Defense Commissary Agency Flag graphic 2017 ALA Commissary

Defense Commissary Agency Flag graphic 2017 ALA Commissary Roundtable De. CA Transformation breakout session April 27, 2017

Defense Commissary Agency Flag graphic Transformation initiatives Savings methodology Better reflect the savings patrons currently experience at their local commissaries Introduce private label products as a quality alternative to national brands that offer additional patron savings Private label Category performance improvement Optimize our assortment to offer the best products to our patrons at a low cost to our taxpayers. Roll out variable pricing while maintaining the patron savings benefit Variable pricing 1

Defense Commissary Agency Flag graphic Savings methodology 2

Defense Commissary Agency Flag graphic Savings methodology | Overview As a pre-requisite to business changes, the 2016 and 2017 NDAAs require an updated savings baseline: • Provide a more regional, specific view • Better reflect actual patron shopping patterns • Monitor more frequently Purpose of the baseline is to protect the patron benefit in future New measurement does not change the actual dollars patrons save 3

Defense Commissary Agency Flag graphic Details on new methodology New methodology Basket Manual shop of ~1, 000 items, to match purchase patterns, blended with full national data set (~38, 000 items) • Includes private label products Price comparison Against 2 -3 local stores in vicinity of each US Commissary, plus national benchmark. COLA used to adjust for OCONUS. Geographic granularity Regional (7 US regions + overseas) Frequency Quarterly 4

Defense Commissary Agency Flag graphic Category performance improvement 5

Defense Commissary Agency Flag graphic Category performance improvement | Overview What is CPI? A commercially proven practice of evaluating and improving assortment performance: • Analyzing the performance of the assortment • Entering into negotiations with suppliers to improve the assortment and reduce costs • Reallocating shelf space and planograms based on negotiation outcomes and customer needs Evaluated and negotiated 7, 000 -8, 000 items (20% of the assortment) in CONUS and OCONUS thus far Over-assortment: too many types of similar products Why we are making the change Inefficient space allocation (e. g. , not enough shelf space for popular, fastmoving items) Opportunities to reduce costs 6

Defense Commissary Agency Flag graphic Private label 7

Defense Commissary Agency Flag graphic Private label | Overview What is private label? Private label is a store brand alternative to brand name products, sourced directly from a supplier by a retailer. Private label can offer equivalent quality to national brand items (often produced on same manufacturing lines), but sourced and sold much more cheaply. ü It's popular in the market – up to 20% of total store sales at retail Why are we making the change? ü Our patrons want it – 60% of patrons say they'd be willing to try it ü It's good for patron savings – quality products at a lower price ü It will drive revenue for De. CA – to help offset operating costs 8

Defense Commissary Agency Flag graphic Private label | About the logo: Freedom's Choice The Freedom’s Choice logo conveys attributes of patriotism, tradition and wholesomeness. An iconic blue star is stylized with intertwining leaves completes the star shape for a bold and highly recognizable mark. The star draws an immediate connection to the armed forces and the pride we all share along with our military families. The leaves have a natural and flowing appeal, softening the star shape and providing an organic aspect to the brand. The star icon combined with the traditional serif typography present an overall feeling of heritage and trust. 9

Defense Commissary Agency Flag graphic Private label | About the logo: Home. Base conveys attributes of strength, security and patriotism. There is a sense of ownership and pride for military members and their families that this is "our" brand. The logo uses a bold military inspired font with embossed shading stamped at the top of a shield with iconic stars below set against a bright blue color scheme. The five stars represent the branches of the armed forces with the center star being larger and more prominent to represent the "homebase". Overall the design is simple, yet strong and gives a sense of family and home, wherever that may be. 10

Defense Commissary Agency Flag graphic Variable Pricing 11

Defense Commissary Agency Flag graphic Variable pricing | Overview Background Benefits of variable pricing Currently, De. CA sells products using a cost-plus approach More consistent savings across the store Variable pricing allows multiple factors to be considered Lever to capture value from category performance improvement efforts The NDAA 2017 has granted De. CA authority to introduce variable pricing Flexibility to adjust prices based on customer preferences and competitive landscape Variable pricing will maintain patron savings at current levels 12

Defense Commissary Agency Flag graphic Variable pricing | Long term vision Future pricing considerations Customer preference Local competitor prices Item relationships Promo strategy 13

Defense Commissary Agency Flag graphic Transformation impacts on key stakeholders Patrons • Maintained patron benefit – more consistent savings levels across the whole store • Enhanced choices, with high quality store-brand products available at lower prices • Better shopping experience: more relevant assortment, easier to navigate, fewer out of stocks Taxpayers • Cost savings and reduced appropriations Suppliers • Growth opportunities for suppliers offering competitive costs on popular products Employees • More commercially-competitive business practices – training and support to evolve the business • Empowerment to drive supplier relationships, improve the assortment, improve the customer experience 14

Defense Commissary Agency Flag graphic We want your input Questions? 15