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Annual Report 2017-18 LETTER of TRANSMITTAL

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Annual Report 2017-18 LETTER of TRANSMITTAL Annual Report 2017-18 LETTER OF TRANSMITTAL The Honourable Victor Fedeli, Minister of Finance Dear Minister, I have the honour to present you with the 2017–18 Annual Report of the Liquor Control Board of Ontario. Respectfully submitted, Ed Clark, Chair TABLE OF CONTENTS: Highlights 3 Your LCBO 4 Message from the LCBO Chair 7 Message from the LCBO President & CEO 8 LCBO Corporate Structure 11 LCBO Board Members 13 LCBO Management Discussion and Analysis of Operations 15 LCBO Responsibility for Financial Reporting 35 LCBO Independent Auditor’s Report 36 LCBO Financial Statements 37 LCBO Notes to Financial Statements 41 LCBO Financial Overview 55 Ontario Cannabis Retail Corporation Independent Auditor’s Report 65 Ontario Cannabis Retail Corporation Financial Statements 66 Ontario Cannabis Retail Corporation Notes to Financial Statements 69 Credits 75 2 Annual Report 2017-18 HIGHLIGHTS CHOICE CONVENIENCE 2,332 retail outlets selling alcoholic beverages E-Commerce sales doubled in Ontario, up 23% since 2014 Next-day delivery introduced Total number of LCBO stores: 663 Extended Sunday hours 247 Grocery stores New in-app browsing and shopping 210 Agency stores 360 grocery authorizations awarded More than 26,000 spirits, wine and beer products 5,000+ products available on the LCBO mobile app 3,000 online exclusives COMMUNITY FINANCIALS Record-breaking donations to the: Revenue: $6.24 billion $4.1 million Net income: $2.21 billion, up 6.7% $2.12 billion in dividends $3.5 million transferred to the Ontario government $2.3 million 93% waste diversion rate New stores 25-30% more energy efficient than 10 years ago 630,000 quality assurance laboratory tests Total challenges for all reasons: 13.9 million Total refusals for all reasons: 255,978 Annual Report 2017-18 3 The LCBO has transformed to offer a best-in-class experience in the physical and digital worlds that is easy, fast and personalized. We have evolved to meet the needs of customers to ensure everyone gets the right product from the right place at the right time – whether they shop in our stores, on our app, online, at the grocery store, or at one of our Pop-Up shops. We’ve upheld our commitment to social responsibility while focusing on customer-driven innovation. No matter who you are, how you shop, or what products you’re looking for, this is Your LCBO. 4 Annual Report 2017-18 Your LCBO means we are not just about the service in our stores – it’s putting the customer at the centre of every decision we make. YOUR PRODUCTS Due to popular demand, the LCBO On the Go app now We are committed to continuously refresh- allows mobile purchases and the ability to pay with a ing our selection so you’ll get a chance to digital wallet. And we launched next-day delivery for experience ever-changing offerings from around the online orders, which accounted for over $3.8 million world, each with a unique story to tell. There are now in sales. 26,000 spirits, wine and beer products available to We also unveiled the LCBO Pop-Up, our first-ever pop- Ontarians. More than 3,000 products are now avail- up store, where customers had the opportunity to sip, able as online exclusives. 52 new wine boutiques also shop, learn, and be inspired through a personalized and opened in authorized grocery locations, contributing to interactive experience. LCBO Pop-Up underscores the an increase in the volume of Ontario wine sold this year. LCBO’s commitment to giving customers the confidence to navigate the beverage alcohol world through product curation, knowledge, sharing and inspiration. YOUR STORES As of March 31, 2018, there were 2,332 retail outlets selling alcoholic beverages in YOUR COMMUNITY Ontario. Since FY2014, the number of outlets The LCBO reinvigorated its commitment to has increased by 438 locations, or 23%, impacted your local community through our continued in part by grocery locations, giving customers more social responsibility efforts and donations to choice about where they shop and when. When you important charitable causes that enhance and protect shop in an LCBO retail store, our product experts the lives of millions of Ontarians. Last year, we challenged provide Ontarians with their vast array of knowledge 13.9 million people and refused service to 255,978. 82% so they can help customers make educated choices of those people were refused due to lack of proof of age. on the products that are right for them. With your help, we raised over $2.3 million for MADD Canada to support programs that reach high school and elementary students across the province, helping YOUR WAY them make smart choices that keep themselves and Technology is the backbone of LCBO as it their friends safe from impaired driving. An incredible continues to be the world’s largest purchaser $3.5 million was also raised to help improve the lives of beverage alcohol from more than 60 of thousands of children who rely on health care countries. Whether you prefer e-commerce professionals at Ontario’s four children’s hospitals at the touch of your fingertips or bricks-and-mortar for specialized treatment, therapy and services. We (or both!), the LCBO continued to look toward new raised $4.1 million for the United Way, along with $1.1 technology and innovations to ensure Ontarians got the million through local and provincial donation boxes very best of both experiences through its innovation lab programs to contribute to local charitable causes in for future leaders of IT – LCBO|Next. Located within Ontario communities. Communitech, a Waterloo tech hub, LCBO|Next is all about bringing fresh ideas, creative thinking and new skills to complement and enhance LCBO’s digital initiatives. Annual Report 2017-18 5 6 Annual Report 2017-18 MESSAGE FROM THE CHAIR When I joined the LCBO in February the LCBO in her position of Vice Chair. 2018, I knew that we were in the middle The Board also welcomed David Graham of a transformation. And while it comes this year, who was appointed in August as the delivery of another record year of 2017. David is a public sector executive dividends and sales is no surprise, the true with extensive experience in governance accomplishments go far beyond that. and accountability, change leadership/ The LCBO understands the need to management and corporate relations. drive change – not try to keep up with President & CEO George Soleas believes it. An increased focus on the Ontario that the LCBO needs to continue to customer ensures that everyone gets the evolve to become a truly customer- right product, from the right place, at centric organization that continues to the right time. The drive throughout the deliver value for the people of Ontario organization to do things better, stay in and I agree. The entire Board team step with advancements, and to constantly supports the LCBO’s transformation, from focus on opportunities to exceed customer both operational and cultural change expectations is inspiring. As the expansion perspectives, and they will continue to of wholesale, the creation of a world class work collaboratively to achieve this goal. online experience, and efforts to become a more competitive retailer continue, management can count on the Board to provide guidance and oversight. With respect to the Board, I want to Ed Clark thank former Acting Board Chair Penny Chair Lipsett, who has been serving with the Board since 2007. She continues to bring her experience and leadership to Annual Report 2017-18 7 MESSAGE FROM THE CEO Fiscal 2017- Chief Customer Office. It also aligns us 18 marked my with other leading organizations that have second year as accelerated their transformation by having a President & CEO dedicated voice to represent the customer of the LCBO. We at the leadership table. With our vision of had the strongest delivering remarkable experiences as the financial results trusted destination for the world’s wines, in our history, beers and spirits top of mind, our Chief providing more Customer Office keeps us laser-focused than $2.1 billion on building a customer-centric mindset in dividends by empowering our entire team to make to the Ontario decisions, be creative, be bold, and government. But be accountable. while financial results are important, it’s Part of our focus on the customer is keeping our ability to evolve and show leadership in pace with ever-changing technology to bring the retail space to enhance our customer’s the global marketplace to the touch of their experience that I am most proud of. fingertips. We’ve made investments to make This was only achieved by being truly our mobile app even more sophisticated and accountable to you – the people of Ontario user-friendly, adding browse & buy features – and increased collaboration with all of our along with the ability to shop for more than partners. 5,000 products right from their smart phone. Every customer – from Newmarket to We’ve also seen a surge in e-commerce sales, Napanee – has different needs. We’ve boosted by our popular new next-day delivery worked hard to embed the customer in service and the more than 3,000 products every decision that we make, but we available as online exclusives. Internally, needed to increase that commitment. That’s we are investing in the right technology why we consolidated our customer-facing and infrastructure to support our constant departments into one, unified division – the modernization, including our order and human 8 Annual Report 2017-18 capital management systems and first With your help, we fundraised millions for employee app. Cutting-edge cyber security is organizations truly making a difference in the one of our biggest areas of focus to ensure lives of Ontarians – including $4.1 million for we design our systems with customer privacy the United Way and $3.5 million for Ontario’s built in from their inception.
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