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Editorial Comment — March 2017

Reality Check …

The world of competition the Defense Commissary Agency is now entering — adjusting prices up and down on different categories to compete with store prices outside the gate — is a lot more cutthroat than perhaps Congress and the Department of Defense realized when they guided the agency down that alley.

DeCA is headed into a knife fight with nothing better than a blunted pencil to try to hold on to its turf against the big boys

Reports are that Walmart has supposedly engaged Amazon in a price war of sorts, as it strives to identify its value proposition on a competitive footing with the largest U.S. online retailer. Both retail giants are also refining their grocery offerings; Walmart is trying to elevate its quality perception and refine its in-store merchandising of meat and produce, while Amazon is putting a fresh push behind its grocery delivery service.

At the same time, big-box Costco, along with Target, Ahold Delhaize, Raley’s and Whole Foods, has teamed up with Google Express for on-line grocery shopping.

One problem is that as DeCA works to move away from the at-cost pricing that has been its clear differentiating message for decades, publicizing instead its new variable regional pricing now being tested, it is in danger of losing the image in patrons’ minds of being a benefit (no matter how often language to the contrary is repeated) — an image already lost with some of its suppliers, who have seen their products removed from the shelves in favor of private label items, even as sales have taken a hit so far in 2017 approaching 8 percent.

Faced with these serious sales declines, and told the new paradigm is the “sharp elbows” of competitive grocery retailing, what did DeCA’s management expect regarding where manufacturers would direct their promotional assets? In a now-commercial environment, how could it not have imagined that corporate headquarters would make commercial decisions? All over the consumer packaged goods (CPG) universe, manufacturers spin off low-growth brands to other companies that are stronger in those categories. They make the same sort of decisions about how to approach sales channels, and those decisions are made at a much higher level than the military channel manager.

Before, the military channel manager always had the unassailable argument that at-cost commissary groceries were a hallowed benefit with the full support of DoD — a special case. Now, having removed commissaries from the at-cost “benefit” side of the equation and placed it in the “business” column, and having squeezed corporate CPG companies’ good will with the same sort of “requests” they experience from Walmart and others whose business they can far less afford to lose, DeCA has lost most of its cachet as a special business partner. In some companies, the military channel manager position has been eliminated, and the channel itself downgraded, now just one of several included in “other.”

The military resale supply chain has made moves to adapt, with layoffs, downsizing, some companies consolidating, others exiting the market … but as the blows keep falling on the supplier side — with accompanying rebukes — it appears that those who are guiding transformation, whether consultant or commissary official, have lost touch with the reality that, once shoved into the realm of commercial necessity, suppliers will do what they find commercially necessary. If they are removed from commissary shelves, they will find other shelves nearby. And promote in those stores.

It is one thing for commissaries to try things out, to make mistakes and then re-adjust course, but it is completely another to plunge ahead with untested initiatives in a desperate rush — either not understanding, or brushing aside, the likelihood that once lost, customers are extremely difficult if not impossible to win back. Retailers in the commercial world, accountable for every penny, know this; and for that reason they are careful not to pull out the foundations on which their businesses and reputations were built.

The sad thing, and it is very unfortunate, is that military reps can’t say these things, for fear of repercussions; the same is true of DeCA’s frontline managers not voicing their concerns. This publication, however, while it may be just a small pimple on the backside of a very large elephant, will speak when the patrons’ benefit is being threatened, along with the supply chain that has supported it for decades.

For now, let us just say this: for the sake of the benefit, which we believe is currently approaching threat level Red … DoD and Congress, please — please — proceed with caution.

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