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Editorial Comment — June 2014

Good, Better, Best ...

EPP. OPP. EDLP. Whether entry price point, opening price point or everyday low price, these retail pricing strategies owe a tip of the cap to former Army Brig. Gen. Robert E. Wood, who nearly a century ago, while energizing Sears, Roebuck & Co. to become the pre-eminent retailer of that day, popularized the “Good, Better, Best” merchandising system still in use in many modern retail operations.

The three-tier plan has since been re-worked and improvised upon in different ways to meet the needs of specific markets, but essentially the basics of “Good, Better, Best,” remain extremely useful for many retailers who seek to serve a diverse range of demographics and preferences — including the Defense Commissary Agency and the military exchange systems.

Let's face it, different brands appeal to different folks for almost as many reasons as there are individuals among us.

Military shoppers have preferences and options, and commissary and exchange buyers know all about recognizing them, sourcing these products at a savings to meet those patron preferences. Most patrons are pretty smart and adept at finding the brands at the prices that fit their budgets and preferences.

So when Vice Chairman of the Joint Chiefs of Staff Adm. James Winnefeld, USN, testified before Congress that he found no commissary equivalent of a “generic” ibuprofen when he was checking out commissary prices, it left many in Congress wondering why the law governing DeCA does not allow for “private label” or “store brand” items. Now while the word “generics” is most commonly associated with pharmaceuticals, and DeCA stores do not act as pharmacies, commissaries have long carried their own equivalent to private-label items. In DeCA's world, these “control brands” include hundreds of products that fall under the umbrella of its Best Value Item (BVI) program.

As for ibuprofen, DeCA commissaries do indeed stock a less expensive control brand — GoodSense — and at about $2, comparison shopping shows that it is less expensive than outside-the-gate store brands, as well as the exchange systems' common store brand, Exchange Select. Exchange Select items are marked up to help fund MWR dividends, capital improvements and operating costs. With operating costs funded by Congress, commissaries can maintain pricing at cost-plus-5 percent.

Why cost-plus-5? Because Congress determined that America's service personnel and their families should be able to buy essential items, in the U.S. brand names they prefer, for the minimum amount necessary to pay for the items and fund store construction and renovation.

To protect patrons and taxpayers from having to subsidize promoting one brand over another, DeCA is not allowed to advertise. And that's the catch with control brands; when low price is the manufacturer's major focus, there is very little, if anything, left over for consumer promotion.

So it's not surprising that Winnefeld didn't find the “generic.” The household-name-recognition branded items that customers have long found in commissaries — and which can afford to support advertising, promotions and shelf-stocking — take pride of place on the eye-level shelves. Commissary customers have favored these items for years not only because they know them, like them and trust them, but also because at “cost-plus-5” they help make ends meet, and are a valued part of military compensation.

Can DeCA improve on cost price?

Perhaps, temporarily, here and there. It's tricky, and it comes with a lot of caveats. It can be done for a short period of time if “loss leaders” are used: selling Flaxo Flakes at $1.00 and making up for it by charging more elsewhere. But selling goods at a loss to drive business and forcing patrons to subsidize the loss by paying more for meat, milk, or maybe even ibuprofen, was never the intention for commissaries. The idea all along has been to give our nation's best the benefit they have earned, and to help stretch their paychecks and viability of the force — through a savings benefit funded by appropriations. Without this funding, those service families who are strapped or barely getting by would soon find themselves paying a lot more — and that includes for “generics” at a markup.

Cheaper, as they say — if that's even ultimately the case — is not always better ... and may not be sustainable. A store-brand program is a branding commitment that involves a cost to DeCA, a cost to the taxpayer, and a cost that's passed on to the patron. Anything even remotely like it needs to be very well planned and entered into with eyes wide open, so that the whole thing does not have to be recalled, restarted or re-funded down the road.

If a DeCA store brand becomes a backdoor to variable pricing, all those who prepare studies and surveys should be on notice: the commissary savings benefit is about a 30-percent average; and cutting savings 10 percent across the board does not work. The facts of life at store level are that some categories have no room for maneuvering. And other categories like produce, meat and dairy lay the foundation of customer savings and store traffic; they cannot be tinkered with to subsidize savings on detergent or trash bags.

The MCRMC and Congress should not be lured into playing a shell game with military servicemembers. They must recognize the commissary benefit for what it is, a compensation and force multiplier with no place for marketing shenanigans or variable pricing ploys. The commissary should not be a tool to get customers to pay out of their own pockets for DoD's funding “recovery” — they deserve their Good, Better, Best with no strings attached.

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