Monitoring commissary patrons in an era of reforms
When asked about the current level of savings for commissary shoppers in an era of sweeping reforms, the interim director of Defense Commissary Agency (DeCA), retired Navy Rear Adm. Robert Bianchi, referred to results of a price comparison survey conducted in 2016 and released in late January last year.
It showed average savings at commissaries "globally" were 23.7 percent compared to prices at commercial grocery stores. More specifically, patron savings averaged 20.2 percent at stateside commissaries and 44.2 percent overseas.
The same survey also showed average patron savings varied widely across U.S. regions, from a high of 32.6 percent in Alaska and Hawaii to a low near 18 percent for commissary shoppers across the South Central and Mountain states.
Bianchi and staff said it is the regional cost saving targets that DeCA monitors monthly and, in finer detail, quarterly, to ensure that steps to transform commissaries into more business-like stores are not diluting patron savings.
Price savings by region are being tracked on "a monthly basis via our syndicated data and (on) a quarterly basis via manual shops (of local stores) and using syndicated data," a DeCA spokesman explained.
The larger price comparison survey released a year ago established a new method for calculating savings that included a proportion of prices for private label or store brands. That irked patron advocacy groups because, at the time, commissaries didn't sell their own private-label goods. The concern was that the timing served to dampen the baseline savings targets set, which DeCA, by law, must sustain forevermore.
That occurred long before Bianchi become interim DeCA director last November to lead commissary transformation while also serving as chief executive of the Navy Exchange Service. Bianchi said he believes the baseline for savings, which uses regional price comparisons and private labels, more accurately reflects the real value of the benefit. The previous method, which led to claims that patrons saved more than 30 percent, compared commissary prices against average commercial prices for brand goods only nationwide, ignoring popular private labels.
Steps transforming commissaries include: replacing the traditional cost-plus-a-surcharge pricing with variable pricing based on regional markets; offering DeCA-brand or private-label goods as low-priced alternatives to name brands; cutting the assortment of national brands on shelves; and negotiating more competitive pricing for surviving brands with brokers and manufacturers.
Patrons' savings are real and substantial, Bianchi said. "But messaging that, connecting that for the customer, becomes important," and variable pricing is key.
Commissary savings can be distorted, Bianchi said, when, for example, a shopper walks into a commercial supermarket and the first item he or she sees is bananas selling for 39 cents a pound versus 52 cents at the commissary.
"Even though we may be saving them lots of dollars on chicken or other commodities, they get that initial impression and say 'Hum, am I really saving money or not?' We know they are. So part of what I have our team looking at are image items. As we introduce variable pricing, it will give us the capability to compete with those other retailers and manage pricing in the market."
Patrons need to be made more aware of average savings, Bianchi said.
"So the part I have to do is message that so they aren't dissuaded when they see a loss leader item" in a commercial market and think their commissary benefit has lost value. "The value proposition has got to be real and clear to them."
Readers of last week's column, which described a sharp decline in commissary sales, reacted with emails. Many blamed falling sales on a perceived narrowing of savings. Other criticized empty shelves and popular items out of stock.
Manufacturers and brokers shared recent scanned sales data from commissaries that, they contend, show variable pricing and private labeling accelerating the sales drop as patrons discover favored brand names are gone.
One industry analysis noted how Duracell batteries were removed from commissaries last year. While sales data show Energizer battery sales climbing, as would be expected, battery sales overall in the commissaries have fallen.
Bianchi said it's premature to be sounding alarms over variable pricing or the introduction of DeCA brands Home Base, Top Care and Freedom's Choice.
Every commissary now has some variably priced items and "initial data suggest customers are responding positively," Bianchi said. "In fact, we are beginning to get more competitive on the items that are most relevant to our patrons, which we expect will only help our sales performance.
"However, we still have a relatively small portion of the total assortment variably priced." In mid-January that total was only 7,000 of 38,000 stocked items.
"It is, therefore, too early to draw conclusions about how this will impact commissarywide sales trends. Initial item-level sales data and customer input make us confident this is the right approach."
Initial private label results on bottled water, cheese, health care products, paper towels and more also are encouraging, Bianchi said. The goal is to sell 3,000 to 4,000 items with commissary labels.
"We continue to see sales growth and penetration levels increase, and our customers regularly tell us they are happy to have these low-cost, high-quality alternatives on the shelf. None of the items introduced to date give us any concern for the acceptance of our brands, and we will continue to roll out these products aggressively given the very positive response from patrons."
In fact, he added, many product categories with private labels "have seen an uptick in sales" not seen in product categories without private labels.
Bianchi said he came to DeCA with a lot of retail experience and a fresh set of eyes. He found shortfalls in customer service, expense control and sales planning, all critical for shifting to a profit-and-loss environment.
"You just have a different perspective" when store expenses are covered by appropriated dollars, he said.
He found commissary shoppers uncomfortable with having baggers handle groceries for tips, Bianchi said, which might explain the popularity of self-checkout.
"How many people carry cash nowadays?" he said. "And if you go to an ATM machine you're only getting 20s. So, we're kind of looking at" the bagger issue.
Bianchi said he spent his first months at DeCA focused on patrons, employees and having stores partner with commands and local communities. He will turn soon to repairing relationships with brokers and manufacturers who might have felt bulldozed by all the recent changes at commissaries tied to profit and loss.
"Quite honestly, as these initiatives were rolled out, there was probably a lack of transparency, which created some concern and doubt on industry's part (and) some bad feelings," Bianchi said. "Some folks are still remaining critical, which I think is a carryover from that."
Industry reps who also dealt with base exchanges, which have long generated profits, likely were less startled by mindset shift at DeCA, he said.
"The reality is the business model does have to change as we move to a profit-and-loss environment. We want to create a win-win situation. But I will tell you, from walking floors at commissaries, we (need) an assortment rationalization," meaning more cuts to the number of brand goods. "So there may be winners and losers, but that's not any different than the private sector goes through every day."