Editorial Comment — February 2017
A Question of Savings …
In late January, when DeCA released its new regional savings baselines, the delta between what officials described as the “valid” and “auditable” 30 percent worldwide savings previously reported and the new U.S. baseline of, supposedly, about 20 percent, and around 24 percent worldwide, put DeCA on the receiving end of a lot of questions.
To set the savings story straight, DeCA’s Executive Director of Transformation Christopher Burns invited military quality-of-life reporters to participate in a conference call, during which he described the new savings methodology and fielded questions from Tom Philpott, Military Update; Karen Jowers, Military Times; Amy Bushatz, Military.com; Robin Donahoe, Military Retailer, and E and C News.
According to Burns, a new, new savings methodology now combined (a) a survey of about 1,000 priority item prices, a.k.a. the market basket, and (b) syndicated data to determine average prices each month of all 38,000 items sold by the commissary, using a version of Nielsen’s “all other combined markets” report.
In the 2017 NDAA, Burns explained, Congress had required a more granular view, more regionally specific data, and more frequent surveys. The new U.S. measurement reflected prices in 177 commissaries, including those in Alaska and Hawaii, and 533 competitors, about one-third of which were Walmart Supercenters.
How did DeCA account for such a significant difference in percentages, reporters asked, when some patrons in the U.S. feel they are getting a much higher savings — and especially on high-quality name brands — than those listed?
The new measurement, Burns said, factored in a “weighting” for private label, because DeCA patrons would be purchasing private label in commissaries — assuming they do actually buy them — and because private label is part of the market basket outside the gate.
But how could a “before” measurement include private label, came another question, when private label had not even been rolled out in commissaries at the time the survey was conducted?
Another reporter asked whether if one were to design a savings calculation to keep the savings baseline low, would one not “oversample supercenters and include private label” — surely that would make it easier to hit the baseline in future comparisons, would it not?
Burns explained that DeCA had asked the survey contractor “to look at private label and factor what that would look like in DeCA … it gets very complicated.” Patrons’ ability to purchase loss-leaders and private labels for less than the brand names outside the gate has presented DeCA with a challenge, he explained. The commissary savings, he said, is seen when one compares “UPC to UPC.”
“Why couldn’t DeCA tell patrons what their savings were right now?” Burns was asked. One reporter, who is also an authorized patron, said, “I like branded products. I feel like I’m getting a better deal at the commissary because I get branded products for less.” It appeared to her that going forward DeCA was indicating savings in her region were 19.9 percent, while to her, those savings appeared to be 25 percent without private label. Because DeCA was using private label, she said, “you are not giving me apples to apples. … Why could DeCA not provide those savings with private label backed out?”
Burns explained that the private label impact DeCA was factoring in was 1.5 percent to 2 percent. In its manual shop effort, DeCA tried to replicate shopping as its patrons shop so it could set its baseline. Sometimes when you shop the commissary, he continued, “you’re going to save over 40 percent with promotions and coupons. DeCA didn’t include coupons in its calculations.” But he said the customer’s dollar would ultimately buy the same value of merchandise after the change to the new baseline as it did before.
Burns said DeCA would prepare a response to reporters’ questions that would better clarify the matter. The discussion, however, did not seem to satisfy many of the areas of questioning. So, E and C News sent DeCA the following questions, and we await DeCA’s response as this issue goes to press:
— Why does the “before” savings measurement include a private label factor when there were no private label products in commissaries when the initial price survey was being conducted? If the goal, after transformation, is to meet the pre-transformation savings percentage, why is a post-transformation program being factored in? What does the 1.5 percent to 2 percent private label factor actually refer to?
— If DeCA did not select a private label supplier until December, how did it determine which private label company’s items to use for pricing comparisons, or for establishing the 1.5 percent to 2 percent factor?
— What are the 400 items on DeCA’s initial private label list? Was a brand name or value-brand item removed from the shelf for each of them, on a one-for-one basis?
— Regarding the cost and savings on each private label item sold — what would the total markup be [on average]?
— Is EBS up, running, and currently capable of handling the types of data it needs to handle to track inventory, generate pricing and track savings — without manual intervention? If not, will it be capable of handling the 10-store variable pricing pilot by March 1? If not, will the pilot be delayed until it is? Is any tracking of savings at DeCA currently being done manually? If so, why would that be?
— What percentage of savings will ultimately be returned to the Boston Consulting Group (BCG)? Burns said the answer to this was “not FOIAble.” Why is that — under which of the nine FOIA exemptions does this fall? — and why can’t patrons and taxpayers know how the appropriated funds supporting the BCG contracts are being spent?
— What is DeCA’s new methodology for calculating OCONUS savings? Do OCONUS savings estimates include common items such as dairy, fruit and produce, etc.? Are transportation costs factored into any of these savings figures?
— How did DeCA determine the makeup of the various regional savings areas, i.e., which commissaries were assigned to which region? Do these regions align with any other DeCA regions, zones or areas?.
— Burns indicated there have been problems with measuring random weight meat savings. How exactly was meat previously included in DeCA’s overall savings in previous calculations? How are random weight meat, produce and dairy savings being included going forward?
— Burns mentioned that the “weighting” is by units sold. However, units sold and dollar volume can often yield two completely different results. What is the effect of using units sold on products with a high ring, e.g., cheese and coffee? As percentage of savings refers specifically to dollars, how is a balance achieved?
As soon as we receive answers to these questions from DeCA, we will post them online at www.ebmpubs.com.