Consultations: Master Framework Agreement

SCHEDULE 6.4
PILOT PROGRAM

The LCBO will initiate a Twelve-Pack pilot (the “Pilot Program”), prioritizing stores at least two kilometres from the Corporation’s stores. The Province shall ensure that the Pilot Program is implemented and executed in accordance with the following:

(a) The Province will engage KPMG LLP (the “Consultant”) to conduct a study (the “Twelve-Pack Study”) utilizing the factors and methodology agreed upon to determine the impact of the Pilot Program on the Corporation, the Province and consumers. The Corporation shall provide to the Consultant on a timely basis the information in the possession of the Corporation that is required for the Twelve-Pack Study. The Province will require the LCBO to provide to the Consultant on a timely basis the information that is in the possession of the LCBO that is required for the Twelve-Pack Study. A joint working committee of representatives from the Consultant, the LCBO and the Executive Committee of the Corporation shall review the interim and final results of the Twelve-Pack Study and all participants shall have equal access to all data, analysis and findings.

(b) The 10 LCBO stores (the “Test Stores”), as selected by the LCBO, that shall be included in the Pilot Program are set out in Appendix 1. A representative control group of retail stores of the LCBO and of the Corporation and retail stores of the Corporation reasonably expected to be impacted by the Pilot Program will be jointly selected by the LCBO and the Corporation and assessed by the Consultant.

(c) The duration of the Pilot Program shall be a 12-month period commencing effective as of August 1, 2015.

(d) The 12-pack assortment of brands, as selected by the LCBO, that will participate in the Pilot Program for its duration, subject to availability, are set out in Appendix 2.

(e) If the Consultant determines following the completion of the Pilot Program that the expected impact of 60 LCBO stores carrying Twelve-Packs expressed in dollars per hectolitre and calculated as the sum of (A) the expected increase in the Corporation’s basic service fee for packaged Beer sold at retail due to volume decline at the Corporation as a result of the sale of Twelve-Packs at the LCBO, divided by all retail volume sold by the Corporation and (B) the differential in the LCBO’s cost of service charge, expressed as a per hectolitre rate, compared to the Corporation’s volume-weighted average basic service fee for packaged beer sold at retail, expressed as a per hectolitre rate, multiplied by the volume of Beer that is determined to be cannibalized from the Corporation and shifted to the LCBO as a result of the sale of Twelve-Packs at the LCBO, divided by the sum of all retail Beer volume sold through the Corporation and all retail Beer volume sold through the LCBO, is:

(i) Less than one dollar per hectolitre, then the LCBO shall be entitled to sell Twelve-Packs in as many as 60 LCBO stores that are not Combination Stores and the Province shall provide the direction to the LCBO provided for in Section 6.4(b) of the Agreement; and

(ii) Equal to or greater than one dollar per hectolitre, then Section 6.4(a) shall apply without reference to Section 6.4(b) of the Agreement and, for clarity, the Pilot Program shall be at an end and the LCBO shall cease selling Twelve-Packs in the Test Stores.

(f) The Twelve-Pack Study will include an evaluation of the impact of the Pilot Program on the volume of wine and spirits sold through the LCBO and the propensity for LCBO consumers to purchase Twelve-Packs, but neither impact shall be used as evaluation criteria that determine whether the broader roll out to a total of 60 LCBO retail stores proceeds.

(g) The Twelve-Pack Study will include an evaluation of the impact of the Pilot Program on the total volume of packaged Beer sold at retail through the LCBO and the Corporation, and if the Consultant determines that the Pilot Program has had a statistically significant positive effect on such total volume and this positive effect from the Pilot Program on such total volume is expected to continue pursuant to the broader roll out contemplated in Section 6.4(b) of this Agreement, the LCBO and the Corporation will consider in good faith the extent to which such volume increase may be used to adjust the criteria for success referred to in paragraph (e).

(h) The Consultant will use the agreed upon statistically sound methods to conduct the Twelve-Pack Study.

Appendix 1
Test Stores

  LCBO Store Number Test Score
1 263 Bowmanville
2 278 Tecumseh
3 279 Toronto-North York
4 499 Ottawa-Nepean
5 551 Burlington
6 617 Kitchener
7 555 Brampton
8 632 Woodbridge
9 386 Uxbridge
10 652 Sudbury

Appendix 2
12-Pack Assortment of Brands for the Pilot Program

  LCBO SKU Brand Name
1 531392 Heineken
2 615674 Stella Artois
3 515643 Corono Extra
4 696898 Grolsch
5 637777 Steam Whistle
6 412635 Muskoka Survival Pack
7 228486 Labatt Blue
8 917799 Carling
9 906578 Coors Light
10 900118 Molson Canadian
11 902627 Budweiser