LCBO is issuing this letter to provide insight into the organization’s decision to issue chargebacks to certain suppliers pursuant to Section 14 of its Purchase Order Terms and Conditions.
The purpose of Section 14 is to ensure that, notwithstanding the commercial framework in which suppliers determine their own FOB price based on a calculator aligned to retail pricing (which accounts for all mark-ups required under Ontario law), Ontario consumers can benefit from competitive pricing for beverage alcohol. As a reminder, LCBO Purchase Order Terms and Conditions can be found here: LCBO PO Terms and Conditions
In early 2023, LCBO became aware that certain products were significantly less expensive in other liquor jurisdictions in Canada. The extent of these pricing differences could not be explained by the different mark-up structures and freight rates. Accordingly in October of last year, LCBO contacted suppliers whose products reflected pricing discrepancies and requested confirmation that it was receiving an FOB price equal to or lower than any other Canadian liquor jurisdiction. This communication covered a selection of SKUs for LCBO’s Periods 1 through 7 for FY 23/24. At that time, LCBO also indicated its intention to charge back if it determined that suppliers had breached Section 14. It is important to note that most of LCBO’s suppliers comply with Section 14 and the impacted suppliers represent a small selection of LCBO’s total partners across the trade. Following the October communication, many of the impacted suppliers confirmed FOB pricing and/or entered productive dialogues with LCBO regarding payment plans for chargebacks.
On February 7, LCBO issued another communication that calculated chargebacks for those same SKUs for Periods 8, 9 and 10 (phase two). LCBO thanks those suppliers that continue to cooperate with LCBO in connection with the process by providing requested information on FOB pricing. Recognizing the increased sales during the holiday period, chargebacks for phase two will be reduced by 30%. This reduction of 30% will be reflected in the memo of the invoices of these chargebacks.
Looking forward, LCBO will issue a third phase of chargebacks for P1-10 FY 23/24, by issuing emails to impacted suppliers and asking for confirmation of compliance with Section 14 and with calculations for the impacted SKUs (any remaining SKUs that are usually above floor price and might be non-compliant). We anticipate sending these emails on April 12, 2024. The chargebacks for P 8,9 and 10 of phase three will also be adjusted by a 30% reduction to support suppliers by accounting for average increases in sales during the holiday period.
Similarly, LCBO will also exclude all SKUS for P1-10 for FY23/24 which are usually priced at floor price.
LCBO will extend the deadline for payment of outstanding chargebacks until March 29, 2025, when a supplier submits a request for a payment plan by the deadline provided in the email.
Following the third phase of chargebacks, LCBO intends to temporarily implement a pause on any applicable chargebacks from P11 FY 23/24 (December 31, 2023) to P7 FY 24/25 (October 12, 2024) to allow suppliers to adjust FOB pricing, with the expectation that suppliers will be in full compliance with
Section 14 after October 12, 2024. To clarify, LCBO will resume chargebacks after October 12, 2024, for any suppliers that continue to be in violation of Section 14 for specific SKUs. This temporary pause in chargebacks is a one-time exception. During this temporary period, LCBO will facilitate a joint session with the trade through industry groups to solicit feedback on challenges faced by suppliers in complying with Section 14. All decisions related to how Section 14 might be amended will reside with LCBO.
As one of the largest purchasers of beverage alcohol in the world and a trusted retailer in Ontario, LCBO has a duty to be fair and consistent with all suppliers. We trust that this communication provides insight into how LCBO will address Section 14 going forward and answers questions that suppliers may have. Any further questions can be addressed to Price.confirmation@lcbo.com