2017 ALA Commissary Roundtable DeCA Transformation breakout session April 27, 2017

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

Savings methodology

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

Details on 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

Category performance improvement

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 Why we are making the change Over-assortment: too many types of similar products Inefficient space allocation (e.g., not enough shelf space for popular, fast-moving items) Opportunities to reduce costs

Private label

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. Why are we making the change? It's popular in the market – up to 20% of total store sales at retail Our patrons want it – 60% of patrons say they'd be willing to try it It's good for patron savings – quality products at a lower price It will drive revenue for DeCA – to help offset operating costs

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.

Private label | About the logo: HomeBase HomeBase 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.

Variable Pricing

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

Variable pricing | Long term vision Future pricing considerations Customer preference Local competitor prices Item relationships Promo strategy

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

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