Defense Commissary Agency Valued Benefit of a Global Force American Logistics Association May 16, 2018 RDML(R) Robert J. Bianchi Director, Defense Commissary Agency

Agenda Director’s Guidance Bringing Back Patrons and Improving Operations Commissary Store Brands Sales Performance Image Items EBS Update On the Horizon Partnering for Success

Charting a course for success Build sales and maintain the relevance of the commissary benefit Reaffirm "customer first" principles that make commissaries a valued benefit Enhance stakeholder collaboration Enhance collaboration and partnering with military resale community to leverage our combined strengths Improve our technological capabilities to ensure we have the right products at the right price on well-stocked shelves Collaborate with industry – develop joint plan focusing on retail's best practices for bringing customers back to military resale

Industry is an integral part of achieving our goals Our Customers Increase foot traffic and reverse declining sales trend Maintain baseline patron savings percentage Increase Customer Service ratings 98% product availability through improved stocking capabilities Continue rollout of CSB items Competitive pricing of image items Expand our selection of natural and organic product offerings Cross promotions with exchanges Improve use of social media Ensure savings stays consistent with baseline through variable pricing initiatives and improved, mutually beneficial working relationships with our vendors Focus will be on Commissary Customer Service Survey – supplemented with other third party satisfaction measurements Industry is an integral part of achieving our goals

Our Business Develop business processes to support a P&L mindset Improve data analytics and technology platforms Optimizing resale and point of sale processes Improve emphasis on ensuring fair, sustainable relationships that enhance performance for our vendors and drive savings for both patrons and taxpayers Fully implement variable pricing Establish a retail-based accounting system that recognizes revenue/margin generation and ensures auditability Improve data analytics capabilities by maximizing our item movement data and leveraging our customer relationship management Replace legacy IT systems to improve business processes Deploy Commissary Advanced Resale Transaction System Replacement Modernization, optimizing our Point of Sale to enhance convenience and increase additional capabilities Technology will pave the way for more effective partnering with industry

Bringing Back Patrons and Improving Operations Actions to Date: Make the commissary an integral part of the community through installation leadership engagement and active listening Military Star Card (MSC) program Coupon savings cross promotion DeCA/Exchange sales & merchandising cooperative efforts “Baggerless” lanes Adjusting operating hours/days to increase convenience and increase efficiciency Upon coming on board at DeCA, I reached out to every installation command structure to introduce myself and bolster the relationship between our store management team and installation leadership. Military Star Card: Total MSC Sales (thru 30 April) - $99.5M Total MSC Transactions (thru 30 April) – 1.4M Avg transaction amount - $73 Revenue generated (1%) - $995K Cross promotion: 8 locations - December 18th - 24th Spend $50 at the commissary and receive $5 off with purchase totaling $25 or more at selected Navy exchanges locations Total of 54,827 transactions over $50. Cumulative commissary transactions at 8 locations down slightly over 2% versus same period FY 2016 but trended better than enterprise December decrease of 3.6%. 3 bright spots - Jacksonville, San Diego and Annapolis grew transactions slightly. Of the 54,827 potential coupons, 5,739 or 10.5% were redeemed at the NEXCOM locations. This is far above the 1% average coupon redemption rate cited by our clearing. The initiative benefited overall military resale as NEXCOM's transactions grew by 14% versus the same period last year. Exchange/Commissary sales and merchandising cooperative efforts. Baggerless lanes Increased operations to 7 days at Mountain Home, Twenty-Nine Palms, and McConnell. Test will be for 6 months to determine is we grow sales or simply spread them out of more days.

Commissary Store Brands Commissary store brands are a cornerstone in the effort to rebuild store traffic Category penetration is progressing as expected or better in some cases Customer response is extremely positive More than 500 items currently available Steady growth of both sales and units every week 32 additional items become available during the second half of the FY 2018 Admiral Bianchi: Tippy Toes Baby Food currently in 65 CONUS stores. There are 10 varieties. Baby food projected to be available in OCONUS mid-May. OCONUS availability for CSB is 4-6 weeks on average following CONUS availability. There have been over 500 private label items introduced. DeCA's goal is to have our private label brands reach half of the industry category penetration rate within the first year of the items being introduced. Categories are be ing monitored closely. Examples thus far include:  * 24 pack water and trash bags have already reached industry penetration rate * pain relief products and food storage bags have exceeded half the industry penetration rates * cheese which was recently deployed in all CONUS stores and tomato paste and sauce are still growing towards the half of the industry penetration rates

Sales Performance to Date -6.3% -4.9% Estimated Loss based on DiRep data through 5/7/2018 DeCA Retail Sales thru 5/13/2018 Loss estimated using the average sales per hour for each store and assuming DeCA would have captured these sales Note: March 2018 was impacted by Easter (April 1, 2018) falling earlier in April and closed with (5) Saturdays compared to (4) Saturdays in 2017. April had negative impacts from the calendar effect because it closed with only (4) Saturday sales days compared to (5) in 2017. Total projected sales for May - $384,356,964.92 (-3.01%) FY17 Avg. % Change = -6.31% /// FY17 % Change = -6.34% FYTD18 Avg. % Change = -4.92% /// FYTD 18 thru May 13 % Change = -4.88% Prepared by the Business Analytics Team on 5/15/2018 Source: DeCA Retail Sales; May 2018 (thru 5/13/2018)*

Bringing Back Patrons and Improving Operations Ongoing/Future Actions: Increase use of variable pricing to make savings more consistent across the store and improve price perception Kick off the “YES” program Continue to aggressively introduce Commissary Store Brand to lower the basket cost of shopping at the Commissary Expanding natural and organic items selection at top stores Sell commissary gift cards in exchanges and exchange gift cards in commissaries Improve shelf in-stock position – 98% in stock is paramount to increase sales Test new stocking model using Navy Exchange employees to stock shelves at Little Creek commissary—started 15 May Improve fill rates Del Myrick will be providing a pretty specific briefing on fill rate analytics and it is very eye-opening. This is one area we must improve. Distribution fill rates hover at 89% average for all distributors 33% of items never filled are items with significant movement

Image Items: 'Your Everyday Savings' "Image" items are those products that our patrons buy frequently and to which our patrons are most price sensitive. Competitive pricing on these items will help both DeCA and vendors. We are identifying the right "Image Items" for our patrons. We would like to work with you to lower prices on the identified items to drive sales growth and value perceptions. This will be great for our patrons as well as for both of our businesses Will give us the opportunity to lower prices on some of the items our patrons buy most Will improve our price perception and ultimately help bring patrons back to the store Image Items: 'Your Everyday Savings' Rolling out 97 items on June 1

Vendor Portal Bill Back Manager EBS Update Fort Eustis Pilot Deployment of Increment 2 Store Replenishment Suite - Proof of concept pilot brings DeCA’s operational model in line with commercial industry and enables DeCA to make the data driven decisions regarding space allocation, item assortment, and inventory levels necessary to compete and win Vendor Portal Bill Back Manager Great value in overall industry feedback following test with industry participation Training feedback has been very positive Go live date pushed into June to provide time to fine tune issues identified by industry Fort Eustis Pilot: New CLICK2GO New POS New ordering system – Power DAX Store-specific planogram to facilitate shopping experience Improved customer relationship management I want to thank you -- Industry participation was great. I know that there were some hiccups and we learned some valuable lessons that will make future resets go more smoothly. Bill Back Manager Bill Back Manager is a system designed to allow systematic tracking of promotional monies (scan-based bill backs) owed to DeCA by generating invoices to brokers, manufacturers, and DSD vendors for various types of promotional activities.   In the Vendor Portal vendors can electronically create, negotiate, and finalize scan-based promotional agreements with DeCA for Manager's Specials, Hot Deals, Seasonal Markdowns, and Local Store Promotions.    Simplifies tracking of promotional program compliance to ensure full reimbursement VCM reduction at store level by using BBM for store local promotions Systematic invoice transmission to vendors by email, eliminating current manual workload required to send out invoices Automatic creation of financial receivable transactions, eliminating current workload required for manual entry Enhanced compliance with GAAP by systematically recording promotional transactions as a reduction to Cost of Goods Sold rather than Revenue  Thanks to all of the vendors who participated in our testing. Instead of going live 14 May we will be going live about 25 June to fix what we found in testing thanks to having vendors come in early and participate in our testing (good foot stomper)!!!!

On the Horizon Meal solutions Meal kits Expansion of prepared food options Expand CLICK2GO Explore additional partnering opportunities with base QOL activities (MWR/exchanges) to “bring patrons back to the base” Implement new real-time customer feedback tool Admiral Bianchi: Tippy Toes Baby Food currently in 65 CONUS stores. There are 10 varieties. Baby food projected to be available in OCONUS mid-May. OCONUS availability for CSB is 4-6 weeks on average following CONUS availability.

Forward together, successful together Partnering for success Driving benefit for the patron and the business forward Collaborative business planning Open lines of communication Transparency Ensure that shelves are fully stocked Provide high demand items at competitive prices Innovate with industry – bring your ideas! Forward together, successful together

Questions? Thank you