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Message from the President & CEO 3

About Us 4Our Mission 4Our Vision 4Our Brand 4Our Core Values 5

Internal & External Assessment 6Assessment of Strategic Progress 6Our Marketplace 8

Mandates 10Corporate Social Responsibility 12Maximize Returns to the People of Ontario 14Support of Local Ontario Products 18

Looking to the Future 20

Strategic Priorities 22Objective 1: Excellence in Customer Experience 24Objective 2: Excellence in Operational Efficiency 28Objective 3: Excellence in Employee Experience 30

Key Capabilities 32

Appendix 34LCBO Three-Year Financial Plan 34Full Time Equivalent Employees 34Communications Plan 35Enterprise Risk Management 36

George Soleas

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Message from the President & CEO

I am proud to share the LCBO’s 2018-2021 Strategic Plan with you.

Change is constant, whether it be within Ontario’s beverage alcohol marketplace, today’s retail environment, or the technology that surrounds us. The LCBO is embracing its own change and taking advantage of opportunities to grow as a customer-centric organization.

Since assuming the role of CEO nearly two years ago, I have initiated a great deal of strategic transformation within the organization. While some of it is outward-facing and some of it is internal-facing, every component has a singular focus and end goal: to better serve our customers.

For the LCBO, customer centricity is a mindset. It is not just about the service we offer in-store, it is about putting the customer at the centre of every decision we make.

True customer engagement binds together the physical and digital experiences to create meaningful impact. Our investments in platforms and tools allow us to develop more personalized services, making better use of data to deliver a seamless customer expe- rience, whether it be through our retail store network, our e-Commerce platform or our work with our wholesale partners.

We are two years into our role as a wholesaler to grocers. We have embraced the opportunity to work toward being a top-notch, service-oriented partner to this channel and support increased choice and convenience for consumers.

In the lead up to the legalization of recreational cannabis, the LCBO played a significant role in the development and launch of the Ontario Cannabis Retail Corporation (OCRC), operating as the Ontario Cannabis Store (OCS). Leveraging the knowledge and skillset of LCBO employees from various departments, the organization’s contributions to the OCS launch will help support the government’s objectives to protect youth and combat the illegal market.

The LCBO is incorporating bold aspiration and adaptability to meet the changing market. We are heightening the voice of the customer within our strategies and aligning our organizational structure so that it supports the LCBO’s transition to a customer-centric wholesaler and omni-channel retailer.

We are confident that our plan will highlight the passion we have in supporting our local communities and the value we bring to Ontarians.

Sincerely,

George Soleas, President & CEO

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The LCBO’s vision provides an aspirational sense of where we see ourselves in the future.

ABOUT US

Our Mission

Our Vision

The LCBO’s mission expresses our overarching, endless business goals and philosophies. It identifies why we exist – our reason for being – and what we seek to accomplish.

LCBO MISSIONWe are a best-in-class, customer-first, responsible retailer and wholesaler, supporting our local communities and delivering value to Ontarians.

LCBO VISIONTo deliver remarkable experiences as the trusted destination for the world’s wines, beers and spirits.

Our Brand The LCBO is proud of its strong, reputable and complementary brands that promise to inspire, guide and delight our customers.

Your Source for Entertaining Ideas

Let’s Get Together Uncork Something Great

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Our core values are part of our DNA. They express what we repre-sent, emphasizing our guiding principles for employee behaviour and organizational decisions and actions. An organization’s values are at the heart of its culture. Our values are important, lasting and achievable, and help determine how we invest our time and resources by guiding our priorities and decisions.

Our Core Values

Customer Service We value our customers and are committed to providing engaging customer service. Our people are welcoming, responsible, outgoing, creative and connected; they are the ambassadors of our brand. Our people provide the human touch that creates excellence in the customer experience.

IntegrityWe operate with integrity, transparency and good faith in all of our interactions. We listen carefully, and treat one another with respect. We are honest, trustworthy and ethical.

ExcellenceWe embrace innovation and learning. We value the ability to anticipate and respond to a changing business environment, to create solutions for new challenges. We encourage new thinking, the testing of new ideas and adopting proven concepts. We understand the power of community and draw on the strength of people working together.

Social Responsibility Social responsibility is a public trust that we take very seriously. We promote responsible retailing and consumption by informing and educating our customers and stakeholders in the responsible and safe use of the products we sell. Our social responsibility efforts also encompass product quality and safety, environ-mental initiatives that produce positive change, support of communities in which we do business in, and partnerships with worthy causes.

Health & Safety We value the health and safety of our employ-ees, customers, business partners and the communities in which we operate. Health and safety is an integral part of our daily work-place. We are a good neighbour. We look out for each other, adopting and practicing a safety- first mentality.

LCBO CORE

VALUES

Customer Service

Health & Safety

Social Responsibility

Excellence

Integrity

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INTERNAL & EXTERNAL ASSESSMENT

CORPORATE SOCIAL RESPONSIBILITY **

Total Fundraising$11.4 million

� 14.6% Y/Y decrease

Assessment of Strategic ProgressA SUMMARY OF LCBO 2017/18 PERFORMANCE *

We measure and evaluate the performance of our strategic plan using key metrics. This allows us to be agile, forward-thinking and responsive to a changing environment, and to seize new opportunities as they arise.

Average Investigated Customer Product Quality Complaint Response Time

11.8 days � 0.3 days Y/Y decrease

% Reduction in Same-Store Electricity Use

� 1% Y/Y decrease

* Fiscal results forecasted based on LCBO year-to-date 2017/18 performance to Period 12 unless otherwise stated. ** Fiscal 2017/18 results.

Challenges 13.9 million � 3.3% Y/Y decrease

Refusals 255,978 � 1.0% Y/Y decrease

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1 VQA: Vintners Quality Alliance 2 ICB: International-Canadian Blends

MAXIMIZE RETURNS TO THE PEOPLE OF ONTARIO

Net Sales $6.1 billion � 5.5% Y/Y increase (-1.2% under plan)

Net Income $2.2 billion � 6.2% Y/Y increase (2.7% over plan)

EXCELLENCE IN CUSTOMER EXPERIENCE

EXCELLENCE IN OPERATIONAL EFFICIENCY

Inventory Turns†

� 0.3 Y/Y decrease (0.2 under plan)

7.4 16.0%

Total Expenses as % of Net Sales

� 0.3% Y/Y decrease (0.3% under plan)

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SUPPORT FOR LOCAL ONTARIO PRODUCERS

NET SALES

VQA Wine 1

$161.2 million� 10.6%

Y/Y increase (-6.0% under plan)

ICB Wine 2

$306.2 million� 4.4%

Y/Y increase (0.4% over plan)

Craft Beer $126.6 million

� 29.5%Y/Y increase (-3.3% under plan)

Craft Cider$11.3 million

� 39.8%Y/Y increase (8.9% over plan)

Small Distillers$12.1 million

� 101.4%Y/Y increase (32.6% over plan)

† Excludes all product not flowing through LCBO Supply Chain.

Customer Engagement Scoresout of 10 (2017/2018)

� 0.1 Y/Y increase (met target)

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INTERNAL & EXTERNAL ASSESSMENT

THE ECONOMY

Ontario’s economy is expected to be strong in 2018, but grow at a slower rate than in 2017. The factors that drove the economy in the past few years (including residential investment and house-hold spending) will ease off due to rising interest rates. In addition, measures to cool the housing market and uncertain trade con-ditions with the United States will dampen the pace of growth.

While Ontario consumer confidence is expected to average a lower level for 2018, a lower Canadian dollar and rising gasoline prices should continue to benefit the retail sector by restricting spending outside of Canada and encouraging Ontario tourism. These factors will contribute to a modest growth in Ontario retail sales and this should bode positively for beverage alcohol sales.

BEVERAGE ALCOHOL SECTOR

Ontario’s beverage alcohol marketplace has changed. The provincial government is expanding the sale of beer and cider in up to 450 grocery stores across the province, and up to 300 of these stores will also be able to sell wine. Under a whole- sale agreement, grocery stores purchase beer, cider and wine from the LCBO for resale to the public. As of April 2018, there are 362 grocery stores across Ontario authorized to sell beer and cider, or beer, cider and wine.

In this evolving competitive landscape, we are committed to improving our retail customer experience to gain the trust and loyalty of our customers. With constantly evolving customer expectations, we will expand our network and offerings to delight our customers. We will leverage our key strengths, including our staff expertise and extensive

Our Marketplace

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product selection, and continue to advance our online and digital offerings to deliver remarkable experiences in the world of wine, beer and spirits in a socially responsible manner.

At the same time, grocery stores are an important customer of the LCBO and offer us the opportunity to cultivate a new partnership for the benefit of Ontarians. The wholesale channel, which in addition to grocery stores also includes restaurants, bars and others, will increase in volume and importance. We will focus on enhancing our wholesaling practices and capabilities to further become a trusted and service-oriented partner.

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CORPORATE SOCIAL RESPONSIBILITYTo be a socially responsible, transparent organization, 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.

SUPPORT OF LOCAL ONTARIO PRODUCTS To provide ongoing support to grow the sales of local Ontario products.

MAXIMIZE RETURNS TO THE PEOPLE OF ONTARIOTo maximize returns to the people of Ontario by generating a total of $7.0 billion in net income over the next 3 years (2018/19 – 2020/21).

Mandates

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2

3

Areas to fulfill as a best-in-class retailer and wholesaler

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MANDATES

Corporate Social ResponsibilityOUR CORPORATE SR MANDATE

Corporate Social Responsibility (CSR) has served as the foundation of our mandate for more than ninety years and is a public trust we take very seriously. This is about how we conduct our business and manage policy and procedures to produce an overall positive impact on society. Our employees bring our social responsibility core values to life each and every day, whether it’s through responsible retailing and consumption, product quality and safety, environmental sustainability or community support. We don’t just focus on CSR because it’s the right thing to do; our customers, employees and trade partners expect it from us.

CORPORATE SR KEY PERFORMANCE INDICATOR WEIGHTING

� Responsible Retailing & Moderate Consumption

� Product Quality & Safety

� Environmental Sustainability

� Community Involvement & Fundraising

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PILLAR 1 RESPONSIBLE RETAILING & MODERATE CONSUMPTION

There are three strategies under this pillar:

1 Culture: The Way We Live It

Mobilize the LCBO’s scale and influence by creating a National Coalition of Care that unites our employees, trade partners, suppliers, licensees, other liquor boards, the public and the Ontario government.

2 Frontline Staff: The Way We Do It

Ensure social responsibility at our point-of-sale remains a clear point of difference by providing LCBO frontline staff with the tools they need to be empowered, supported and valued, and share these tools, where possible, with other beverage alcohol partners.

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 products are authentic, safe for consumption and compliant with federal, provincial and LCBO standards for composition, quality, and packaging and labelling.

METRIC/KPI Average investigated customer product quality 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 foot-print and reduce operating costs through waste reduction, energy efficiency and other sustainability initiatives.

METRIC/KPI 1% reduction in same-store electricity use per year

PILLAR 4 COMMUNITY INVOLVEMENT & FUNDRAISING

We take great pride in supporting our communities and in our ability to partner with our customers and business partners to support and raise funds for worthy causes.

METRIC/KPI Total fundraising 1

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MANDATES

SALES PERFORMANCE AND PROFIT TARGETS

Maximize Returns to the People of OntarioThe LCBO is a proud contributor to the Government of Ontario. The revenues we generate support key public programs and services for Ontarians and their communities, including health care, education and infrastructure. We will grow our sales in a socially responsible way, ensuring maximum profitability by further improving operational efficiency and tailoring product assortment and services to our customers. To support growing sales, we will continue to invest in modern technology and other capital improvements to keep operations running efficiently.

Income Statement

$ 000,000’s 2016/17Actual

2017/18Forecast

2018/19Plan

2019/20Forecast

2020/21Forecast

Total Rolling 3-Year Plan 2018/19 to 2020/21

Net Sales $5,827 $6,148 $6,412 $6,715 $7,042 $20,169 Yr/Yr % Increase 5.8% 5.5% 4.3% 4.7% 4.9%

COGS $2,880 $3,024 $3,160 $3,320 $3,482 $9,962 Yr/Yr % Increase 5.7% 5.0% 4.5% 5.1% 4.9%

Gross Margin $2,947 $3,124 $3,251 $3,395 $3,560 $10,207 Yr/Yr % Increase 5.8% 6.0% 4.1% 4.4% 4.9%

GM % 50.6% 50.8% 50.7% 50.6% 50.6% 50.6%

Divisional Expenses $779 $802 $861 $888 $928 $2,677 Yr/Yr % Increase 8.2% 3.0% 7.3% 3.1% 4.6%

as % of Net Sales 13.4% 13.1% 13.4% 13.2% 13.2% 13.3%

Other Expenses $168 $179 $191 $200 $210 $602 Yr/Yr % Increase 10.4% 6.4% 6.8% 4.7% 4.9%

as % of Net Sales 2.9% 2.9% 3.0% 3.0% 3.0% 3.0%

Total Expenses $947 $981 $1,052 $1,088 $1,138 $3,278Yr/Yr % Increase 8.6% 3.6% 7.2% 3.4% 4.6%

as % of Net Sales 16.3% 16.0% 16.4% 16.2% 16.2% 16.3%

Operating Income $2,000 $2,143 $2,199 $2,307 $2,422 $6,928Yr/Yr % Increase 4.6% 7.1% 2.6% 4.9% 5.0%

Other Income $339 $53 $35 $31 $32 $98 Yr/Yr % Increase 512.6% (84.4%) (33.4%) (11.2%) 2.0%

Net Income $2,340 $2,196 $2,234 $2,339 $2,454

Normalized Net Income* $2,068 $2,196 $2,234 $2,339 $2,454 $7,027Yr/Yr % Increase 5.1% 6.2% 1.8% 4.7% 4.9%

as % of Net Sales 40.2% 35.7% 34.8% 34.8% 34.8% 34.8%

Capital Expenditures $79 $82 $85 $85 $85 $255

* Excludes Extraordinary Gain – HO Sale ($272M for 2016/17).

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SALES TARGETS

Sales

$ 000,000’s 2016/17Actual

2017/18Forecast

2018/19Plan

2019/20Forecast

2020/21Forecast

Spirits $2,239.9 $2,370.5 $2,474.7 $2,588.8 $2,713.2 Yr/Yr % Change 5.1% 5.8% 4.4% 4.6% 4.8%

Wine $1,500.4 $1,565.9 $1,598.5 $1,659.4 $1,725.9 Yr/Yr % Change 3.4% 4.4% 2.1% 3.8% 4.0%

Beer $1,298.7 $1,364.4 $1,454.5 $1,539.8 $1,630.2 Yr/Yr % Change 9.9% 5.1% 6.6% 5.9% 5.9%

Vintages $538.5 $579.0 $605.7 $636.6 $667.6 Yr/Yr % Change 5.3% 7.5% 4.6% 5.1% 4.9%

Specialty Services, $249.6 $267.9 $278.2 $290.8 $304.9 Direct Delivery, Other Yr/Yr % Change

6.3% 7.3% 3.8% 4.5% 4.9%

Total Corporate $5,827.2 $6,147.8 $6,411.5 $6,715.3 $7,041.7 Yr/Yr % Change 5.8% 5.5% 4.3% 4.7% 4.9%

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$2,400$2,600$2,800

$1,600

$800

$2,000

$1,200

$400

$2,200

$1,400

$600

$1,800

$1,000

$200$0

$6,200

$5,800

$6,400

$5,400

$5,000

$6,000

$6,600

$7,000$6,800

$7,200

$5,600

$5,200

$4,800

2016/17Actual

2017/18Forecast

2018/19Plan

2019/20Forecast

2020/21Forecast

LCBO

SPIRITS

WINEBEER

VINTAGES

SPECIALTY SERVICES/ OTHER

5.8%

5.5%

4.3%

4.7%

4.9%

3.4% 4.4% 2.1% 3.8% 4.0%

9.9% 5.1% 6.6% 5.9% 5.9%

5.3% 7.5% 4.6% 5.1% 4.9%

6.3% 7.3% 3.8% 4.5% 4.9%

5.1%5.8%

4.4%4.6%

4.8%~~

$000,000’s

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MANDATES

SALES TARGETS BY CHANNEL

Sales

$ 000,000’s 2016/17Actual

2017/18Forecast

2018/19Plan

2019/20Forecast

2020/21Forecast

Retail $4,947.5 $5,168.5 $5,307.9 $5,416.0 $5,533.2Yr/Yr % Change 3.6% 4.5% 2.7% 2.0% 2.2%

e-Commerce $4.4 $11.0 $26.3 $69.0 $149.0 Yr/Yr % Change N/A 151.8% 138.2% 162.3% 115.9%

Wholesale* $860.3 $954.7 $1,059.1 $1,210.5 $1,337.6 Yr/Yr % Change 14.7% 11.0% 10.9% 14.3% 10.5%

Other** $15.0 $13.5 $18.2 $19.9 $22.0 Yr/Yr % Change 5.9% -9.9% 34.8% 9.4% 10.4%

Total Corporate $5,827.2 $6,147.8 $6,411.5 $6,715.3 $7,041.7 Yr/Yr % Change 5.8% 5.5% 4.3% 4.7% 4.9%

* Wholesale Channel Includes: The Beer Store, Duty Free, Grocer, Depots, and Specialty Services. ** Other Channel Includes: Winery Direct, Distillery, and Out of Province.

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MANDATES

Support of Local Ontario ProductsThe LCBO is delighted to showcase Ontario’s outstanding local products, which we elevate through collaborative efforts and enhanced product assortment. We appreciate that our customers want products produced close to home from Ontario vintners, craft brewers, craft cideries, and artisanal spirits producers, and we aspire to deliver what customers want.

The LCBO supports Ontario wine through a broad set of marketing and merchandising programs.

“Our Wine Country” boutiques in 20 select LCBO stores have the look and feel of a trip to wine country, and feature an assortment of the best Ontario products, including store-exclusive products, niche, and ultra-premium items.

Small winery support, including the Ontario Wine Direct Delivery program, allows smaller Ontario wineries to deliver their products directly to local LCBO stores. The Wines to Watch program helps smaller wineries grow their production, distribution and sales through the LCBO and has dedicated shelving in 60 LCBO stores.

We offer an annual promotion in all LCBO stores from mid-September to mid- October, in-store wine and food events and tastings, a Vintages catalogue dedicated to VQA wines, a major public VQA wine tasting event, all supported by advertising, social media elements and information on our website.

Ontario craft beer is booming and we support these products in our stores through prominent placement in-section, special displays, dedicated promotions and an innovative Growler Stop program in two flagship locations in Toronto and Ottawa where customers can purchase an ever-changing assortment of new beers. Our Ontario Craft Beer sections offer customers regular new and seasonal releases (locally curated) and, across our stores, we have hundreds of specially trained “Beer Ambassadors” who share their passion and knowledge with staff and customers alike. We also support the industry with regular education seminars to promote collaboration.

Like craft beer, the Ontario Craft Cider category continues to be one of the fastest growing segments at the LCBO. The assortment is frequently updated and now includes new local specialty ciders made with in-season local fruits like pear, peach or cherry. The LCBO also includes locally produced craft products in cider marketing and merchandising programs.

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Sales

$ 000,000’s 2016/17Actual

2017/18Forecast

2018/19Plan

2019/20Forecast

2020/21Forecast

Ontario VQA Wine1 $145.8 $161.2 $170.8 $185.8 $202.5Yr/Yr % Change 5.3% 10.6% 6.0% 8.8% 8.9%

ICB Wine 2 $293.3 $306.2 $315.0 $328.1 $343.1 Yr/Yr % Change 6.4% 4.4% 2.9% 4.1% 4.6%

Ontario Craft Beer $97.7 $126.6 $159.2 $196.7 $236.2 Yr/Yr % Change 36.9% 29.5% 25.8% 23.5% 20.1%

Ontario Craft Cider $8.1 $11.3 $14.7 $18.4 $22.5Yr/Yr % Change 58.6% 39.8% 29.8% 25.2% 22.3%

Ontario Small Distillers $6.0 $12.1 $20.5 $34.8 $58.7 Yr/Yr % Change 73.7% 101.4% 69.8% 70.1% 68.4%

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Local micro-distilled spirits is an increasingly growing segment. We highlight these products through promotional programs, including the Ontario Small Distillers program. We also have specialized staff called “Spirits Advocates” who deliver an engaging customer experience by helping to take the mystery out of the bottle. Spirits Advocates educate consumers on taste profiles and provide practical advice on serving, mixing and the versatility of spirits.

SALES TARGETS

1 VQA: Vintners Quality Alliance 2 ICB: International-Canadian Blends

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The LCBO has begun its journey in a new beverage alcohol marketplace. We are adjusting our focus so that we succeed in both our retail and wholesale business. We are also beginning to address some fundamental questions about our future, including:

• What is the desired customer journey and experience for beverage alcohol customers going forward? How might this vary across segments?

• How should we adjust our store network strategy to evolve with our customers and new marketplace?

• How should we optimize our supply chain network design to improve efficiencies and customer service?

While we address these questions, this plan ensures that the voice of the customer is heightened and is central to everything we do. By understanding our customers even better, we can serve them the way they want to be served across all of our different channels. We will focus on factors that will enable us to delight our customers and succeed in our new marketplace.

Looking to the FuturePutting this three-year plan in context

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OBJECTIVE 1 EXCELLENCE IN CUSTOMER EXPERIENCETo create a customer comes first culture throughout the organization and consistently delight our customers.

OBJECTIVE 3 EXCELLENCE IN EMPLOYEE EXPERIENCE To develop a dynamic, collaborative and diverse LCBO where our people thrive, partnerships prevail and performance excels.

OBJECTIVE 2 EXCELLENCE IN OPERATIONAL EFFICIENCY Constantly strive to increase efficiency by focusing on ways to simplify and streamline business practices.

Strategic Priorities

1

2

3

Areas of focus to achieve our vision

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C A P A B I L I T I E S :Insights-Driven Culture Program Management

Excellence in Customer

Experience

Excellence in Operational Efficiency

Excellence in Employee

Experience

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STRATEGIC PRIORITIES

Excellence in Customer ExperienceOBJECTIVE 1

To create a customer comes first culture throughout the organization and consistently delight our customers.

SITUATIONAL ANALYSIS

We need to meet the evolving expectations of both our retail customers and wholesale customers. Keeping on top of best practices and megatrends will help us prioritize initiatives and resources to support the modern customer experience. The LCBO needs to be nimble and agile to engage our customers in a meaningful and impactful way.

Digital transformation

Digital technology has increased the customer expectation for convenience and personalization. Customers want a seamless experience across channels whether in-store, online or through their mobile device.

Because of this, we continue to invest in our online and digital capabilities, ensuring that customers can interact with us anywhere, anytime and on any device. We are developing mobile-first opportunities to assist purchase and entertaining decisions before, during and after the shop. We recently launched an employee mobile app to increase the communication and engagement between our frontline staff and our customers.

We are delivering multi-year e-Commerce enhancements that provide a friction- less customer experience that complements our physical stores, and that build towards a global marketplace.

For our wholesale customers, we will use technology to improve systems and build automation to support the growing grocery/business-to-business sales channel.

Increase customer engagement from 7.0 to 7.1 by 2020/21.

Target retail sales per transaction of $39.84 in 2020/21.

Target grocery fill rate of 95% in 2020/21.

Investing this year in e-and m-Commerce to grow the channel. Meaningful KPI’s will be established for subsequent years.

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As with every industry in this era, it is important for retailers to embrace change. We are looking to establish a “phygital” (physical plus digital) experience, trying to determine the perfect balance of physical presence and digital experience. This balance will continue to change in challenging and exciting ways as the digital transformation continues to develop.

Changing face of the consumer

By 2020, Millennials’ spending will surpass Baby Boomers’. This means that we have to understand the expectations of this generation as well as the Centennials that come after that.

We know that Millennials tend to be more adventurous than Baby Boomers, and thus are less consistent in where they shop. For example, rather than making a one-stop shop, Millennials will shop for basics at mass merchants and organic and specialty foods elsewhere. This tendency can affect in which beverage alcohol channel they choose to shop.

Social media is heavily used by Millennials who are recommending what they like to each other. We are listening to our Millennial customers and we will be using more digital technology to serve them better. When they go shopping at the LCBO, we also know that they want to interact with knowledgeable and friendly staff so we will continue to enhance the product knowledge of our frontline.

Another phenomenon changing the consumer is increased urbanization bringing the need for retailers to use an insightful and adaptive approach to handling urban consumers’ preferences and requests for convenience.

Using data and customer insights, the LCBO will continue to build its skillset when it comes to developing a deep understanding of our customers to meet and exceed their expectations with tailored product offering, marketing and store design.

New patterns of personal consumption

Customers want what they want, when they want it, and nimble retailers must be prepared to deliver convenience while focusing on crafting a personalized, curated experience through many channels.

Organizations that can rapidly translate big data into a series of curated choices and offer the right product, information and brand experience at the right time and in the right context will succeed.

The LCBO will leverage CRM to drive personalization in all LCBO digital channels. We will develop empowerment content and integrate engagement techniques. As well, we will continue to create and curate highly desirable content.

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STRATEGIC PRIORITIES

PRIORITY STRATEGIES KEY INITIATIVES

Establish a personalized customer experience that delivers in the physical and digital environment (“Phygital Strategy”)

• Develop a strategy for our network of the future that addresses our changing landscape and customers, and establish a holistic view of our customer experience

• Enhance our e-Commerce business with a focus on customer experience and sales to licensees

• Establish loyalty strategy

Data-driven expansion of tailored assortment across all channels

• Tailor assortment across all channels

- Right size product type and selection by customer base

- Assign assortment logic to maximize margin

- Develop promotional strategies

• Differentiate the LCBO through a focus on high rotation, spirits, Vintages, craft beer and retail theatre

• Re-invigorate Products of the World program

Transform and elevate our wholesale capability and relationships to drive growth

• Establish an integrated wholesale strategy for all B2B customers across the LCBO (grocers, licensees, agents, agency stores, the Beer Store, duty free & other jurisdictions)

• Implement an account management capability that meets the needs of our B2B customers and leverages our LCBO competencies

• Identify and drive synergies across the Supply Chain and Wholesale operations teams to enable supporting our B2B customers (customer service, order fulfillment/payment/reconciliation, demand planning, transportation, etc.)

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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 7.7 in 2020/21.

Target total expenses as % of net sales of 16.2% in 2020/21.

SITUATIONAL ANALYSIS

The LCBO is dedicated to ensuring that our operations are delivered as efficiently as possible. We understand that Ontarians expect that their assets are treated with respect and that we don’t waste resources. We make the best use of money, materials, staff and other tools to maximize our profitability.

We are careful to balance operationally efficient pursuits with meeting our customers’ expectations. This means delivering the required quality of service at an acceptable cost. Our ultimate goal is to continuously improve how we operate, grow the business responsibly and exceed our partners’ expectations.

We are using technology to improve our operations and examining our policies and procedures with the goal of structuring work processes that deliver the highest results. In addition, we optimize our supply chain through collaborative planning and execution with internal and external partners.

We are focused on using data analytics to gain insights that can be applied to operational initiatives and proof of concepts so that we will be able to identify the best new opportunities and innovations that are aligned with operational efficiency considerations. We will pursue and implement only those that balance the customer with efficiency.

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PRIORITY STRATEGIES KEY INITIATIVES

Transform our supply chain through internal and external collaboration

• Develop and implement an integrated approach for inventory management across the LCBO for all customer channels

• Develop a supply chain network that optimizes our customer fulfillment strategies by balancing cost and service

• Drive integrated planning and collaboration across the supply chain that will enable demand planning and sales and operations for all channels

Leverage technology and re-engineer processes to maximize operational efficiency

• Enhance retail store efficiencies

• Deliver a holistic order management platform for our B2B channels

• Transform our supply chain through the implementation of leading software and adoption of best practices

• Improve/modify processes, including by integrating order management and merchandise financial planning across business lines

• Establish approaches to make testing and adoption easier

Align divisional practices and key performance indicators with organization-wide priorities

• Develop a process to improve concrete guidance and accountability for employees

• Enhance strategic planning process to incorporate bold aspiration and adaptability to meet the changing market

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STRATEGIC PRIORITIES

Excellence in Employee Experience OBJECTIVE 3

To develop a dynamic, collaborative and diverse LCBO where our people thrive, partnerships prevail and performance excels.

Target 50% positive movement of managers and senior leaders identified as Ready Now or Ready in up to 2 years by 2020/21.

By the end of 2020/21, increase the quality of performance conversa-tions by 10%, compared to the 2018/19 baseline established via survey.

By the end of 2020/21, increase the awareness/demonstration of three key behaviours to drive culture change by 20%, compared to the 2018/19 baseline established via survey.

By the end of 2020/21, increase the quality of onboarding experience by 15%, compared to the 2018/19 baseline.

By the end of 2020/21, reduce the number of total recordable health and safety claims by 5%, compared to the 2016/17 base fiscal year.

SITUATIONAL ANALYSIS

At the LCBO, the employee experience remains a high priority, as we appreciate that our people bring our strategies to life. We promote a collaborative and customer-centric mindset to empower teams to produce great work. We encourage and provide professional development opportunities, a great work-life balance and experience in a transformative, exciting industry.

There is significant amount of change happening at the LCBO and within the retail industry. More than ever, it is critical to design a modern, flexible workplace where employees are engaged, empowered and equipped for success. We are transforming our organization to become a customer-centric wholesaler and omni-channel retailer, and we will continue to ensure that our people are knowledgeable, socially responsible and committed to providing exceptional customer service.

We are focused on talent management, as we look to transform our organi-zation. We are enhancing the talent acquisition strategy and promoting our world-class brand to attract top talent to the organization. We are identifying and growing internal talent, and developing our high-potential employees to be our future leaders, ensuring the continued success of the LCBO.

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We listen to our employees so that we can continuously improve our employee experience. We are utilizing more frequent and targeted employee surveys to better respond to our employees’ feedback. Through these initiatives, we are confident that the LCBO will make great strides in continuing to improve the employee experience.

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PRIORITY STRATEGIES KEY INITIATIVES

Develop an integrated approach to talent management

• Implement a progressive, organization-wide approach to talent and performance management and succession planning

• Enhance the talent acquisition strategy and our employer brand through workforce planning and targeted recruitment to address critical talent gaps and effective employee onboarding

Lead organizational and cultural transformation

• Develop and implement an organizational operating model that supports the LCBO’s transition to a customer-centric wholesaler, omni-channel retailer

• Lead workforce preparedness for the workplace of the future through the development of key capabilities and cultural transformation

Develop a sustainable and competitive labour and compensation model

• Modernize the organization’s rewards and compensation strategy to support the talent needed to succeed in a more competitive environment

• Champion a collaborative labour relations renewal with a focus on preparing for the changing market reality

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Key Capabilities

The LCBO looks to the future for long-term opportunities and challenges. To do this, we must formulate what we need to do to reach our vision. This includes determining the critical capabilities we require to achieve continued success in the future. We have both existing and new capabilities that will produce advantage and that are relevant to the customer. These capabilities will be developed and envolved over time.

KEY CAPABILITIES KEY INITIATIVES

Establish an insights-driven culture and organizational access to high-quality data

• Enhance our customer analytics capabilities by connecting all data sources regarding customer needs and behaviours

• Enhance our enterprise-wide customer analytics capability by connecting all data sources regarding internal customer needs and behaviours

• Enable organization-wide access to high quality data by establishing appropriate governance models and integrating data sources

• Deliver operational efficiencies and facilitate data- informed decision-making through a human capital management system and self-service opportunities for employees and managers

Establish an enterprise-wide program management capability

• Establish and implement program management governance across the LCBO through effective project intake, review and resource approvals

• Develop a holistic approach to capital and budget requests/approval for all strategic and organizational- wide projects and programs

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APPENDIX

LCBO Three-Year Financial Plan

Full Time Equivalent Employees (FTEs)

Income Statement

$ 000,000’s 2016/17Actual

2017/18Forecast

2018/19Plan

2019/20Forecast

2020/21Forecast

Total Rolling 3-Year Plan 2018/19 to 2020/21

Net Sales $5,827 $6,148 $6,412 $6,715 $7,042 $20,169 Yr/Yr % Increase 5.8% 5.5% 4.3% 4.7% 4.9%

COGS $2,880 $3,024 $3,160 $3,320 $3,482 $9,962 Yr/Yr % Increase 5.7% 5.0% 4.5% 5.1% 4.9%

Gross Margin $2,947 $3,124 $3,251 $3,395 $3,560 $10,207 Yr/Yr % Increase 5.8% 6.0% 4.1% 4.4% 4.9%

GM % 50.6% 50.8% 50.7% 50.6% 50.6% 50.6%

Divisional Expenses $779 $802 $861 $888 $928 $2,677 Yr/Yr % Increase 8.2% 3.0% 7.3% 3.1% 4.6%

as % of Net Sales 13.4% 13.1% 13.4% 13.2% 13.2% 13.3%

Other Expenses $168 $179 $191 $200 $210 $602 Yr/Yr % Increase 10.4% 6.4% 6.8% 4.7% 4.9%

as % of Net Sales 2.9% 2.9% 3.0% 3.0% 3.0% 3.0%

Total Expenses $947 $981 $1,052 $1,088 $1,138 $3,278Yr/Yr % Increase 8.6% 3.6% 7.2% 3.4% 4.6%

as % of Net Sales 16.3% 16.0% 16.4% 16.2% 16.2% 16.3%

Operating Income $2,000 $2,143 $2,199 $2,307 $2,422 $6,928Yr/Yr % Increase 4.6% 7.1% 2.6% 4.9% 5.0%

Other Income $339 $53 $35 $31 $32 $98 Yr/Yr % Increase 512.6% (84.4%) (33.4%) (11.2%) 2.0%

Net Income $2,340 $2,196 $2,234 $2,339 $2,454

Normalized Net Income* $2,068 $2,196 $2,234 $2,339 $2,454 $7,027Yr/Yr % Increase 5.1% 6.2% 1.8% 4.7% 4.9%

as % of Net Sales 40.2% 35.7% 34.8% 34.8% 34.8% 34.8%

Capital Expenditures $79 $82 $85 $85 $85 $255

* Excludes Extraordinary Gain – HO Sale ($272M for 2016/17).

2018/19Plan

2017/18Plan Change

Retail 5,694 5,491 203

Supply Chain 999 866 133

Administration & Other 817 760 57

Total FTEs 7,510 7,118 392

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Communications Plan

The LCBO’s capacity to achieve organizational success every year depends largely on timely, effective and transparent internal and external communications. The LCBO communicates regularly with a wide range of key stakeholders including the public, our customers, the media, the beverage alcohol industry and social responsibility groups, as well as the government and our employees. In light of the evolving beverage alcohol marketplace, comprehensive commu-nication and engagement strategies are critical to our success.

We are committed to clear, concise communication both internally and externally in support of our mission and vision while supporting our founding commitments of corporate social responsibility and safety, and maximizing returns to the people of Ontario and supporting local products.

On an annual basis, the LCBO develops a communications plan to support organizational priorities and activities. The plan addresses a number of internal and external communications and engagement initiatives and utilizes diverse and accessible communications channels, platforms and tools including:

• Paid and earned media;

• Digital/online communications and content;

• Corporate publications;

• Social media;

• Issues management; and

• Media relations.

The LCBO also ensures that our shareholder, the Government of Ontario, is regularly updated and apprised of matters impacting the LCBO including opera-tional activities, regulatory and legislative issues, and public policy matters.

As the strategic plan evolves in light of our ever-changing landscape, the LCBO’s communications plan will shift and evolve to meet the organization’s communication needs.

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APPENDIX

The primary objectives of the ERM program are:

• To establish a culture where risk management is linked to strategy setting and considered in all business decision-making.

• To create value from our assets and other business opportunities.

• To provide a consistent and systematic approach to risk management which identifies, assesses, manages and monitors major risks effectively.

• To anticipate and respond to changing social, environmental and legislative conditions.

LCBO’s top three risks are:

1 Government policy and legislative change

2 Competition

3 Talent/succession management and compensation competitiveness

Government policy and legislative change

All retailers, including the LCBO, need to anticipate and respond to changes in their legal and regulatory environments. However, as an agency of the province of Ontario, there are additional factors we need to consider including:

• Public service directives and standards that support provincial policy objectives;

• Changes in interprovincial and international trade agreements; and,

• Public policy directives to further liberalize alcohol sales.

The LCBO is committed to managing risk in support of achieving its business and operating objectives and goals, and in accordance with Enterprise Risk Management (ERM) best practices and standards. We are dedicated to maturing the ERM program.

Enterprise Risk Management

Strategic Planning: Where do we want to go?

ERM: What can go wrong and what

are we doing about it?

Performance Assessment:

How are we doing?

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As a result, significant changes in policy or legislation may put our business at risk.

To mitigate these challenges, the LCBO proactively provides information and advice to the government on the potential impact of any proposed policy changes on our financial performance and operations. We also adopt an agile, flexible and collaborative culture so that we can respond quickly to changes in our environ- ment. At the same time, we remain focused on providing excellence in socially responsible retailing, customer experience and operational efficiency.

Competition

The government's decision to allow up to 450 grocery stores to sell some combination of beer, cider and wine has transformed our business model. Grocery stores have a competitive advantage as they are able to provide a one-stop shopping experience for customers who want to buy food and beverage alcohol at the same time. This evolving competitive marketplace may result in a loss of some customers from our retail stores.

To mitigate these challenges, the LCBO will focus on achieving high retail customer engagement, particularly in the emotional engagement areas (brand equity). We will emphasize our own points of differentiation through a number of key initiatives: focusing on our extensive product offering, emphasizing and demonstrating our product knowledge and insights and bringing global expe-riences to our local market to engage our customers and enhance our trusted brand. These strategies, and the implementation of corresponding initiatives to strengthen LCBO brand drivers to keep customers shopping in our stores and online, will set us on the right course. At the same time, as we need to ensure that we are well equipped to solidify our wholesale position in the future, we strive to provide a seamless service experience to our wholesale customers.

Talent/succession management and compensation competitiveness

In recent years, a number of employees have taken early retirement opportunities. Retirements can translate into a loss of corporate knowledge and history, a lack of continuity for key program areas and potential losses in management abilities/skills to effectively implement corporate programs.

In addition, the current compensation policies can impact the LCBO’s ability to recruit externally for some key positions. In response to these challenges, the LCBO has developed an overriding strategy to ensure the LCBO is prepared for future growth by having the right people at the right time to perform the work of the organization. As part of this strategy, the organization is taking an enhanced approach to succession planning and leadership development. Additionally, the LCBO continues to review its recruitment strategies to attract greater internal/ external interest.

The LCBO will continue to manage our risks and we are committed to the continuous advancement of the ERM process to protect and sup-port the achievement of LCBO objectives.

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