Defense Commissary Agency, Europe DeCA Europe Update Briefing for HQ DeCA CC - Mr. Phillip E. Sakowitz, Jr. Thomas E. Milks Director, DeCA Europe Heidelberg, Germany 29 July 2009 DeCA Europe DeCA Europe

Let's first look at how we got here DeCA Europe DeCA Europe

Taking a look back at where we've been, & how far we've come A Taste of Yesterday Brief Evolution of Commissaries within Our Overseas Area of Responsibility 1970 1980 1990 2000 2008 Old Vogelweh (Kaiserslautern) and RAF Greenham Common stores on left. New Grafenwöhr and Rota on right. Taking a look back at where we've been, & how far we've come DeCA Europe DeCA Europe

Beginning of decade customer savings of 20% Operating 101 commissaries Start of 1970's commissaries fall under authority of each installation; most stores operate 40 hours, 5 days a week, Tue thru Sat 1972 HASC acknowledges correlation between commissary operations & personnel retention, & urges reorganization of commissary system Ankara RAF Alconbury The modern era of commissaries begins in 1949 with the formation of a standard stock list, common terminology and shopper qualifications, but each service maintains its own procedures. Beginning 1970's an important phase is the establishment of central policy making for commissaries, but command authority and control is retained by the installation commanders. Most stores operate a basic 40 hours (8 hours per day), 5 days a week, Tuesday through Saturday. Stores are a long way from looking like the typical American supermarket. There is little emphasis on merchandising. In 1972 the House Armed Services Committee's Special Subcommittee on Exchanges and Commissaries acknowledges there is a correlation between commissary operations and personnel retention. They go so far as to urge a complete overhaul of the commissary system. The Bowers Study of 1975 results in the Office of Management and Budget identifying three options for improving operations: 1) A single DoD commissary system; 2) A commissary system for each service; and 3) A single exchange and commissary system run by DoD. The Bowers Study assessment in central management would have a positive effect on commissary operations and each service should run its own commissary system. This leads to centralized control over commissaries by each service, and results in the Army revamping the Troop Support Agency - TSA. The Air Force Commissary Service - AFCOMS - starts up. The Navy Resale System Office (NRSO) becomes the Navy Resale and Services Support Office - NAVRESSO. The Marine Corps refines its commissary system run by the USMC MWR community. What all this really means is a decided shift from a logistical supply-oriented activity to a service-oriented one as commissaries become tenant operations on installations. Central management has a profound impact. Commissary officers are no longer out in the field on their own. Proper training becomes an important aspect. Stores receive an increase in technical support. The newly combined weight of central management in the services' commissary agencies now commands the attention of food manufacturers and food brokers as the food industry views this change as having the potential to increase business with the military. This is a move in the right direction to improve commissary operations and make commissaries more efficient and cost effective. About 1978 additional appropriation funding allows for the expansion of operating days and hours, as larger volume stores move to a 6-day operation that includes, in most cases, opening on Sundays. Still, the number of items carried remains well below the typical American supermarket, and specialty in-store services, such as delis and bakeries, are something of which only most commissary officers and customers can dream. As decade begins serving over 380K customers from the Azores & UK across Europe to Turkey Depending on demographics & store size commissaries carry between 1,200 & 6,000 line items 1975 SecDef commissions Bowers Study (BG Emmett Bowers, USA), which recommends centralized agency within each Service; by 1976 each Service begins to run or refine its own system: AFCOMS, TSA, NAVRESSO & USMC MWR Late 1970's larger volume stores start opening 6 days a week, Tue thru Sun DeCA Europe DeCA Europe

1980's When Berlin Wall opens in Nov 89 there are 123 commissaries 1980's Customer savings approaches 23% Congress mandates Surcharge of 5% in 1983 Sigonella Frankfurt Servicemembers part of store operations New initiative adds Deli/Bakeries Stores carry between 3,000 & 8,000 line items As the 1980's roll around Cold War tensions are heating up and the result is military strength is being beefed up overseas. Additional commissaries open to support the servicemembers and their families. Across the military services a common surcharge of 5% is established. By the mid-'80's an initiative is underway to open more 5-day stores 6 days a week. And some of the 6-day stores start operating 7 days a week. More lines are added to the RSL, and deli/bakeries make their appearance and become part of new store designs. But some old processes still remain. Stores individually "drop" their own requisitions once a month that are then "shot" across the pond. Each store has its own warehouse as containers shipped from CONUS are delivered directly to each store, except for the smallest stores (annexes or branch stores) which get their groceries from the parent store. It normally takes 90 to 105 days for product to arrive. There are no CDCs at the beginning of the decade. There is no oversight on order cancellations, and because of that and the long OST store NIS rates are commonly high. For recently arrived product customers "panic" buy multiple amounts of the same item in order to hoard the popular products, further exacerbating the NIS rate. But before the decade is out three mini-CDCs are up and running. One is at RAF Lakenheath, UK, one at Mainz-Kastel, GE, and one at Spinelli Barracks, GE, but they only service a few stores. Still, this is a change that improves the in-stock rates. For 40 years after the end of WWII, the military retains the concept that one day everybody will be going home, therefore, not much is spent on the facilities commissaries operate out of -- some facilities that were never designed for grocery store operations, such as buildings that were first built for quartermaster laundry or as airplane hangers, or Quonset huts, or even horse stables. (The horses are long gone, but the Bamberg store is still in a building that was a horse stable built in 1925 and first used by the German Calvary.) But now things start to change. The new view is the US military is here to stay, therefore, new construction projects are initiated in the later part of the decade to replace some of the most outmoded facilities. Before the decade is out the Jones Commission initiates the DoD Study of Military Commissaries. This is in response to a congressional request to thoroughly analyze commissaries to improve efficiencies. Congress accepts the Jones Commission recommendation to consolidate the services' commissary operations into a single centralized DoD operating agency, thus laying the framework for the establishment of DeCA and placing the important subsistence functions in one organizational element. This is the 1st major consolidation carried out under the Defense Management Review Process. By mid-decade more stores start opening 6 days a week & some 6-day operations go to 7 days Wiesbaden 1989 Jones Commission (Lt Gen Donald Jones, USAF) recommends consolidation across Services By mid-decade serving over 510K customers that now reaches to Egypt & KSA DeCA Europe DeCA Europe

1990's By mid-1990's customer savings measures 23.4% 1994 Central Meat Processing Plant goes online DeCA Europe takes operational control 1 Oct 91 -- 116 commissaries CDC's ramp up to offer 1- to 2-day deliveries to most stores Region Buying Offices RAF Alconbury Major construction denotes new stores & modernization projects Germersheim CDC Region Stock List establishes top selling name brands based on customer demand supplemented with other popular & unique products DeCA is operational 2 years after the fall of the communist WARSAW Pact nations with 116 commissaries ranging from the Azores and the UK, across the Netherlands, Belgium, Spain, Italy, and Germany, to Greece, Turkey, Egypt and Saudi Arabia. Where ground is made available by local commands and approval granted by the higher authorities at the Pentagon, new construction is replacing old, outdated facilities. Customers see the most advances to commissaries as operations are vastly improved, but they also see the most reduction in the number of stores as one installation after another starts to close since the fall of the Berlin Wall. Still the construction of new commissaries to replace the old ones is well-underway at various larger installations. Some new stores only have a short lifespan of a few years as these installations eventually end up on the Conventional Forces in Europe (CFE) closure list. DeCA Europe establishes the central buying office at the Region to manage the flow of product from CONUS to CDC. Product lines increase as the Region Stock List (RSL) is established. Promotional themes are established. 8 men and women do the buying that moves product across the ocean and to the major central distribution centers such as Germersheim for dry groceries and Kaiserslautern Cold Storage for freeze and chill. The OST to the CDC drops to 45 days. CDC offers frequent deliveries to stores with the just-in-time concept. Commissary officers only have to plan a few days ahead as to what product they want to move out of the CDC to restock their stores instead of looking ahead several months to a delivery and guessing what the demand might be. In-stock rates dramatically improve. Routinely stores are now getting in-stock rates of 96 and 97%. In 1994 a DeCA Europe meat plant starts processing vacuum-packed meats. The veterinary service at Landstuhl likes it because of the extended shelf life and the protection given against contamination due to the oxygen-denied heavy gage plastic film vacuum packaging. DeCA Europe likes it as fresh meats, instead of frozen, can be sent to outlying areas, meat losses are reduced, there is the increase in sell-by-dates and the savings gained with a centralized processing point. It's not the prettiest meat to look at, the beef appears dark/off-red color in the oxygen denied state as Americans have always been taught to judge freshness by the red bloom, but customers come to like it when they learn of its many advantages, such as the reduction in spoilage, oxidation and contamination; the durable package; can refrigerate longer versus freezing; the 99+% vacuum inhibits freezer burn when frozen; can see both sides of the cut of meat before buying; the water tight packaging is suitable for taking along on picnics and camping trips; and the red bloom returns when the package is opened. Vicenza Stores now carry 4,500 to over 9,300 line items Start of decade over 700K potential customers As end of decade approaches operating 65 commissaries Deli/Bakery operations expand & Pasta Bars are introduced DeCA establishes Your Action Line (YAL) program "Quality First - People Always" DeCA Europe DeCA Europe

2000's "A New Century of Value & Service" 2008 overseas customer savings exceeds 50% Self-serve salad bars Fresh Express & other bagged salads make their appearance With a new century comes new purpose for DeCA Europe. More new stores replace old ones. Other stores receive facility improvements by undergoing major renovations. Excellence in customer service is being defined by the new additions to store operations. In-store self-serve bakeries arrive. Then there are the new self-serve salad bars. Short shelf life garden fresh ready-to-use bagged salads are flown in from the states. Contracts with major produce suppliers in the UK, Germany and Italy provide most FF&V. More lines are added to the RSL, and our largest volume stores, where we experience the heaviest shopping traffic, now carry more than 12,000 items. Case-lot sales are now twice a year. The introduction of club packs and maximizing one-time buys and shipper displays are a hit with customers. Customer savings show a dramatic increase as DeCA's clout creates tremendous leverage for negotiating with the food industry for the best deals and the best prices. (Customer savings is derived from comparison study of commissary prices with those of local supermarkets, major grocery store chains and supercenters.) The annual savings for a married couple with 2 children is now $2,957. (The annual savings is derived from DeCA's price comparison study and the cost-of-food figures from the USDA.) More and more stores experience in-stock rates of 98 to 99% as the norm. And to top it all off the latest state-of-the-art Commissary Advanced Retail Transaction System or CARTS is installed in DeCA Europe commissaries starting in May 2007, and it is expected to be completed by the end of May 2008 in all enduring commissaries. Over 12K line items to choose from in largest volume stores Self-Serve bakeries are introduced By 2008 serving over 340K customers CARTS - new advanced checkout system w/self-checkouts goes online 8 DeCA Europe DeCA Europe

"Leadership is defined by results, not attributes." 21st Century Leadership "Leadership is defined by results, not attributes." - Peter F. Drucker DeCA Europe DeCA Europe

Bottom Line: Elevating QoL & customer satisfaction Where We Are Today Strong commitment from business partners Fully dedicated to supporting SMs & their families 98% to 99% Region-wide average in-stock efficiency Customer savings over 50% compared to local economy Market basket surveys in UK, Italy & Germany High customer satisfaction ratings User-friendly web site with consumer & food safety info Increased communication thru customer surveys & "Your Action Line" program Support to over 40 American embassies …and the Embassy Marine Houses Engaged in a long, irregular war Bottom Line: Elevating QoL & customer satisfaction DeCA Europe DeCA Europe

Diversity in Personnel 2,700+ employees Ratio of LN to US: 1.3 to 1 Major employer of military spouses High turnover in some locations Developing store associates Supporting multi-national warriors/customers 48 different nationalities represented DeCA Europe DeCA Europe

21st Century Leadership “The only way I know how to operate is to put the consumer in the center of what we do." Diane Dietz, EVP and CMO, Safeway DeCA Europe DeCA Europe

Customer Count Comparison FY09 vs. FY08 Count (000) Customer transaction TD: $43.77 in FY09 vs. $42.82 in FY08 DeCA Europe DeCA Europe

Commissaries By Services' Location 54.7% of our stores are on Army posts Represents 47.5% of our sales 35.7% are on Air Force bases Represents 42.7% in sales 9.6% are on Navy installations Represents 9.8% in sales* *Includes sales to NEXMARTs DeCA Europe DeCA Europe

Note: Commissary store sales only Scope of Operations 3 thru 6 7 thru 11 12 thru 19 20 thru 42 1 thru 2 RANKING 20% 54.7% of our stores, the smallest stores, deliver 20% of sales Our 11 leading volume stores, 26% of total, deliver 60% of sales Note: Commissary store sales only DeCA Europe DeCA Europe

'09 survey results pending CCSS '08 vs. '07 SURVEY QUESTIONS 2007 2008 Change Bakery Quality/Selection 4.55 4.64 2.0% Low Prices/Overall Savings 4.51 4.58 1.6% Well Stocked, Full Shelves 4.57 1.5% Meat Quality/Selection 4.61 4.68 Produce Quality/Selection 4.54 4.60 1.3% Deli Quality/Selection 4.59 4.65 Checkout Waiting Time 4.62 1.1% Other food items (dry goods, frozen foods, dairy) & variety of selection Convenient Hours 4.63 4.66 0.6% Entrance/Sales Area/Restroom Cleanliness 4.72 0.9% Overall Satisfaction (How did we do?) 4.77 Store Layout and Time Required to Shop 4.67 Attractive Displays/Store Décor Courteous, Friendly and Helpful Employees 4.79 4.81 0.4% CCSS REGION SCORE (Best in DeCA) '09 survey results pending DeCA Europe DeCA Europe

Europe Military Strength Summer 2009 UNCLASSIFIED SACEUR Mons, Belgium DCDR USEUCOM Stuttgart, Germany USAFE Ramstein, Germany USAREUR Heidelberg, Germany Military Strength USAREUR 45,740 USAFE 26,960 NAVEUR 6,580 MARFOREUR 140 SOCEUR 1,800 USAFRICOM 1,300 TOTAL 82,520 Plus Reserve/NG (daily avg) c. 3,800 MARFOREUR Stuttgart, Germany SOCEUR Stuttgart, Germany USAFRICOM Stuttgart, Germany USNAVEUR Naples, Italy DeCA Europe DeCA Europe

Support over 340K customers in 50+ countries NORWAY, FINLAND, SWEDEN LIBERIA SOMALIA ETHIOPIA INDONESIA KYRGYZSTAN SENEGAL the AZORES We calculate there are about 342K authorized customers in over 50 countries. These include regular shoppers, as well as periodic shoppers. It includes military, APF and NAF civilian employees, retirees, contractors, state dept folks, family members, transient TDY personnel and NATO foreign military. DeCA Europe DeCA Europe

Bottom Line: Supporting troops deployed to Iraq & Kuwait Downrange Support $ Shipped (000's) Bottom Line: Supporting troops deployed to Iraq & Kuwait DeCA Europe DeCA Europe

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“Growth is the only evidence of Life." 21st Century Leadership “Growth is the only evidence of Life." - John Henry Newman DeCA Europe DeCA Europe

CY2009 Negligible year for transformation Army on track to reduce strength by about 1,000 1 commissary scheduled to close Neubrücke Commissary 1st Qtr FY10 St. Mawgan NEXMART closes DeCA Europe DeCA Europe

Sales & Sales Forecast FY Sales In $M # Stores at end of each FY *Initial forecast decrease due to ongoing unit deployments & to lesser extent continued Army transformation DeCA Europe DeCA Europe

FYTD 2009 Sales/Transactions July 2009 ($K) *Sales/Transactions through July 19 DeCA Europe DeCA Europe

Monthly Sales/Transactions July 2009 ($K) *Sales/Transactions through July 19 DeCA Europe DeCA Europe