Defense Commissaries

The Defense Commissary Agency runs about 3000 military commissaries. In addition to the revenue from store sales, the Agency also generates revenue by selling the data collected through its electronic scanners that register prices and goods sold. From January 1991 to March 1996, one firm had an exclusive rights contract for this data. In June 1995, the Agency solicited offers for a new five-year, exclusive rights scanner data contract. The winning firm, in addition to paying for the data, was to provide the Agency with expertise in implementing "category management," a system by which retailers manage product categories, such as pet foods or beauty products, as strategic business units and track consumer preferences. A protest of the award by the competing firms was ultimately dismissed by a federal court in May 1998. During the lengthy litigation period, the Agency entered into a nonexclusive license agreement with three companies, pursuant to a "spot bid sale," for the monthly use of the scanner data. This report (1) identifies the Agency's total revenue from selling scanner data and compares license revenues to amounts offered by firms responding to the June 1995 solicitation; (2) examines the Agency's implementation of category management as it relates to the requirements found in the 1995 solicitation; and (3) discusses the Agency's future plans for category management, scanner data sales, and potential development of an in-house market analysis capability.

GAO noted that: (1) DeCA collected almost $6.1 million from the sale of its scanner data from January 1991 through March 1998; (2) about $4 million, or 65 percent of the total, was collected from the Air Force contract awarded in 1989; (3) the remaining 35 percent, almost $2.1 million, came from the license agreements; (4) DeCA received slightly over $1 million annually from these licenses--an amount significantly less than the minimum proceeds guaranteed by two offerors under the 1995 solicitation; (5) the selected firm offered a 5-year annual average minimum payment of almost $2.5 million; (6) DeCA officials cited several reasons for the lower amount received from the license agreements, including the interim, nonexclusive nature of the sale and uncertainties regarding the litigation; (7) according to a DeCA official, a new spot bid sale of DeCA's scanner data had been planned before the Court of Appeals' May 19, 1998, ruling, and increased revenue had been expected from this effort; (8) since 1994, DeCA has been implementing the category management concept and techniques into its operations; (9) according to DeCA officials, the type and level of category management assistance contained in the 1995 solicitation is no longer necessary; (10) DeCA reorganized its buying function in mid-1994 to model the type of organization required to support the category management concept; (11) subsequently, it implemented a category management planning process; trained personnel; established product categories and completed many category plans; and began efforts to improve or replace data information and collection systems, including acquiring new store scanners; (12) according to DeCA officials, existing category management capabilities need refinement, but the capabilities envisioned in the solicitation are no longer appropriate, resulting in the decision to cancel the requirement for category management services; (13) with resolution of the litigation associated with the 1995 solicitation, DeCA still plans to continue licensing its raw scanner data to multiple buyers and further refine its category management system; and (14) officials stated that DeCA has no plan or desire to develop an in-house market analysis capability for the purpose of selling refined DeCA scanner data products to vendors and suppliers.