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The Defense Commissary Agency

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  1. The Defense Commissary Agency Sales February 28, 2007 Mr. Thomas E. Milks Director of Sales

  2. Agenda • Organization • Issues Affecting Consumer Package Goods (CPG) Industry • How We Did • Perimeter • Center Store • 2007 Initiatives

  3. Directorate of Sales Organization Effective January 22, 2006

  4. Important Issues Affecting CPG Industry • Globalization • Continual product portfolio management • Price line vs brand name products • Rising costs • Supply chain complexity

  5. Important Issues Affecting CPG Industry • Anti-aging products • Chocolate – the darker the better • Junk food made over • Locally grown food • Probiotics in yogurt and beyond


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

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

  8. How We Did • Last year sales vibrant • $48M above prior year • Perishable numbers simply outstanding • Shift from center store sales occurring, but not as severe as retail • Promotional support continued to outpace supermarkets • Last year’s savings held steady at 32% • DeCA’s temporary price reduction (TPR) dollar fair share index highly developed @ 136

  9. CY 2006 Promotion Recap • Billboard categories drive results • 400 Power Buys • 975 Primaries • 200 Manager’s Special • Overall lift percentages outstanding • Unit Lift ~ 51.5% • Dollar Lift ~ 25.6% • Program generated $47.4 Million in savings over regular DeCA price • Added an estimated 1.5 basis points to overall DeCA savings percentage

  10. The Early Signs • First quarter results very positive • Sales up slightly more than FY year end goal (+$13.5M) • European sales stronger than anticipated • Future quarterly ACV contributions & calendar shifts will tend to normalize early results • December sales were exceptional • Total exceeded $500 Million • Largest single sales month of the new millennium

  11. Commissary Sales--Total DeCA YTD FY 2006 Vs. FY 2007 +1.7% +1.9% -0.8% FY 2006 FY 2007 $1401 $1414 Cumulative YTD Sales +$13 +1.0% FY 2007 Strategic Sales Target: $5.430B

  12. DeCA Customer Transactions FY 2006 Vs. FY 2007 # Transactions -1.0% -1.3% -0.4% Millions -0.212 -0.9% 23.511 23.299 Cumulative Transactions Sales Per Transaction Year Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep YTD FY 2006 $58.28 $59.22 $61.15 $58.06 $58.93 $58.01 $58.71 $57.04 $58.05 $57.60 $57.74 $60.03 $59.57 FY 2007 $58.57 $60.57 $62.83 $60.69

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

  14. September Case Lot Sale

  15. Club Pack Program Summer Program YearUnitsDollars 2003 1,072,866 $ 5,391,879 2004 1,936,651 $ 9,986,974 2005 2,886,471 $14,064,224 2006 4,195,379 $23,116,284 Winter Program 2005 1,568,386 $ 8,342,999 2006 2,053,793 $12,151,444

  16. Holiday Closure Sales Impact • Began this FY (includes all holidays except Veterans Day) • Four 7-day stores close on holiday • Fifty-one 6-day stores close day after holiday • FY 2007 impact to date (5 holidays) • Sales measured for 1-week periods centered on holiday • 55 stores that changed hours: +1.6% • Rest of DeCA: +1.4% • Bottom Line: No adverse impact

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

  18. The Producers Perimeter Departments • All perishables dollars up $5.9M • Perishable percent of Agency gain equals about 41% • First quarter trends leading the DeCA way • Produce +5.6% • Deli +3.0% • Bakery +5.0% • Sushi +51.0% • Hot Foods +14.3% • Meat trend still down @ -3.2%, but improving • Classification change impact disappears in March

  19. Produce Sales A New Vision • New procurement area • Area 6: Sales up $530K Nov / Dec ‘06 • Represents 4.6 % gain in produce sales • ACV contribution grew to 7.3% for two month period • Produce contribution to area incremental sales = 87%

  20. 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

  21. Prepackaged Deli Changes

  22. 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

  23. Seafood Road Shows • Early year results mirror previous successes • 10 DeCA West events so far this fiscal year • Most sales conducted over three-day period • Total sales generated: $143,051 • Percent of total store sales same period: 0.37%

  24. Driving Perimeter Sales • Be aggressive – use “the glass is half full” approach • Meat truckloads / seafood roadshows • Farmer’s markets / plant truckloads • Complement with special contractor sales efforts • Use all authorized media/methods to get the word out • Be ready for perishable ads in base newspapers • Coordinate efforts with local exchanges to maximize return • Cross-merchandise – build a “total store” plan & execute

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

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

  27. 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

  28. The Item Selection Form • What’s the most common error on 40-15s??? • Invalid GTTNs? • Invalid case packs? • Erroneous product dimensions? • Erroneous tie & tier? • Erroneous availability dates?

  29. Data Quality • 78% of 40-15s being returned • Types of errors/omissions • Missing/invalid GTTNs: 38% • Invalid case packs: 5% • Erroneous product dimensions: 5% • Erroneous tie & tier: 2% • Product availability dates: 50% • Refers to availability at distributor (FDS) • Refers to availability for delivery (DSD)

  30. Swell Allowance Program • Pilot test successfully completed (Oct-Dec 06) • Five participants • Kellogg’s, J&J, Nestle, Nabisco, Callard Bowser • Twelve vendors added last month • Additional vendors to be added monthly • Participant consensus positive

  31. Dead Stock Program • Deletion decision made (mfg or buyer driven) • After 30 days, paperwork processed by File Maintenance • Item flagged for phase out in DIBS • Held on file for 30 days (60 days for NW box, Hawaii stores) • If distributor wants to eliminate residual stock remaining • Broker follows procedures in NTT 05-33 (12 January 05) • DeCA receives 50% markdown for dead stock • After 30 days as dead stock in DIBS, item deleted

  32. What We Plan for 2007 • Hire front end buyer • Evaluate return on investment • CARTS/SCO impact • Queuing line solution? • Impulse items

  33. What We Plan for 2007 • Internet business • Develop/implement third party module • Expand special pack module, match mix to occasion • Emphasize growth categories • Drive sales • Leverage competitive strengths • Focus mix changes on emerging segments • Improve promotional flexibility • Correlate with partners’ strategic goals to maximize incremental growth • Ensure capability to integrate new item launches and react to changing market conditions • Extend departmental coverage to include perimeter • Assess success using pre-defined metrics

  34. What We Plan for 2007 • Evaluate product mix frequently on marginal return basis • Relate to known segment trend information • Specify new item performance objectives up front • Periodically assess planogram sufficiency as SOP • Create a focused view of future market conditions • Collective effort thru Commissary Council • Use hard/soft data and manufacturer R&D insights • Predict most likely mix of goods/services demanded by future consumers • Build suite of operational tactics to move forward • Establish 1/3/5 year objectives to measure movement toward end state • Refine plans on the move as conditions/insights warrant

  35. Does Category Indexing Work? • 32 Categories downsized: Dollar Result +.71% • 92 Categories upgraded: Dollar Result + 1.78 %

  36. Category Review Reset Results • Four categories reset @ Ft Lee in January 2006 • New planograms installed within first week • Sales impact evaluated for subsequent 24 week period • Dollar increases dramatic compared to same period PY • Gains ranged between 3.1% and 15.5% for identical mix • Overall change in dollars for categories involved + 7.4% • 60 day set implementation policy could build sales quickly • As more set results quantified, sales estimate to be developed

  37. May 2007 Case Lot Procedures • MBU established look-ups to include regular case price sent to store via normal file maintenance procedures • Stores must use established look-ups to get sale price • Scandown will be used to establish sale price Does Not Apply to DSD

  38. Promotions: 2007 • Treasure hunt with club packs – build shopping fun • Match your mix to patron faces • Use as lever to enhance trade support throughout store • Expansion of display-ready pallets • Big buck opportunity @ minimal labor cost • We’ll try to send visuals & details in advance electronically • Streamlining promotional package size • Eliminating listing of line item extensions

  39. How to Grow Sales And Create Excitement! • Focus on perimeter • Produce • Meat/Seafood truckload sales • Cross merchandising • Impulse items • Club pack program • Case pack sales • Organics • Execute

  40. How to Grow Sales?? "WOW"!!! CREATE

  41. Questions?