ECN CoverE&C Commissary News

Editorial Comment — October 2017

Not Fake News …

Repercussions have been felt throughout the military resale industry over the past year from the Defense Commissary Agency’s (cough cough) transformation.

When DeCA began its Category Performance Improvement — CPI — effort in July 2016, the agency said that the purpose (in addition to reducing reliance on appropriated funds) was to “strengthen the value provided to patrons.” But it may be that not enough attention has been paid to the patrons, and while the system busied itself with changing this or that guided by the Boston Consulting Group, the shoppers themselves have not had much say in the matter.

They have instead been speaking with their feet, and their wallets.

In fiscal 2016, transactions dropped by 1.8 million — down 2.1 percent. In fiscal 2017, with transformation in high gear, transactions dropped by more than twice that number, 3.8 million — down another 4.5 percent.

And sales — the engine that is needed to grow the business — continued sliding on the slippery slope, down yet another 6.4 percent.

All told, in the past five years, since 2012’s all-time high, commissary sales have dropped more than $1.1 billion, over 20 percent, to one of the lowest levels in DeCA’s entire history. In that same five years, the number of annual transactions has dropped by 15,051,500 … give or take a few.

This drop in transactions represents patron footsteps walking the other way. It’s not just that the competition might offer more, or better. More likely, the patrons for whom commissaries were established 150 years ago are losing confidence that their own stores have their best interests at heart and provide the best value.

At the same time, vendors are beginning to pull away from supporting DeCA. Because of the sales decline and/or because their items are being deleted from the stock assortment, corporate headquarters are now shifting once-sacrosanct promotional dollars to other sales channels where growth is more likely.

The unfortunate truth is that the Pentagon has to come to terms with the fact that the marching orders given to DeCA several years ago — in the guise of “best business practices” — not only just aren’t working, they are backfiring.

Instead of making DeCA less reliant on government funding, the loss of sales and surcharge income will only add to the agency’s need for taxpayer support.

More important is the fact that military families are not receiving the savings they need, and which they have been promised … and no amount of doubletalk about measuring methods, metrics or market baskets will convince them otherwise. After touting, and promising, 30-percent savings for a quarter-century, the fact that DeCA has to factor in Hawaii and OCONUS sales to demonstrate savings of somewhere between 18 and 22 percent means that something is terribly wrong.

Throughout the system, good people are trying to make the commissary work for the military family, but they are being undermined by transformation policies, such as CPI and regionalized/centralized pricing practices, that they have no control over.

A moratorium on CPI should be declared immediately; and at the end of the moratorium, if not terminated, CPI should at the very least be redirected; it certainly isn’t helping sales. Its mantra of “fewer choices, more sales” doesn’t seem to be working, especially since preferred best-selling items have often been cast aside in favor of as yet untried, unchosen private label products.

In simple terms, in cutting down DeCA’s stock assortment, CPI decision makers have been known to keep items that weren’t selling as well as some rejected items were, then marking up the selected items, generating a two-fisted sales reduction. Brand loyalty being a strong driver, patrons turn away and shop elsewhere to continue purchasing their favorites.

Unless drastic action is taken, the truncation of the brandcentric assortment is halted and DeCA returns to category management that pays more attention to patron demand than to driving down COGS, promotional spend by manufacturers will continue to decrease. The reason? Best Business Practices 101 — suppliers are just not going to invest more dollars in a declining business.

The good news — real news — is that that people are apparently talking to one another, though efforts in Congress to ensure that the patrons’ voice is heard have evidently been sidetracked for the time being. Let’s hope that the stakeholders in industry, in the system and at the policymaker level involved in a flurry of recent meetings are listening to each other and will address the valid concerns each has.

The time is right. The new fiscal year has just begun, and prime holiday selling seasons are right around the corner: Halloween, Thanksgiving, Christmas, Hanukkah, New Year’s, Super Bowl Sunday, Valentine’s Day, Passover, Easter — offering opportunities, with resale industry partners ready to help, to provide much-needed upticks in sales volume.

And a course adjustment is in order, to rethink and remedy cataclysmic category changes, focusing on the patron, on high demand instead of high margin, and to restock patron favorites that have disappeared from the shelves … and all must work together to get the numbers up, to return the commissary to its position of high regard, restore its oncewell- deserved reputation, and achieve the agency’s principal goal: to strengthen the value of the benefit.

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