The Liquor Control Board of Ontario (LCBO) just started e-commerce sales less than a year ago, but CEO George Soleas expects it to be a $1 billion channel within five to seven years.
Today, it’s raking in about $7 million of revenue annually, a mere shot glass of revenue compared to the provincial Crown corporation’s $6 billion of total sales. But the fulfillment centre behind the e-commerce service has already moved out of the retailer’s Queen’s Quay store in downtown Toronto and into a warehouse, and Soleas sees an e-commerce-only distribution centre in the future. He also sees the potential to move other business to the online channel, such as licencing permissions to serve alcohol at events or restaurants.
“We started slowly, almost like baby steps,” he says. “We didn’t want to put muscle behind it from the beginning, we wanted to get it right.”
Selling alcohol online is different from most forms of e-commerce, he points out. Shipping a controlled substance means there’s an element of risk involved, and you want to get the product to the right person. Working with partner Canada Post, Soleas says they’ve avoided any incidents outside of the guidelines the LCBO has put in place.
Controlled risks like online sales and shipping booze to your door is just one example of those the LCBO must take now that it’s entering a new competitive environment. For the first time in the 90-year history of the organization, it’s facing a market where its customers have another option to select where they buy alcoholic beverages. In 2015, Ontario started rolling out beer and wine sales to grocery stores. At first 130 had the privilege, but up to 450 stores will be able to do so when the implementation is complete. (Some will sell beer only, and not wine).
The new competition, even though the grocers must buy their product wholesale from the LCBO, has Soleas and his team looking to shake up any sense of complacency and pursue a digital transformation so it can respond with agility to changing shopping patterns. Soleas and LCBO CIO Michael Eubanks spoke in a keynote session with Gartner analysts at the Gartner CIO & IT Executive Summit in Toronto on Tuesday.
At the root of the LCBO’s transformation is a renewed focus on the customer.
“It’s important for us to understand what the customer needs,” Eubanks says. “We need to know how to listen to the customer. We’re getting feedback every minute, every second. That’s new to us and that’s new to retail.”
Soleas was appointed at LCBO’s CEO on June 9, 2016 after 20 years working as the director of quality assurance, and later logistics as well. He quickly went to work searching for a CIO to help his digital transformation plan and recruited Eubanks. He says IT is fundamental to the change needed at the LCBO.
“We were an outdated organization, but we were the only game in town,” he says. “I searched the world for a CIO and brought in Michael. One of the first things we did was to go through his own organizational design and see how to integrate it with the rest of the organization.”
Eubanks created a digital department within IT, and has invested in a digital platform, an order management system, and reinventing the data warehouse. He also set out to communicate with other business leads about the value that his department could provide, and discuss what capabilities the business had.
He’s also extended the LCBO’s innovation efforts outside of the organization. The LCBO Next strategy involves a new digital lab for the organization, based at the Communitech Hub in Waterloo, Ont. Lead by innovation activator Danny Ho, the lab works with talented coop students in an agile environment. The goal is to produce original intellectual property. Eubanks points to a supply chain management algorithm that the LCBO patented in the past as an example of the type of innovation he wants to achieve.
“We need to talk about reinventing ourselves and our processes and methods,” he says.
For Soleas, the next challenge is harnessing organizational data for indications of how the LCBO needs to shift its retail strategy. He points to the $190 million in wholesale business being conducted right now – the product being sold on the shelves of his new competitors – and says that will grow to another $1 billion channel in the next six or seven years. That revenue is being displaced from LCBO’s network of 661 retail stores.
In the LCBO’s own data that includes 139 million transactions annually, and using that from its new e-commerce sales, its partner the beer store, and its new wholesale customer in grocers, he hopes to read the tea leaves on how to respond to new customer habits. That could mean anything from renovating stores, changing the product features, relocating them, or closing them.
“If you have [grocery chains] Longos, Loblaws, and Sobeys selling beer, wine, and cider next to me, do I need to be there in the first place?” he asks. “Should we focus on vintages and spirits because that’s the differentiator, or do I just give up completely and not be there? These are some of the things we’re trying to figure out today.”
Or maybe it means doubling down on the e-commerce channel, harnessing artificial intelligence to improve upon the already fully-automated distribution centre the LCBO runs in Durham, to create an e-commerce distribution centre that’s selecting how products are being picked and delivered for packaging.
“The sky is the limit,” he says.