PLCB Category PLCB Category Management ReviewManagement Review

October, 2007

James ShortDirector of Marketing

Pennsylvania Liquor Control Board

NABCA Best Practices Summit

AgendaAgenda

Evolution of PLCB Category Management

Listing Calendar

De List / Store Freeze Methodology

Clustering Solution

Future Goals

TimelineTimeline

PLCB Fields Category Management Proposals (02/07)

PLCB Partners with Future Brands / Gallo (03/07)

Analysis of Current Solutions / Systems (04/07)

Two year Project Goals Established (04/07)

Vendor Partners Re-Locate to PA Market (08/07)

LISTING CALENDARLISTING CALENDARSIX MONTH REPEATING CALENDAR

Two Listing Periods- Similar to National Accounts

- Conducive to Supplier Planning

Reduction From Seven Listing Periods

Shelf Sets Produced Concurrently

De List / Freeze MethodologyDe List / Freeze Methodology

De-List Filter MethodologyDe-List Filter Methodology

RetainIf Segment Share for

$ Sales > or = 5%Retain top 95%

of Segment

Assortment Criteria Purpose

Retain If Periods Active < or = 14 Retain New Items

RetainIf Segment Growth > or = 5%

and Item Growth > or =75% Segment Growth

Retain Growing Items in Growing Segments

Retain If Item Growth > or = 20%Retain Large Growth

Items

Yes

Yes

Yes

Yes

No

No

No

No

Retain If Profit / Store > or = $250Retain Profitable Items Regardless of Growth

No

Yes

Freeze AnalysisExamine Code for Possible Freeze

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Spirits Freeze MethodologySpirits Freeze Methodology Codes analyzed at store level to determine $ Profit Delivered Code is retained if it meets a $ Profit threshold $ Profit Threshold for an Account is Determined by the TTL $ Sales of the Store

1. Large Stores – Avg. Retail $16.15 Avg. Profit $4.84 1.5 Bottles per wk = $7.26 x 52 wks =$375 2. Med. Stores – Avg. Retail $14.98 Avg. Profit $4.49 1 Bottle per week $4.49 x 52 wks = $230

3. Small Stores – Avg. Retail $14.67 Avg. Profit $4.40 ½ Bottle per week $2.20 x 52 wks =$115

< $1 Million > $3 Million$1 Million –

$3 Million

TTL Store Sales TTL Store SalesTTL Store Sales

$ Profit Needed to be Retained as Optional

$115 $375$230

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Freeze MethodologyFreeze Methodology

Code Meets Established Minimum $ Profit / Store

RetainRetain Profitable Codes

in Correct StoresYes

No

Freeze Code at Store Level

TTL $ Profit Where Codes are Retained > $15,000

RetainListing

Retain Profitable Codes for PLCB as Whole

Yes

No

Final Assortment Decision to Delete

ClusteringClustering

Former ClustersFormer Clusters Cluster 1 – Wine Enthusiasts

- 62 stores

- Warehouses 1 & 2 only

Cluster 2 – Premium Wine Development- 72 stores

- All Warehouses

Cluster 3 – Popular Wine Development- 105 stores

- All Warehouses

Cluster 5 – Metro Ethnic- 36 stores

- Warehouse 1 only

Cluster 4 – Mainstream Spirits & Low Tier Wine - 38 stores

- Warehouse 1 only

Former ClustersFormer Clusters Cluster 6 – Brown Goods & Low Tier Wine

- 117 stores

- Warehouses 2 & 3 only

Cluster 7 – Brown Goods Development- 151 stores

- Warehouses 2 & 3 only

Cluster 8 – Urban Ethnic- 36 stores

- Warehouses 2 & 3 only

Why We Changed?Why We Changed?

Less is more- Greater store similarity (Demographics)- Less variance in category performance

Increased Efficiency - Core Assortment- Marketing Plans

Clusters no longer defined by warehouse

HH Income / Cost of Living by Region

ObjectivesObjectives

Core ListCore List Marketing PlansMarketing Plans

i.e. Distribute and Promote the Correct Codes Distribute and Promote the Correct Codes in the Correct Storesin the Correct Stores

Clustering ProcessClustering Process

Demographic Data Pull

Demographic Analysis - Original Cluster Designation

Step 1Step 1

Store Specific Demographic Data Adult Population Referenced Against Total Pennsylvania

Indices Generated For Income Education

Lifestyle Ethnicity

About the Demographic Data…About the Demographic Data…

Primary Indicators of Consumption Patterns

Secondary Indicators of Consumption Patterns

ProcessProcess

Sales Data Pull- By Store / Code

Sales Data Analysis - Secondary Cluster Designation

Step 2Step 2

AnalysisAnalysis

DEVELOPMENT INDICES DEVELOPMENT INDICES GENERATED FORGENERATED FOR Price Segmentation Display Category

Hierarchy of Analysis

3. Demographic Data

2. Category Development

1. Price Segmentation

ProcessProcess

PLCB Regional Manager / Broker Validation

Final Recommendation Step 3Step 3

5 Clusters Identified5 Clusters Identified Cluster 1 – Upscale Metro / Suburban (105 Stores / 26.5% TTL $ Sales)

- Avg. Household Income - $91K

- Education Level - 41% College Graduation Rate

- Ethnicity – No Statistical Significance

- Key Price Segmentation – Super Premium

- Display Category Drivers – Specialty, US Cab, US Chard, Scotch, Tequila

Cluster 2 – Mid-Scale Suburban (122 Stores / 25.7% TTL $ Sales)

- Avg. Household Income - $70K

- Education Level - 29% College Graduation Rate

- Ethnicity – No Statistical Significance

- Key Price Segmentation – No Discernable Driver

- Display Category Drivers – No Discernable Driver

Cluster 3 – Rural / Blue Collar (226 Stores / 31.0% TTL $ Sales)

- Avg. Household Income - $55K

- Education Level - 21% College Graduation Rate

- Ethnicity – 93% Caucasian

- Key Price Segmentation – Value / Standard

- Display Category Drivers – Economy, Box, Beverage, Blended, Canadian

Cluster OverviewCluster Overview

Cluster 4 – Rural / Low Volume (102 Stores / 5.4% TTL $ Sales)

- Avg. Household Income - $49K

- Education Level – 15% College Graduation Rate

- Ethnicity – 97% Caucasian

- Key Price Segmentation – Value

- Display Category Drivers – Blended, Bourbon, Canadian, Beverage, Economy, Box

Cluster 5 – Metro / Ethnic ( 66 Stores / 11.5% TTL $ Sales)

- Avg. Household Income - $47K

- Education Level - 20% College Graduation Rate

- Ethnicity – 38% African-American

- Key Price Segmentation – Value

- Display Category Drivers – Brandy/Cognac, Gin, Beverage, Economy, Flavored Wine

Future GoalsFuture Goals Modify Core Assortment Methodology

Future GoalsFuture Goals Develop Category Adjacency Methodology

- Vendor Partner Consumer Research Driven

Future GoalsFuture Goals Generate Category Specific Shelf Set Template

- Bring in 3rd Party Validators

Future GoalsFuture Goals Implement Store Specific Shelf Sets Bi-Annually

- Generate Using Store Level Sales - Will Allow for “right-sizing” of Categories

Ultimate GoalUltimate Goal

Become Category Management Self-Sufficient!!

THANK YOUTHANK YOU