PLCB Category Management Review October, 2007 James Short Director of Marketing Pennsylvania Liquor Control Board NABCA

1. PLCB Category Management Review October, 2007 James Short Director of Marketing Pennsylvania Liquor Control Board NABCA Best Practices Summit

2. Agenda • Evolution of PLCB Category Management • Listing Calendar • De List / Store Freeze Methodology • Clustering Solution • Future Goals

3. Timeline • 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)

4. LISTING CALENDAR SIX MONTH REPEATING CALENDAR • Two Listing Periods • - Similar to National Accounts • - Conducive to Supplier Planning • Reduction From Seven Listing Periods • Shelf Sets Produced Concurrently

5. De List / Freeze Methodology

6. De-List Filter Methodology Purpose Assortment Criteria Retain If Segment Share for $ Sales > or = 5% Retain top 95% of Segment Yes No Retain If Periods Active < or = 14 Retain New Items Yes No If Segment Growth > or = 5% and Item Growth > or = 75% Segment Growth Retain Growing Items in Growing Segments Retain Yes No Retain If Item Growth > or = 20% Retain Large Growth Items Yes No Retain If Profit / Store > or = $250 Retain Profitable Items Regardless of Growth Yes No Freeze Analysis Examine Code for Possible Freeze Next Page

7. Spirits 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 $ Profit Needed to be Retained as Optional < $1 Million $1 Million – $3 Million > $3 Million $115 $230 $375 TTL Store Sales TTL Store Sales TTL Store Sales Next Page

8. Freeze Methodology Retain Code Meets Established Minimum $ Profit / Store Retain Profitable Codes in Correct Stores Yes No Freeze Code at Store Level Retain Listing TTL $ Profit Where Codes are Retained > $15,000 Retain Profitable Codes for PLCB as Whole Yes No Final Assortment Decision to Delete

9. Clustering

10. Former 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 4 – Mainstream Spirits & Low Tier Wine • - 38 stores • - Warehouse 1 only • Cluster 5 – Metro Ethnic • - 36 stores • - Warehouse 1 only

11. Former 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

12. 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

13. Objectives • Core List • Marketing Plans • i.e.Distribute and Promote the Correct Codes in the Correct Stores

14. Clustering Process • Demographic Data Pull • Demographic Analysis • - Original Cluster Designation Step 1

15. About the Demographic Data… • Store Specific Demographic Data • Adult Population • Referenced Against Total Pennsylvania • Indices Generated For • Income • Education • Lifestyle • Ethnicity Primary Indicators of Consumption Patterns Secondary Indicators of Consumption Patterns

16. Process • Sales Data Pull • - By Store / Code • Sales Data Analysis • - Secondary Cluster Designation Step 2

17. Analysis • DEVELOPMENT INDICES GENERATED FOR • Price Segmentation • Display Category Hierarchy of Analysis 1. Price Segmentation 2. Category Development 3. Demographic Data

18. Process • PLCB Regional Manager / Broker Validation • Final Recommendation Step 3

19. 5 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

20. Cluster 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

21. Future Goals • Modify Core Assortment Methodology

22. Future Goals • Develop Category Adjacency Methodology - Vendor Partner Consumer Research Driven

23. Future Goals • Generate Category Specific Shelf Set Template • Bring in 3rd Party Validators

24. Future Goals • Implement Store Specific Shelf Sets Bi-Annually • Generate Using Store Level Sales • WillAllow for “right-sizing” of Categories

25. Ultimate Goal Become Category Management Self-Sufficient!!

26. THANK YOU