0. 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

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

2. DeCA’s transformation3

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

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

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

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

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

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

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

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

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

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

13. Private label 14

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

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

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

17. Sales update 18

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

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

20. Sales program updates 150th Anniversary – July 1, 2017
Commissary Rewards Card
Number of Active Users: 1.1 Million
# of Digital Coupons Redeemed: 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

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

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

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

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

25. Team effort 26

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

27. Thank you! 28