The Defense Commissary Agency

1. The Defense Commissary Agency Sales June 20, 2007 Mr. Randy Chandler Directorate of Sales

3. The Military Shopper Randy Chandler Directorate of Sales June 20, 2007

4. Demographics Commissary & Exchange Shopper

5. Who is the Military Shopper? • HHLD Income $40K+ • Female Head Age 55+ • Affluent Suburban Spreads • Younger Bustling Families • Empty Nest Couples • Senior Couples • Not in Work Force • African American • Asian • Non-Caucasian

6. Who is the Military Shopper? Demographics of the HEAVY Military Shopper Demographics of the Average Military Shopper • HHLD Income $40K+ • Female Head Age 55+ • Affluent Suburban Spreads • Younger Bustling Families • Empty Nest Couples • Senior Couples • Not In Work Force • African American • Asian • Non-Caucasian • HHLD Income $40K+ • Female Head Age Under 35 • Female Head Age 65+ • 2 Member Household • 3 – 4 Member Household • Affluent Suburban Spreads • Younger Bustling Families • Empty Nest Couples • Senior Couples • Not In Work Force • African American • Asian • Non-Caucasian Your Most Important Shoppers

7. The Heavy Shopper Impact! % of Buying Purchase Purchase Outlet Annual 2006 Shoppers Rate Frequency Size Loyalty Average Shopper 100% $1,291.7 20.8 $62.24 17.4 HEAVY Shopper 33% $3,191.2 48.0 $66.52 35.2 Light Shopper 67% $342.7 7.2 $47.89 5.2 • Heavy Military Shoppers Top 33% of Total • Spend nearly 9X more than light shopper • Purchase in Military outlets nearly every week • Drive purchase size for channel at nearly $67 per trip. • Heavy Military Shoppers Fiercely Loyal • 7X that of the light consumer; double the average • More likely to purchase in commissary than competition

8. Military Shoppers Spend Less of Wallet in Channel % of All Outlet Loyalty - Mid-Year 2006 Pt Chg vs MY 05 -0.7 -0.6 -0.1 -1.4 +0.3 +0.1 +0.3 -0.3 +2.3 Driven by the On-line Channel Source: ACNielsen Homescan

9. Military Shoppers Spend Less of Food & Beverage Wallet in Channel % of All Outlet Loyalty - Mid-Year 2006 Pt Chg vs MY 05 -1.2 -1.4 -0.1 -0.1 +0.7 +0.3 +0.2 -0.1 +1.7 Source: ACNielsen Homescan

10. Roughly 40% of Military Shop Military Monthlyfor Food, HBC or GM - drives lower share of wallet Source: ACNielsen Homescan

11. More Military Households Shop Supers Source: ACNielsen Homescan Total US

12. Frequency Declining in all Channels Source: ACNielsen Homescan

13. Military Shopper Frequency Also Declining Everywhere Only Convenience/Gas Trips per Shopper Maintained Source: ACNielsen Homescan

14. Military Households Stock Up More - Make Less Trips Source: ACNielsen Homescan

15. Grocery Loyalty Driven by Convenience Trips Total US—ACNielsen Homescan Shopper Missions, 52wk end 7/2/05

16. Military Shoppers Decrease Buying Rate @ Most Other Grocers Source: ACNielsen Homescan

17. Military Dry Grocery & Non-Food StrongHighest Conversion Rates in Market Source: ACNielsen Homescan

18. Marketing the Benefit "Inside and Out"

20. Marketing the Benefit "Inside and Out" DeCA provides benefit to diverse Patron Base • Patrons come from varied social and economic backgrounds • Some are willing to pay a little more for quality • Some live payday to payday, looking for the best price • Some are just looking for the best value • All are looking to the “Commissary Benefit” to meet their needs

21. 2006 Food Stamp & WIC Redemption Food Stamp WIC Region$ Value $ Value DeCA East 16,360,013 6,845,557 DeCA West 9,865,423 15,363,330 DeCA Europe NA 6,657,761 Totals 23,225,436 28,866,648

22. 2006 Coupon Redemption RegionQuantity$ Value DeCA East 68,362,260 50,243,402 DeCA West 54,751,283 40,410,609 DeCA Europe 4,516,892 3,090,083 Totals 127,630,435 93,744,094

23. Important Issues Affecting CPG Industry • Consumer segmentation affected by shifting consumption patterns • Health • Convenience • Lifestyle • New Age Gender Income Traditional

24. DeCA's Response : Our View Thru April • This year sales stronger than initially anticipated • Up $39M over last year (December a record @ $500M) • Produce contribution has grown full point since 2001 • Decline in center store contribution concentrated in non-food (-2.1%) • Aggressive new sales target of +$100M established • Transaction count declining (but @ lesser rate) • Last year’s decline more than double current year result (-2.3% vs. -1.3%) • Average sale @ $60.44 continues to grow (up 2.6%)

25. Commissary Sales - Total DeCA thru April 2007 FY 2006 Vs. FY 2007 +1.7% +3.4% +1.9% -0.8% -2.1% +2.1% +2.5% FY 2006 FY 2007 FY07 Project $3162 $3201 Cumulative YTD Sales +$39 +1.8% FY 2007 YTD Sales Target: $3210 -$9 -0.3%

26. DeCA Customer Transactions Thru April FY 2006 Vs. FY 2007 # Transactions -1.0% -1.2% -1.3% -0.4% -3.3% -0.5% Millions -1.4% Cumulative Transactions 53.653 52.953 -0.446 -1.0% Sales Per Transaction Year Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep YTD FY 06 $58.28 $59.22 $61.15 $58.06 $58.93 $58.01 $58.71 $57.04 $58.05 $57.60 $57.74 $60.03 $58.96 FY 07 $58.57 $60.57 $62.83 $59.57 $61.26 $60.71 $59.48 $60.44

27. Commissary Sales – DeCA West thru April 2007 FY 2006 Vs. FY 2007 +0.6% +2.7% +0.6% -2.3% -2.4% +0.7% +1.7% FY 2006 FY 2007 FY07 Project $ 1416 $ 1420 Cumulative YTD Sales +$ 4 +0.3% FY 2007 YTD Sales Target: $1422 -$2 -0.1%

28. DeCAWestCustomer Transactions FY 2006 Vs. FY 2007 # Transactions -2.4% -3.0% -1.9% -1.9% -3.3% -2.2% -1.6% Millions Cumulative Transactions -0.571 -2. 3% 24.322 23.751 Sales Per Transaction Year Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep YTD FY 06 $57.57 $58.27 $60.07 $57.63 $58.44 $57.45 $58.18 $56.33 $57.68 $57.39 $57.27 $59.38 $58.25 FY 07 $57.99 $59.78 $61.93 $59.35 $60.38 $60.19 $58.76 $59.78

29. FY 2007 YTD Promotion Recap • Promotional support continues to outpace supermarkets • DeCA’s temporary price reduction (TPR) dollar fair share index up to 139 • Billboard categories drive results (unit lift percentages) • 102% Manager’s Special • 84% Power Buys • 67% Primaries • Overall lift percentages outstanding • Unit Lift ~ 49.9% • Dollar Lift ~ 27.0% • Aggregate dollar results from program impressive • Sales: $100.6M - Average Per SKU Sales: $12.6K • Savings: $18.0M - Average Per SKU Savings: $2.3K

30. Promotional Period Results • Periods 1 thru 9 Overall • Dollar Sales Up 13.4% • Dollar Savings Up 12.5% • FY 07 Projection* • Dollar Sales : $263.4M (+13.1%) • Dollar Savings: $53.3M (+12.4%) * Based on Promotional Period Contributions to Total

31. DeCA's Top 15 Sales Days of the 21st Century

32. September Case Lot Sale

33. Club Pack Sale History

34. Perishable Departments • What was the fastest growing sub-department??? • Produce? • Deli? • Bakery? • Sushi To Go? • Hot Foods?

35. The Producers Perimeter Departments YTD • All perishables dollars up $30M • Sales trends leading the DeCA way • Produce +6.2% • Deli +2.6% • Bakery +4.4% • Sushi To Go +37.0% • Hot Foods +11.3% • Seafood +33.0% • Meat trend still down, but improved 50% to -1.7%

36. The Producers West Perimeter Departments YTD • All perishables dollars up $5.0M (17% share) • West sales trends tracking well with overall DeCA • Produce +5.5% • Bakery +2.6% • Sushi To Go +37.0% • Hot Foods +8.0% • Seafood +25.5%

37. Produce • New produce distribution system • Resulted in improved sales, quality, and pricing • Minor concerns being worked expeditiously • Decreased order-ship time • Improved merchandising support • Resulting in more frequent shopping trips to store

38. Meat • New, improved specifications • Resulted in increased yield • Reduced labor • Minimal impact on price • Sales increasing

39. Prepackaged Deli Changes • Introduction of tubs has shifted buying patterns • MBU responded • Cleansed mix through category review • Altered case merchandising profile to maximize return • Shift in merchandising expanded shelf space, reduced number of pegs, and improved tub utility • Anticipated impact on annual sales: Plus $1.5 Million

40. Yogurt • Yogurt sales top ten growth category for several years • Needed expanded category for entrance of pro-biotics • In stock rates greatly improved

41. The Center Store • Which category is most “impulsive” ??? • Carbonated Beverages? • Energy Bars? • Salty Snacks? • Crackers? • Snack Bars? • Cookies? • Candy?

43. Reinventing the Candy Aisle • Premium chocolate section • Dark chocolates • New item introductions • Health & well being • Antioxidants • Organics

44. The Baby Care Center • Integrated merchandising set • Toiletries over baby wipes builds sales synergy • Brand blocking adds visibility • Concept fully vetted thru virtual & in-store tests • Baby wipes result: • Dollars per purchase occasion up 24% • Units per purchase occasion up 25% • Toiletries result: • Dollars per purchase occasion up 20% • Units per purchase occasion up 8% • Potential DeCA sales growth $1.3M

45. Need for Strategic Partnerships Increasing • Redefine relationships • Create value • Achieve goals • Customize programs • Create “WOW” factor

46. Partnership at Work • Thanks for the San Diego Experience • Six Commissary Council Committees • Broad/comprehensive cooperation • COOP Ads • Coupon Outreach • Systems Applications • Category Review Refinements • Promo Support Across Departments • Vendor Stocking • Promotional Response • Market Insights

47. March Ad – 80,000 Circ.

48. May/June Ad 220,000 Circulation

49. Meat & Produce Ads • Intent is to billboard perishable departments • Use in DeCA circulars/post newspaper inserts • Parallels retailer norms • Capitalize on customer’s menu driven psychology • Build sales synergy & incremental volume across total promotion package