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

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

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)

SIX MONTH REPEATING CALENDAR 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

De List / Freeze Methodology

De-List Filter Methodology Assortment Criteria Purpose 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

Spirits Freeze Methodology $ Profit Needed to be Retained as Optional 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

Freeze Methodology Final Assortment Decision to Delete 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

Clustering

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

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

Why We Changed? Less is more Increased Efficiency 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

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

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

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

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

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

Process PLCB Regional Manager / Broker Validation Final Recommendation Step 3

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

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

Future Goals Modify Core Assortment Methodology

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

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

Future Goals Implement Store Specific Shelf Sets Bi-Annually Generate Using Store Level Sales Will Allow for “right-sizing” of Categories

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

THANK YOU