The Next 150 Years Starts Now Transform the business Grow sales Improve shopping experience Maintain savings for patrons Generate margin Reduce costs Expand commissary brands Protect and preserve the benefit

“Ensuring Our Patrons’ Benefits for Years to Come” Defense Commissary April 27, 2017

DeCA’s transformation 3

Adopting common business practices Variable pricing Congressional authority 2017 NDAA enabled: Adopting common business practices Variable pricing Reduce reliance on APF Doing nothing was not an option... 4

Objectives and guiding principles for the transformation Maintain the patron benefit Reduce operating costs Improve shopping experience 5

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 6

Savings methodology Regional calculations More frequent measurements Monitoring of savings on items most frequently purchased by commissary patrons 7

Savings methodology Commissaries Savings %* New England 36 21.4% South Atlantic 30 19.9% South Central 33 18.1% Pacific 31 20.9% Mountain 20 17.6% North Central 18 20.2% Alaska/Hawaii 9 32.6% US Average 177 Overseas 61 44.2% Global Average 238 23.7% *Baseline savings measured Oct-Nov 2016 8

Variable pricing will maintain patron savings at current levels Variable pricing – path forward Variable pricing Category-based Store-based Overview – streamline assortment to improve shopping experience Refocus shelf space on fast-moving, popular items Minimize out of stocks Reduce operating costs Negotiate lower cost of goods sold from suppliers Review pricing on “key” items Overview – Test DeCA's ability to adjust shelf prices on select items, without diminishing overall patron benefit Test new technical capabilities to push prices to select stores More evenly spread savings across products in the market basket Adjust prices on approximately 1,000+ items in a handful of stores Variable pricing will maintain patron savings at current levels 9

Overall customer savings will stay the same. Store-based pilot Early results indicate that we can adjust prices without impacting patron savings Overall customer savings will stay the same. 10

Category performance Goals for project Not goals for project Improve product assortment Reduce reliance on APF Improve patron savings Assess potential for private label Transition to a for-profit organization Project seeks to reduce DeCA's reliance on APF Disrupt day-to-day business New costs flow through system without procedure changes Remove products with heavy patron loyalty Optimization process takes into account patron preferences 11

Many partners have gained Category performance Many partners have gained Shelf space Visibility Increased commissary business 12

Private label On a recent survey, 60% of DeCA shoppers said they wanted to see private label products on DeCA's shelves. 13

Private label 14

This transformation impacts the entire organization Command/ Leadership General Counsel & Policy HR IT/EBS DeCA Business Transformation “A new way of doing business” Pricing Transformation Team (Private label) Store Operations and Logistics Sales Directorate (category management) Contracting Change Management & Corporate Communications Finance/ Accounting 15

Clear path forward Guideposts Expect challenges Adapt and partner to resolve issues as they arise Incorporate lessons learned Remain committed to this transformation Continue to push consistent messaging 16

Timeline of major milestones Late CY 2017 (second half) Beyond CY 2017 Ongoing shelf resets Launch & finalize wave 2 negotiations Introduce private label products Monitor patron savings and satisfaction (ongoing) CPI negotiations cycle Variable pricing fully implemented across all categories, locations Full private label assortment across all categories Monitor patron savings and satisfaction (ongoing) 17

Sales update 18

Sales and transactions FY 2016 (thru Mar 2016) FY 2017 (thru Mar 2017) $ Change % Change DeCA Total ($ Millions) $2,704.82 $2,511.72 ($193.09) -7.14% Transactions FY 2016 (thru Mar 2016) FY 2017 (thru Mar 2017) # Change % Change DeCA Total (Millions) 43,870.42 41,722.50 (2.15) -4.90% Sales per Transaction FY 2016 (thru Mar 2016) FY 2017 (thru Mar 2017) $ Change % Change DeCA Average $61.65 $60.20 ($1.45) -2.36% Note: FY 2016 was a leap year 19

Natural & organics FYTD thru March 2016 Sales: $152.61M Organics leading with dollar and unit sales up 5.3% and 6.6%, respectively Average DeCA store carrying approximately 1,800 items, up 10.8% compared to year prior Large stores carrying as many as 2,400 items Integrated vs. segregated sets Living Well Sets – “Store within a Store” Jacksonville NAS: February 2 (Grand Opening) – thru April 23 SKUs: 1,151 Units Sold: 34,576 Dollars Sold: $103,898 Fort Belvoir: March 30 (Grand Opening) – thru April 23 SKUs: 1,387 Units Sold: 22,975 Dollars Sold: $77,073 20

Sales program updates 150th Anniversary – July 1, 2017 Commissary Rewards Card Number of Active Users: 1.1 Million # of Digital Coupons Redeemed: 10.8 Million $ Value of Digital Coupons Redeemed: $11.95 Million Digital coupon redemption rate: 11.6% Deal of the Week New Marketing Kit Released 2016 Results Total Sales: $1,997,323 Total Units: 1,223,962 21

Headwinds and/or strategic opportunities Consumer Price Index – Food at Home FY 2016 was second year of deflation in DeCA history (-0.74%) Other year: FY 2010 (-0.75%) FY 2017 thru March is even worse (-1.84%) Food away from home exceeding grocery spending Increased competition – more channels Niche formats growing (Aldi, Lidl) E-Commerce Order & pickup Delivery service 22

Headwinds and/or strategic opportunities Price Competitiveness Convenience shopping near home Sharper prices on key items Category disparity Private label Prepared foods Beer & wine HBC Pharmacy Active Duty drawdown/ “Single” Soldier Increases 23

Opportunities for DeCA to focus on,,,,, Headwinds and/or strategic opportunities Opportunities for DeCA to focus on,,,,, Shoppers who have migrated from the installation Commissary specific demographics Click2Go expansion Thursday thru Sunday business Perimeter departments Top 30 Categories: 46% of UPC sales FYTD dollar volume down 7.3%, units down 8.0% Re-index of commissaries base linear footage 24

What will it take to achieve $5.5B in Sales? Sales growth What will it take to achieve $5.5B in Sales? Increase of about 4.73% over FY 2016 About +$248.6M increase will be needed Any one of these factors would do it: About 1.07 items more per basket (22.74 to 23.81) 53 more customers/day at average store About 12 cent increase in average item price (from about $2.62 to $2.74) About $2.86 increase in basket size Based on 86.75M transactions/year we would need $63.40 basket size (up from $60.54 in FYTD 2016) 25

Team effort 26

We are committed to getting this right for our patrons Private label "On a 2016 survey, 60% of DeCA shoppers said they wanted to see private label products on DeCA's shelves." We are committed to getting this right for our patrons 27

Thank you! 28