LCBO’s Brandt pours on results

When Andrew Brandt took over as chair and CEO of the Liquor Control Board of Ontario in 1991, he became head of a brand with all the consistency of John Travolta's acting career.

When Andrew Brandt took over as chair and CEO of the Liquor Control Board of Ontario in 1991, he became head of a brand with all the consistency of John Travolta’s acting career.

Stores, often within blocks of each other, displayed completely different exterior signage, and inside, individual store managers put out merchandise and backer cards at their (and their suppliers’) whim.

From the consumer’s perspective, it made no difference, conventional thinking went, since the LCBO was the only game in town – marketing and store design would do little more than draw on the retailer’s profits.

But with annual sales in the illegal alcohol market accounting for an estimated $850-million in lost revenue, plus the popularity of cross-border shopping in the late ’80s/early ’90s, the provincial government saw a need to spruce up the chain.

Brandt, the former mayor of Sarnia, Ont. and long-time Ontario Progressive Conservative MPP, was appointed to head the LCBO and bring the retailer into the modern era.

On his watch, the LCBO extended its operating hours (including Sunday openings), introduced Air Miles and turned many of the old, dour stores into boutiques that have become a retailing model around the world.

Today, the LCBO offers a greater assortment of beverages than ever before, and has moved into ancillary sales of items ranging from glassware to CDs.

The retailer also rolls out a regular schedule of themed promotions (the current one being ‘Summer Time Easy Living’) and has a magalogue, Food and Drink, that focuses on recipes, décor, music and other lifestyle content. The retailer has set up kitchens in many of its stores that pick up on promotional themes and allow patrons to sample recommended foods and alcoholic beverages. A Web site in the offing will allow consumers to purchase items.

Promotional themes are driven home through advertising – budgeted at $3.8-million this year – and in-store merchandising materials. The LCBO has also budgeted $2-million to promote socially responsible drinking through radio, in cinema, on billboards and TV.

And how well has it been doing in its transformation to the world of modern retail?

Well, for fiscal 2000-2001 the LCBO earned the provincial government a record $850-million on $2.7-billion in sales, with spirits accounting for $1.3 billion and wine for $897-million. It was its sixth-consecutive record transfer to provincial coffers.

Brandt was nominated this year by the American Marketing Association, Toronto chapter, for its Marketer of the Year award. Meanwhile the chain has won dozens of store design awards in recent years.

Strategy sat down with Brandt, along with Nancy Cardinal, the LCBO’s VP of marketing, recently to discuss the retailer’s successes and its transformation to one of the nation’s top marketers.

Q: The LCBO has been generating very positive sales results for many years, but this year Brandt’s work at the company was nominated for marketer of the year, elevating the LCBO to the pantheon alongside Molson and Telus. What has changed in the last year?

Brandt: Well it didn’t just start within the last year. It’s a build-up that started probably 12 years ago, with the organization recognizing that we were in the retail business.

We have moved within the last two years to what we call whole-store branding. Effectively we’ve taken the chaos out of the store and we’ve made the stores look cleaner.

Q: How does that play into the LCBO’s overall strategy?

Cardinal: A few years ago when the company launched a new five-year strategic plan, we articulated our vision for the corporation to be the ‘Source for Entertaining Ideas.’ That drives what the store designs look like, what we do in marketing, the kinds of service we offer our customers and the kinds of products that we offer them.

Q: How do Ontario liquor stores stack up against similar U.S. or international chains?

Brandt: Not once, either in the U.S. or in Europe or South America, have I seen stores that are as consumer friendly, as inviting or as attractive, with as wide a selection, trained staff and all of the other things come together as you see here in Ontario.

Q: What is your response to the argument that a crown corporation should not spend as freely on marketing and store design?

Brandt: Frankly, it’s a minority voice. We survey our customers and the public on a regular basis and they like the new store formats.

The old ones, some of them looked like banks, some like jails. The environment was extremely hostile and uninviting. Merchandising and retailing have all evolved over the years and we had to evolve as well. We are not a monopoly. Best estimates are that we have about 40% of the beverage alcohol market. Every single store location, design, size and layout is balanced against a return on investment.

If the results aren’t there, then the criticism of our stores being too elaborate or too luxurious is quite valid. But if we capture from the illegal market, from cross-border shopping, some of those customers who were formerly spending their tax dollars in another jurisdiction or avoiding taxes altogether, then the taxpayer gets a good return on his investment. And that is exactly what has happened.

Q: How well do your promotions generate results?

Brandt: We were the first jurisdiction in North America to stop what was then a decade-long decline in the spirits industry. Lifestyle had changed. Wine was coming on very strong, beer was holding its own and people were drinking less and less spirits. We did a number of promotions, along with staff training and partnerships with the industry back in the mid-’90s. We did programs called ‘That’s the Spirit’ and ‘Shake it up.’ When those programs were launched — and with strong support from our suppliers — we actually started some growth back in the spirits industry. We were up 1 or 2% that first year. Everybody else was in a 5-6% decline. A large number of promotional and merchandising concepts came into play and frankly turned the market around. So it can be done.

Q: How has the LCBO’s share increased over its competitors?

Brandt: Beer sales, not only in Ontario, but also in North America have generally been quite flat. Brewers Retail has not grown substantially. Last year we were up 14%. But our 14% is not taking from their domestic beer sales. Our 14% is new customers who are being encouraged to try imported products from all over the world. We’re bringing in as many as 250 beers from various countries.

Ontario wine stores have had a little better success and have continued to grow. The one-year figure [for wine] is up about 5% [volume sales,] but it’s misleading because last year we had a spike because of the millennium, and champagne is considered a wine in our category.

Cardinal: When you look at the wine category, the biggest growth used to be in the under-$10 price point. Now, what’s growing at the fastest rate is the $10-$15 and sometimes the $15-$20. They’re almost tied now. We’ve looked at spirits and beer, too, and every category has gone premium.

What we’ve tried to do in our stores is present a fun and friendly environment that encourages the discovery of our products.

Q: Where are spirits now compared to, say the U.S.?

Brandt: It’s levelled off [in the U.S.] Our spirits went up last year by about 6% [in sales.] That’s huge. Nobody is showing that kind of growth with the singular exception of Quebec. We’re way ahead of the rest of the country in spirit growth.

Q: What’s in store over the next year?

Cardinal: We have two key strategies. One is establishing the LCBO as a brand and consistently executing that at every point of contact with the customer. We’ve looked at the giants in the U.S., The Gap and Williams & Sonoma and Pottery Barn as being best in class from a branding perspective. We’ve made great strides, but there’s still work to be done. And we really want to be a multi-channeled synchronized marketer. Initially, when we started down that path three years ago, we thought it would be very easy to do. But it’s not.’

Q: What lesson did you learn as a politician that you can apply to your work as the head of the LCBO?

Brandt: The thing that we do, probably in an exhausting way, is survey what our customer wants. They used to say in politics that if you want to be successful, find out which way the parade is going then jump out in front and lead it. Well, that’s an over simplification, but it is a reality. In retailing, in merchandising and in promotion, you better find out where your customer wants to go; what it is your customer really wants from you. Then get out in front of that parade and lead it.