015/16 Forecast 2016/17 Plan 2017/18 Forecast 2018/19 Forecast Ontario VQA Yr/Yr % Change $129.0 $ % $ % $ % $ % ICB Yr/Yr % Change % % % % Ontario Craft Beer * Yr/Yr % Change % % % % * An Ontario Craft Brewer is defined as a small (under 400,000 hectolitres in annual production), independent brewer that brews and sells the bulk of their production in Ontario. Contract brewers must identify their host brewery, which must also be an OCB member. 3 15

18 Strategic Priorities 1 OBJECTIVE 1 EXCELLENCE IN CUSTOMER EXPERIENCE To create a customer comes first culture throughout the organization and consistently delight our customer. 2 OBJECTIVE 2 EXCELLENCE IN OPERATIONAL EFFICIENCY Constantly strive to increase efficiency by focusing on ways to simplify and streamline business practices. 3 OBJECTIVE 3 EXCELLENCE IN EMPLOYEE EXPERIENCE To develop a dynamic and diverse LCBO where our people thrive, partnerships prevail and performance excels. 4 OBJECTIVE 4 EXCELLENCE IN INNOVATION To foster a culture of innovation and pursue new opportunities in an evolving market environment. 16

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20 STRATEGIC PRIORITIES Excellence in Customer Experience OBJECTIVE 1 To create a customer comes first culture throughout the organization and consistently delight our customer. Increase Customer Engagement from 6.9 to 7.1 by 2018/19. Increase Customer Satisfaction to 83% by 2018/19. 18

21 SITUATION ANALYSIS Companies today are facing the implications of increasingly connected, empowered and informed customers. In a fractured media environment, proliferated with customer touchpoints and channels, consumer data must be mastered and utilized to optimize retail interactions. Three core trends informing how to deliver an excellent customer experience are: 1 Technology integrated across the omni-channel experience Technology is enabling customers to shop seamlessly across an omni-channel spectrum. By way of example, Google data reveals that 70 per cent of Canadian smartphone users consult their phones while physically inside a store, and 93 per cent of people who use a mobile device for such research go on to make a purchase. A 2015 study by IDC identifies that shoppers who buy seamlessly in-store and online have a 30 per cent higher lifetime value than those who shop using only one channel. 2 Availability of relevant information In both offline and online retail environments, a key success factor for a great shopping experience is a customer who is empowered with the information they require to help inform their selection and close the transaction. Relevant and accurate information flowing in a frictionless manner across the omnichannel experience is what moves a consumer from assessing choices to making a final selection. 3 Hyper-personalized experiences Customers are embracing smart brands that use new channels and content in the most relevant way, as and when they are needed. Observing, gathering and interpreting social, behavioural, personal and location data to deliver an extremely personalized customer experience is the key to creating more valuable customer relationships. PRIORITY STRATEGIES Consistently deliver an approachable, knowledgeable and helpful service experience for our customers in all shopping channels Help customers discover our one-stop product offering that is unique, inspiring and provides the right product, at the right store, in stock Empower customers to make confident purchasing and entertaining decisions Provide an engaging shopping experience that encourages browsing in a fun and entertaining environment 1 19

22 STRATEGIC PRIORITIES Excellence in Operational Efficiency OBJECTIVE 2 Constantly strive to increase efficiency by focusing on ways to simplify and streamline business practices. Target inventory turns of 7.8 from 2016/17 to 2018/19. 20

23 SITUATION ANALYSIS The LCBO focuses on productivity and efficiency strategies to optimize resources, increase efficiency of business processes, and ultimately maximize profitability. We carefully consider any risks involved in pursuing operationally efficient activities, particularly in light of our stretch goal, which is to achieve excellence in the customer experience while also maintaining operational efficiency. This demands a continual balance between the pursuit of new opportunities and innovations with steady and prudent business decisions. Our ultimate goal is to continuously improve how we operate, grow the business responsibly and exceed our stakeholders expectations. The LCBO develops effective responses to business risks through the understanding of core business processes and their impact on desired results. This, combined with a strong basis of cross-functional collaboration and communication, is essential to the LCBO s continued success. By integrating analytics, research and comprehensive business cases, supported by well-developed validation testing, we will be able to best identify new opportunities and innovations that are aligned with operational efficiency parameters, and only pursue and implement those that deliver on both sides of the ledger growth potential and assured efficiency. PRIORITY STRATEGIES Align divisional practices and key performance indicators with organization-wide priorities Optimize supply chain through collaborative planning and execution with internal and external stakeholders Leverage technology and re-engineer processes to maximize operational efficiency 2 21

24 STRATEGIC PRIORITIES Excellence in Employee Experience OBJECTIVE 3 To develop a dynamic and diverse LCBO where our people thrive, partnerships prevail and performance excels. Increase Employee Engagement by 4% to 51% over the next three years. Initiate bi-annual divisional employee engagement action plan pulse surveys to monitor processes and progress. Once benchmarks are established, targets will be set in By the end of calendar 2018, reduce the number of Lost Time Injuries by at least 86%, as compared to the 2009 base year. 22

25 SITUATION ANALYSIS As an employer, we offer a workplace where staff can lead, learn, and live. We have much on the positive side of the equation. We have an influential, world-class brand; an increasingly entrepreneurial spirit where new innovations and enabled teams are succeeding; both stability and freedom to grow for staff; a great work-life balance; and a fun, social and fascinating industry that is evolving in real-time. Looking to the near future, the LCBO will need to recruit new talent to replace the increasing number of employees that are retiring. Businesses need to adopt new mindsets to compete in the open market and to compete for human talent. The new generation of employees are technologically adept, adaptable and embrace change. We must evolve with our employees to maintain alignment with this shift in views. For our existing staff, we need to reignite employee pride and engagement and create a resourceful and collaborative culture through team empowerment; moving at the speed of the customer and with resource efficiency. The LCBO takes employee engagement very seriously. It is our people that ultimately lead to our success. We plan to improve in this area significantly by We have listened to our employees and there are various factors influencing this situation. The factors we can control will be the focus of our plans for improvement over the next few years. Our goal is to make the LCBO a greater place to work. PRIORITY STRATEGIES To be a great place to work with a culture of engagement, transparency, collaboration and strong leadership Develop an integrated approach to talent management Health & safety first 3 23

26 STRATEGIC PRIORITIES Excellence in Innovation OBJECTIVE 4 To foster a culture of innovation and pursue new opportunities in an evolving market environment. Implement a corporate practice to create a culture of innovation and a means to measure. Innovation initiatives across LCBO will be monitored over the next fiscal with targets then established for 2017/18 strategic plan. Research participants wear a special set of glasses to track what catches and doesn t catch their eyes while browsing LCBO stores. 24

27 SITUATION ANALYSIS Innovation is one of the strongest value-added drivers of growth out of all business activities. Businesses that fail to innovate run the risk of losing ground to competitors, losing key staff, or simply operating inefficiently. Innovation can be a key differentiator between market leaders and their rivals. For the LCBO, our marketplace is changing and new technologies are disrupting traditional industries as consumers evolve their demands, expectations and use of information to become super consumers. We are not in a state of business as usual and we must place energy and dedicated attention to the innovation of our approach and offering to maintain pace. Bringing about change and implementing innovative solutions will require a change in mindset; balancing the wisdom of proven experience with newfound curiosity, bravery and energy. While innovation will be tangibly delivered across the other three strategic priorities (customer experience, operational efficiency, employee experience), unto itself it remains a skill that requires continual attention, and an evolution in how teams interact with each other to maximize their creativity. The organization is well poised for this step in change and innovation will occur through products, offerings and processes. We will unlock the potential of our talented staff to help identify areas of greatest opportunity, and find new ways to exceed customer expectations. PRIORITY STRATEGIES Create value through incremental change by encouraging new thinking, testing ideas and adopting proven concepts 4 25

28 APPENDIX LCBO Three-Year Financial Plan Income Statement ($ 000,000 s) 2014/15 Actual 2015/16 Forecast 2016/ /18 Plan 1 Forecast 2018/19 Forecast Total Rolling 3-Year Plan 2016/17 to 2018/19 Net Sales $5, % $5, % $5, % $6, % $6, % $18,252 COGS 2, % 2, % 2, % 3, % 3, % 9,051 Gross Margin GM % 2, % 50.3% 2, % 50.1% 2, % 50.4% 3, % 50.4% 3, % 50.4% 9, % Divisional Expenses as % of Net Sales % 13.1% % 12.9% % 13.1% % 13.2% % 13.2% 2, % Other Expenses as % of Net Sales % 2.9% % 3.0% % 3.0% % 3.0% % 3.0% % Total Expenses as % of Net Sales Operating Income Other Income Net Income % 16.1% 1, % 33 (42.7%) 1, % % 15.9% 1, % % 1, % % 16.1% 1, % 46 (4.9%) 2, % % 16.2% 2, % 35 (24.5%) 2, % 1, % 16.3% 2, % % 2, % 2, % 6, ,359 Profit Ratio 34.9% 35.1% 35.1% 34.8% 34.7% 34.8% Capital Expenditures Notes: (1) Excludes Sale of Head Office Properties. 26

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30 APPENDIX Enterprise Risk Management Our Enterprise Risk Management (ERM) efforts align to our strategic plan and business operations. Processes are used to mitigate risks throughout the organization. The ERM program will continue to mature and affect how we operate as an organization. The LCBO ERM program consists of a risk framework, an ERM assessment process, continuous monitoring of key risks and semi-annual reporting to the Audit Committee of the Board of Directors. In fiscal 2015/16, we identified and ranked 17 risks that could negatively impact the LCBO s performance. Senior management is responsible for developing and implementing risk mitigation strategies for these enterprise risks. LCBO s top three risks are: 1 Government policy and legislative change 2 Competition and customer engagement 3 Labour-related risk GOVERNMENT POLICY AND LEGISLATIVE CHANGE The LCBO must anticipate and respond quickly to changes in legislation and regulation, interprovincial and international trade agreements, public service directives and standards, and changes to the beverage alcohol structure, carefully balancing its roles as a public agency and a sociallyresponsible and customer-focused retailer. To mitigate these challenges, the LCBO remains focused on providing excellence in socially responsible retailing, customer service and operational efficiency. The LCBO provides input and advises government on the potential impacts on LCBO s financial performance and operations of any policy and legislative changes. With respect to the Premier s Advisory Council on Government Assets, which reviewed the LCBO s operations for more than a year, led by our Finance and Corporate Affairs groups, we committed significant resources to provide information and data to assist the Council in reaching its recommendations. 28

31 COMPETITION AND CUSTOMER ENGAGEMENT We now face increased competition due to the government s decision to allow up to 450 grocery stores to sell domestic and imported beer and cider and up to 150 grocery stores to sell wine (in addition, up to 150 existing winery retail stores are permitted to relocate inside grocery stores). These grocery stores enter into a wholesale agreement with the LCBO to legally purchase beer, cider and wine for resale to the public. Grocery represents a growth opportunity for our wholesale business, and we believe we can compete successfully with grocers at the retail level as we demonstrated with our other wholesale customers. To mitigate these challenges, the LCBO will focus on achieving high customer engagement, particularly in the emotional engagement areas (brand equity). We are pursuing several strategies to improve service to retail customers, including an enhanced product selection and enhanced training for frontline staff, as well as digital initiatives such as our new e-commerce platform, which offers in-store pick-up and home delivery for thousands of products, including those available exclusively online. LABOUR-RELATED RISK The Ontario Public Service Employees Union (Liquor Board Employees Division) represents more than 7,000 LCBO employees for collective bargaining and labour-management relations. The efficiency and performance of the LCBO directly correlates to the quality of this relationship, the extent of employee engagement and the conditions established through collective bargaining. To mitigate these challenges, the LCBO focuses on positive employee relations, ongoing dialogue on matters of common interest and targeted initiatives aimed at a collaborative labour environment. Provincial and local labour-management meetings relating to labour and employee relations and health and safety, support a regular dialogue with the Union. Corporate and divisional employee engagement strategies are focused on making the LCBO a great place to work. The LCBO will continue to manage these risks and is committed to the continuous advancement of the ERM process to protect and support the achievement of LCBO objectives. The LCBO incorporates effective risk management programs into LCBO s strategic planning process to mitigate risks and leverage opportunities that could impede LCBO s ability to meet its objectives. 29

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