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entitled 'Defense Commissaries: Additional Small Business 
Opportunities Should Be Explored' which was released on January 13, 
2003.



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Report to the Ranking Minority Member, Committee on Small Business and 

Entrepreneurship, U.S. Senate:



United States General Accounting Office:



GAO:



December 2002:



Defense Commissaries:

Additional Small Business Opportunities Should Be Explored:



Highlights of GAO-03-160, a report to the Ranking Minority Member, 

Committee on Small Business and Entrepreneurship, U.S. Senate



DEFENSE COMMISSARIES: Additional Small Business Opportunities Should 

Be Explored





Why GAO Did This Study:



Some grocery supermarket companies have been charging food product 

manufacturers slotting fees to place products in stores and have 

involved large product manufacturers in making decisions about what 

products to sell. 

These practices have raised concerns about anticompetitive behavior 

and may be adversely affecting small businesses. GAO was asked (1) 

if the Defense Commissary Agency is using these practices in 

managing military commissaries; (2) what proportion of products 

sold by commissaries are produced by small businesses; and (3) 

if small businesses face barriers in selling products through 

commissaries and how opportunities for small business could be 

improved.



What GAO Found:



The Defense Commissary Agency does not charge slotting fees, 

and agency staff, not product manufacturers, decide which 

products to sell and where they will be placed on commissary 

shelves.



GAO estimates that slightly more than half of the companies 

producing products that the agency sold are small businesses. 

According to GAO estimates, these businesses produced about 

24 percent, or about 10,900 of 45,200 products sold by commissaries 

from August 2000 through May 2001, generating about 7 percent of 

commissary sales during the period.



Federal law requires that a name brand product must have been 

sold on a regional basis through grocery stores or other retail 

operations before the agency may purchase it for resale without 

competition. This requirement apparently poses a legal hurdle to 

small businesses whose name brand product distribution may be limited 

because the agency cannot accept their products for resale.



GAO identified two ways in which opportunities for small businesses 

might be increased. First, the legal hurdle to purchasing name 

brand products that have limited distribution could be removed. 

Agency officials are capable of deciding which products to sell 

without this requirement.



Second, the agency could sell private label products, such as the 

Kroger Companys Big K brand or Safeway Stores Safeway Select 

brand and obtain these products from both large and small businesses. 

In 2001, private label products constituted over 20 percent of industry 

unit sales and 16 percent of dollar sales. Private label products are 

sold at lower prices than brand name products and could potentially 

increase savings for commissary customers. Agency officials 

recognize there could be some potential benefits if the agency 

were to offer private label products. However, the officials said 

it would be difficult to initiate and operate a private label program. 

Further, they are concerned that if the agency attempted to sell 

private label products, its current suppliers would increase their 

prices and withdraw some of the support they now provide commissaries, 

perhaps reducing the overall benefits of commissary shopping. GAO 

noted that the agency has not done a thorough study of the potential 

for private label products to serve commissary customers. The agencys 

Director agreed with GAO that a study of the benefits and costs of 

developing private label products would be reasonable to undertake to 

determine if such a program could enhance the commissary benefit.



The Department of Defense concurred with GAOs recommendations and 

plans to implement them.



What GAO Recommends:



GAO is recommending that the Department of Defense study the benefits 

and costs of developing private label products for sale through 

commissaries. GAO also suggests that the department consult with 

the Small Business Administration on the removal of a legal hurdle 

that that may deter some small businesses from dealing with 

commissaries.



www.gao.gov/cgi-bin/getrpt?GAO-03-160.



To view the full report, click on the link above.

For more information, contact Lawrence Dyckman at 202-512-9692 or 

dyckmanl@gao.gov.



[End of section]



GAO-03-160:



Contents:



Letter:



Results in Brief:



Background:



Conclusions:



Recommendations for Executive Action:



Agency Comments and Our Evaluation:



Appendix I: Objectives, Scope, and Methodology:



Appendix II: Examples of the Terms of DeCAs 

Performance-Based Agreements:



Appendix III: Steps in DeCAs Category Management Process:



Appendix IV: Top 20 Private Label Product Categories in the Supermarket 

Industry, 2001:



Appendix V: Comments from the Department of Defense:



Appendix VI: GAO Contact and Staff Acknowledgments:



Tables:



Table 1: DeCAs Performance-Based Agreements for 2000 and 2001:



Table 2: Estimated Percent of Small and Foreign Businesses and Sales of 

Products by DeCA Commissaries, August 2000 through May 2001:



Abbreviation:



DeCA: Defense Commissary Agency:



United States General Accounting Office:



Washington, DC 20548:



December 12, 2002:



The Honorable Christopher Bond

Ranking Minority Member

Committee on Small Business and Entrepreneurship

United States Senate:



Dear Senator Bond:



For well over a decade, the U.S. retail grocery industry has 

increasingly required grocery store suppliers to pay a variety of fees 

to place their products in stores. These fees, called slotting fees 

or slotting allowances, help determine which products supermarkets 

will sell and where they will place those products on their shelves. 

Proponents of slotting fees maintain that the fees help pay the costs 

of introducing new products to the marketplace, such as the costs of 

reallocating shelf space and reprogramming scanner equipment and that 

the fees help allocate the risk of product failure between suppliers 

and retailers. Some retailers view slotting fees as a way to reduce 

their risk in trying a new product and say that a manufacturers 

willingness to pay slotting fees indicates the manufacturers 

confidence in a products success. Opponents of the practice, including 

some product suppliers and small business groups, maintain that it can 

prevent smaller manufacturers from competing if they cannot afford 

the fees.



Many large grocery retailers have also adopted a business technique 

called category management for assessing the sales potential of 

products within a particular category, such as ice cream or other 

frozen foods, selecting the products with the best potential and 

allocating shelf space to these products. Retailers may manage product 

categories themselves, with recommendations from suppliers; select 

various category captains (usually the leading manufacturers for each 

product category) to help them manage the categories; or turn over 

management of the categories to the category captains. While proponents 

of category management view it as having potentially significant 

benefits for suppliers, retailers, and consumers, others are concerned 

that when a retailer relies heavily on a category captain, 

anticompetitive behavior may arise.



The Department of Defense operates supermarket-type stores called 

commissaries for the use of active and retired military personnel and 

their families. Managed by the Defense Commissary Agency (DeCA), these 

commissaries number about 280 worldwide, with sales totaling about 

$5 billion per year. DeCAs overall goal is to provide quality products 

at the lowest possible cost. Like commercial supermarkets, commissaries 

sell name brand products and nonbranded products such as produce, fresh 

fish, and ground beef. DeCA encourages small businesses to sell 

products through commissaries. Even so, to assure that DeCA can supply 

the name brand products its customers desire, federal law allows DeCA 

(as well as other federal agencies) to purchase name brand products 

without competition and without setting aside a portion of this 

business for small businesses. The Small Business Administration 

generally considers businesses with 500 or fewer employees to be small 

businesses.[Footnote 1]



You asked us how DeCA is managing its product purchases. Specifically, 

you asked us to determine the extent to which (1) DeCA requires grocery 

suppliers to pay for shelf space in commissaries, (2) DeCAs large 

suppliers select the products that are sold by commissaries, 

(3) products sold by commissaries are produced by small businesses and 

foreign businesses, and (4) small businesses face barriers to selling 

their products in commissaries as well as whether opportunities for 

small businesses could be improved.



Results in Brief:



The Defense Commissary Agency does not require its suppliers to pay for 

shelf space in commissaries; the agency accepts and stocks products for 

sale without charging slotting fees. However, in recent years the 

agency participated in a small number of promotional arrangements, 

called performance-based agreements, under which its suppliers paid a 

negotiated fee for preferred product display space. In calendar 

year 2001, for example, the Defense Commissary Agency had 14 

performance-based agreements covering products sold by 10 of over 2,700 

of its suppliers. These agreements were negotiated separately from 

decisions to stock products, according to agency officials. The revenue 

from these performance-based agreements--about $1.2 million in 2001--

has been used to fund commissary construction. The agency discontinued 

offering its suppliers performance-based agreements for 2002 to assure 

that revenue obtained through these agreements was not limiting 

vendors capability to reduce product prices and because the Congress 

had provided for funding commissary construction.



The Defense Commissary Agencys large suppliers do not select the 

products that the commissaries sell; instead, agency officials have 

sole responsibility for category management decisions. When the agency 

assesses the performance of a category of products, such as frozen 

dinners or ice cream, it relies on market data that it obtains from an 

independent source. The agency also obtains product sales data and 

selection and display recommendations from suppliers within that 

category. These suppliers include both leading manufacturers--such as 

Kraft Foods, Inc., and General Mills, Inc.--and other companies selling 

and distributing products in that category that decide to participate 

in the review. The agency reconsiders its selections if requested to do 

so by suppliers.



Based on a statistical sample, we estimate that 53 percent of 

businesses producing products which the agency sold were small 

businesses and that these businesses produced about 24 percent or about 

10,900 of 45,200 products sold by commissaries, during the period we 

sampled. We also estimate that the sale of these products totaled about 

$214 million, or about 7 percent of the dollar sales of commissaries 

during the period. In addition, we estimate that about 13 percent of 

the businesses producing products which the agency sold are foreign 

businesses and that these businesses produced about 6,500 products, or 

about 14 percent of the products sold by commissaries during the 

period. We also estimate that the sales of products produced by foreign 

companies totaled about $551 million or about 17 percent of the dollar 

sales of commissaries over the period. These estimates are based on a 

statistical sample of 700 of approximately 45,200 products sold by 

commissaries during the 10-month period from August 2000 through 

May 2001.



Businesses face a legal hurdle in selling brand name products to the 

Defense Commissary Agency for resale. Federal law requires that a name 

brand product must have been sold on a regional or national basis 

through grocery stores or other retail operations consisting of 

multiple outlets before the agency can purchase a product for resale 

without competition. Agency officials do not know precisely how often 

companies may be affected because companies do not inform the agency 

when they decide not to propose products for acceptance. Also, some 

small businesses may not sell to the commissary system because it 

appears to present less opportunity than other large grocery 

supermarket companies since the assortment of products which 

commissaries stock is smaller in comparison, the distances between 

commissaries is greater, and the costs of distributing products to 

commissaries may be increased. Nevertheless, agency officials said that 

they are eager to add products from small businesses and are looking 

for products with positive sales records, as well as companies with the 

financial capability to sustain operations and the production capacity 

to meet demand for their products if accepted. Because the legal 

requirement apparently limits the consideration of products proposed by 

small businesses, the agency may wish to consult with the Small 

Business Administration on whether to suggest to Congress that the 

provision be modified or removed from the law.



There also would be opportunities for small businesses if the agency 

were to sell private label products. Major grocery retailers, except 

for the agency, have developed successful private label products--

private label products have grown to account for over 20 percent of 

industry unit sales and a 16 percent share of dollar sales in 2001, 

according to industry data. Private label products have low prices 

compared to name brand products and have also provided retailers with 

higher profit margins according to industry information. Agency 

officials recognize that private label products are successful and that 

commissary customers are very likely to buy private label products if 

they are offered at commissaries. Yet, agency officials also commented 

that a private label program could be difficult for the agency to 

initiate and implement. They said that introducing private label 

products could cause the agencys current suppliers to raise prices and 

withdraw the labor support they now provide and thereby raise the 

possibility that the overall benefits of commissary shopping may be 

reduced. We believe these issues would need to be carefully considered 

to determine if private label products are in the best interest of 

commissary customers. The agencys Director agreed that it would be 

reasonable to perform a study to determine if a private label product 

program could enhance the commissary benefit. Because the sale of 

private label products is a significant and successful competitive 

trend in grocery retailing, provides products at the lowest possible 

cost, and offers opportunities for small businesses, GAO is 

recommending that the Department of Defense assess the benefits, costs, 

and implementation issues associated with selling private label 

products through commissaries.



The Department of Defense reviewed a draft of this report, concurred 

with our recommendations and stated that it will implement them.



Background:



DeCA commissaries are in business to provide a significant non-pay 

compensation benefit to military families; they sell food and household 

items tax free at cost plus a 5 percent surcharge. Military servicemen, 

retirees, and their families consider the opportunity to shop and save 

through the commissary a highly important benefit of military service. 

DeCA is striving to achieve an overall savings of 30 percent for its 

patrons compared to retail supermarket prices. DeCAs operating 

expenses are paid primarily through an annual appropriation of about 

$1 billion. DeCA was formed in 1991, and its headquarters are at Fort 

Lee, Virginia.



Under federal law, DeCA may purchase name brand products without 

competition and thereby supply its customers with products they 

prefer.[Footnote 2] Also, when purchasing products without seeking 

competition, requirements regarding purchases from small businesses 

become inapplicable.[Footnote 3] For the remainder of the products 

which commissaries sell for which there is not demonstrated customer 

preference for a specific brand, DeCA follows federal procurement 

requirements, seeking competition and striving to purchase a portion of 

its products from small businesses.



The Federal Trade Commission has been reviewing slotting and category 

management practices as part of its responsibility for preventing 

business practices that may have a harmful effect on 

competition.[Footnote 4] Within the commission, the Bureau of 

Competition is responsible for investigating such illegal practices, 

and for taking enforcement action if it finds illegal activity. The 

Bureau of Competition views slotting allowances as covering a very 

broad range of business conduct, some of which--such as commercial 

bribery[Footnote 5]--are unlawful. Other slotting practices are legal 

in competitive markets, according to the Federal Trade Commission, such 

as ordinary price discounts that are passed through to consumers. The 

Deputy Director of the Bureau of Competition has testified that 

slotting allowances are unlikely to harm competition when there are 

payments of reasonable amounts to compensate a retailer for stocking a 

new unproven product. On the other hand, the Deputy Director also 

advised that slotting practices may be of competitive concern if they 

involve the exclusion of rivals.[Footnote 6] The following fees 

illustrate those in use in the industry according to the Federal Trade 

Commissions workshop report on slotting practices and 

industry studies:



* Slotting allowances--lump-sum, up-front payments from a manufacturer 

or producer to a retailer to have a new product carried by the retailer 

and placed on its shelves.



* Pay to stay fees--fees paid by a manufacturer to keep existing 

products on retailers shelves.



* Display fees--fees paid by a manufacturer for shelf space and for 

placing products in particular locations within a store, such as on 

eye-level shelves or on displays at the end of shelves. There are 

concerns that some payments may limit or disadvantage a rivals access 

to shelf space.



* Failure fees--fees paid by a manufacturer to a retailer in the event 

that a product does not sell as well as expected and must be removed 

from store shelves and inventory.



DeCA Does Not Use Up-Front Slotting Fees:



DeCA does not as a matter of course require companies supplying grocery 

products to make payments to obtain shelf space in commissaries. DeCA 

accepts and stocks products for sale without charge and in so doing has 

not joined in the grocery industry practice of requiring up-front 

slotting fee payments for shelf space.



Although DeCA does not use up-front slotting fees, DeCA has entered 

into promotional arrangements, called performance-based agreements, 

under which suppliers paid DeCA fees for allowing specific promotional 

activities. DeCA used these agreements to increase the funds available 

for commissary construction. The agreements were based on suppliers 

proposals and negotiations with DeCA, and the agreements authorized 

suppliers to place products on special merchandizing racks, on 

end-of-aisle displays, and on in-aisle display cases. The agreements 

were negotiated separately from decisions to stock products, according 

to DeCA officials. DeCA entered relatively few performance-based 

agreements, and they provided modest income as table 1 indicates.



Table 1: DeCAs Performance-Based Agreements for 2000 and 2001:



Year: 2000; Number of agreements: 18; Product categories: Candy, pet 

supplies, breakfast foods, butter, margarine, baked goods, cheese, 

drinks, snack foods, and home care products; Estimated DeCA revenue: 

$1.7 million.



Year: 2001; Number of agreements: 14; Product categories: International 

products, snack foods, baked goods, drinks, frozen foods, health foods, 

kitchen aids, and insecticides; Estimated DeCA revenue: $1.2 million.



Source: GAOs analysis of DeCA information.



[End of table]



In addition, our review showed the following:



* Only one company had performance-based agreements in both years.



* In calendar year 2001, the 14 performance-based agreements covered 

products sold by 10 of over 2,700 of DeCAs suppliers.



* DeCAs performance-based agreements were not structured in a manner 

that excluded the sale of other suppliers products. Appendix II 

contains examples illustrating the performance terms and the basis for 

payments that DeCA received through its performance-based agreements.



While there have been relatively few performance-based agreements, the 

concept has raised some concerns. In a 1998 report on DeCA contracting 

activities, the Department of Defense expressed concern that (1) DeCAs 

agreements were a form of selling space in commissaries, which is not 

authorized, and (2) that the agreements were a cost to the suppliers 

who may pass on those costs to military customers through increased 

product prices.[Footnote 7] While DeCA officials disagreed with these 

perspectives, DeCA decided not to enter additional performance-based 

agreements for 2002. DeCA officials stated that they took this action 

to assure there was not any possibility that the agreements were 

limiting their suppliers capability to reduce product prices, and 

because revenue needed for commissary construction had been secured 

through congressional action.[Footnote 8]



DeCA Officials Are Responsible for Product Selection Decisions:



DeCA officials select the products that commissaries sell--the agency 

does not use its large suppliers to select products for commissaries. 

DeCA officials do use category management techniques when selecting 

products, and DeCA officials have sole responsibility for category 

management decisions. DeCA adopted category management in the mid-1990s 

because this technique was being recognized as a significant 

improvement in grocery industry management practice. DeCAs category 

managers and buyers who are assigned to DeCAs Marketing Business Unit, 

located primarily at Fort Lee, Virginia, implement these techniques. 

DeCA has divided its grocery business into about 170 categories of like 

products, and it completed 164 reviews of individual product categories 

from January 2001 through August 2002. Appendix III identifies the 

general steps in DeCAs category management process, and DeCAs role 

within this process.



DeCA category managers and buyers have the lead role in DeCAs category 

management process. DeCA category managers and buyers told us that they 

use data from Information Resources, Inc.,[Footnote 9] as a foundation 

for making grocery product selection decisions. Information 

Resources, Inc., supplies DeCA with sales data for each product in a 

category for the commissary market, as well as comparative sales data 

from other grocery retailers. This information allows DeCAs category 

managers and buyers to have an overview of the performance of each 

product over several time periods. In addition, DeCA category managers 

and buyers meet individually with their suppliers during a category 

review and are provided with product presentations and sales data 

developed by the supplier or purchased by the supplier, along with the 

suppliers product selection and display recommendations. Suppliers who 

make presentations to DeCA during a category review typically include 

both leading manufacturers such as Kraft Foods, Inc; General Mills, 

Inc; and PepsiCo, Inc; and distributors, brokers, and other companies 

selling and distributing products in a category that decide to 

participate in the review. According to DeCA officials, they do not 

discuss or share the content of meetings with individual companies with 

the representatives of other companies that participate in a category 

review. After DeCA announces the results of a category review including 

any changes in its selections and the distribution of its products, 

DeCA will reconsider its selections if requested to do so by suppliers.



Commissaries Sale of Products from Small Businesses and 

Foreign Companies:



Based on a statistical sample, we estimate that 53 percent of 

businesses producing products that DeCA sold are small businesses and 

that these businesses produced about 24 percent of the products (about 

10,900 products, plus or minus 1,500) sold by commissaries from 

August 2000 through May 2001. We estimate that the sale of these 

products totaled about $214 million, or about 7 percent of commissary 

sales, and we are 95 percent confident that the total lies between 

$76 million and $352 million. In addition, we estimate that about 

13 percent of the businesses producing products that DeCA sold are 

foreign businesses and estimate that these businesses produced about 

14 percent or about 6,500 of the products sold by commissaries during 

the period. We are 95 percent confident that the total lies between 

5,300 and 7,800. We also estimate that the sales of products produced 

by foreign companies totaled about $551 million, or about 17 percent of 

the dollar sales of commissaries, and we are 95 percent confident that 

the total lies between $287 million and $815 million. For our 

statistical sample, we selected 700 of approximately 45,200 products 

sold by commissaries during the 10-month period.[Footnote 10] Table 2 

provides additional details.



Table 2: Estimated Percent of Small and Foreign Businesses and Sales of 

Products by DeCA Commissaries, August 2000 through May 2001:



Dollars in millions.



Small; Percent: 53; 95-percent confidence interval: 44 to 54; Total: 

[Empty]; 95-percent confidence interval: [Empty].



Products; Percent: 24; 95-percent confidence interval: 21 to 27; Total: 

10,900; 95-percent confidence interval: 9,400 to 12,400.



Dollar sales of products; Percent: 7; 95-percent confidence interval: 2 

to 11; Total: $214; 95-percent confidence interval: $76 to $352.



Foreign; Percent: 13; 95-percent confidence interval: 10 to 17; Total: 

[Empty]; 95-percent confidence interval: [Empty].



Products; Percent: 14; 95-percent confidence interval: 12 to 17; Total: 

6,500; 95-percent confidence interval: 5,300 to 7,800.



Dollar sales of products; Percent: 17; 95-percent confidence interval: 

9 to 25; Total: $551; 95-percent confidence interval: $287 to $815.



[A] While we could estimate the proportion of small and foreign 

businesses, we could not reliably estimate the total number of 

businesses. To do so would require knowledge of the number of products 

in the population associated with each parent company identified in the 

sample. The list from which the samples were drawn included product, 

but not company, identification, and the population of companies that 

produce products sold by DeCA is not known. Commissaries sales from 

August 2000 through May 2001 totaled $3.278 billion dollars.



Source: GAOs analysis of DeCA data.



[End of table]



We developed estimates of this business activity because this data was 

not available from DeCA. DeCA collects data on its suppliers with which 

it has resale agreements. These suppliers include a mix of companies, 

some of which produce products and others that are the distributors of 

products produced by other companies. DeCAs database identifies the 

companies that supplied it with each product, and its data includes 

either the producer or the distributor, but not both.



We could not compare commissary sales of the products of small 

business with private sector grocery supermarkets because the data 

that are available are too limited. While scanner data on industry 

sales are available, this information does not identify the size of the 

companies that supply the products, according to industry officials. 

Also, the U.S. Census Bureau, which conducts economic surveys of 

manufacturing, does not collect data on the extent that the products of 

small businesses are sold through individual commercial grocery 

retailers. Census Bureau data shows that grocery manufacturing is 

diversified, with over 22,000 companies participating in the sector, 

and that over 21,000 of these companies had 500 or fewer employees. 

Yet, the industry is more concentrated at the top--the 50 largest 

companies in the sector accounted for about 51 percent of the 

$422 billion in shipments attributed to this sector of the economy in 

1997 (the latest data available).[Footnote 11]



Barriers Small Businesses May Face in Doing Business with DeCA:



Businesses face a legal hurdle in selling brand name products through 

commissaries--a provision of law requires a minimum level of sales 

before DeCA can consider a brand name product for purchase. In 

addition, the commissary system has certain physical characteristics 

that limit the number of products that commissaries sell and increase 

the costs of distributing products to commissaries. These 

characteristics affect the opportunities of businesses, including small 

businesses, to present and sell products through commissaries.



In general, federal policy concerning small businesses is to (1) foster 

their development and (2) to eliminate barriers to their growth. As 

indicated by the Small Business Act and the U.S. Small Business 

Administration, the United States is committed to preserving full and 

free competition that leads to free entry into business to keep 

capitalism efficient and foster innovation. Also, according to the 

administration, the growth of small businesses is vital to preserve 

competition, and its Office of Advocacy was created to help discourage 

barriers to small business development and growth. Furthermore, 

according to the administration, policymakers should find ways to level 

the playing field for all businesses without compromising statutory or 

agency specific goals.



In considering products for sale in commissaries, DeCA is bound by a 

provision of federal law that requires a name brand product to have 

been sold on a regional or national basis through grocery stores or 

other retail operations consisting of multiple outlets before DeCA may 

purchase these products on a non-competitive basis for resale.[Footnote 

12] This limitation was enacted in 1997, and a congressional committee 

considering this legislation specifically stated in referring to this 

provision that discount brands that are not sold by major commercial 

grocery or retail store chains would not qualify as brand name 

products.[Footnote 13]



DeCA officials said that the provision has, in part, had the effect of 

limiting their consideration of products that have not yet achieved a 

regional distribution, including products produced by small businesses. 

DeCA officials do not know precisely how often companies may be 

affected because companies do not inform DeCA when they are discouraged 

from proposing products for acceptance by DeCA for this reason. DeCA 

seeks products with positive sales records and companies with the 

financial capability to sustain operations and the production capacity 

to meet demand for their products if accepted for sale. DeCA does not 

accept a product with an indifferent sales record or a product that may 

not be as attractive to customers as those that are already in DeCAs 

assortment. Nevertheless, DeCA officials said that they occasionally 

accept products that appear to be popular in regional and local areas 

even with relatively limited distribution--they are looking for and 

eager to add products from small businesses that are innovative or 

distinctive. In addition, DeCA officials said each product accepted for 

sale must earn its place on the shelf and continue to sell well to 

maintain its place in a commissary store and the commissary system. 

When a product is added to DeCAs assortment, a competing product may 

need to be removed to make shelf space available.



In addition, other factors affect whether or not a small business sells 

products through commissaries. The commissary system differs, in part, 

from some large grocery supermarket companies in the following 

respects: the assortment of products, the distances between stores, and 

the costs of distributing products to stores. According to DeCA 

information, DeCAs assortment of products is limited by the physical 

size of commissaries--commissary stores are about one fourth smaller on 

average than typical commercial grocery supermarkets. Also, 

commissaries are shopped intensively twice per month on days after 

military paydays, and DeCA plans its stock assortment to assure that 

commissaries have sufficient quantities of the items in highest demand 

to meet these bimonthly shopping peaks. Due to these characteristics, 

an average commissary stocks about 11,500 items--as much as 40 percent 

fewer grocery items than large grocery supermarkets, according to DeCA 

information. In addition, the wide spacing of commissaries limits their 

sales in regional and local markets compared to other large 

supermarkets chains in metropolitan areas that have high concentrations 

of supermarket stores. Nearly half of all DeCA sales occur at about 55 

of the largest commissary stores distributed across the continental 

U.S. at major military bases. Moreover, DeCA does not have centralized 

warehouses or a product distribution system within the United States, 

as do other large supermarket chains. Therefore, DeCA requires that its 

suppliers deliver or arrange to deliver products for sale, and these 

deliveries must be frequent enough to assure that at least a minimum 

quantity of each product is on the shelf each day. To meet 

these requirements, many of DeCAs suppliers pay a distributor to 

warehouse and deliver products to commissaries. These increased 

distribution costs may affect the decision of a small business to sell 

products through commissaries.



Private Label Products Might Reduce Commissary Prices and Provide Small 

Business Opportunity:



Private label products are successful in the supermarket industry, 

providing quality products at low cost, but DeCA does not now offer 

private label products.[Footnote 14] DeCA officials recognize the 

strength of the industry trends in selling private label products, and 

that commissary customers would likely purchase significant quantities 

of private label products. The sale of private label products would 

also provide some opportunity for small businesses. According to 

officials of the Private Label Manufacturers Association, as many as 

half of the associations membership of 3,200 companies may have 500 or 

fewer employees.[Footnote 15] However, DeCA officials identified 

operational issues that they believe may undercut the benefits of 

having commissaries sell private label products. DeCAs Directors said 

that a study may clarify whether a private label program would be in 

the best interests of commissary customers.



Private label products have become a major form of retail trade in the 

grocery industry. Private label products, such as those sold by the 

major grocery retailers Kroger Co; Albertsons, Inc; Safeway Stores; 

Wal-Mart; and Ahold USA have captured 20.7 percent of supermarket unit 

sales, and 16.2 percent of dollar sales according to industry 

data.[Footnote 16] These and other grocery retailers now use their own 

private labels to sell thousands of products. Examples of private label 

brands include the Kroger Companys Big K brand, Wal-Marts Sams 

American Choice brand, or Safeway Stores Safeway and Lucerne 

brands. In addition, reports[Footnote 17] on the supermarket industry 

indicate that private-label products:



* may capture 24 percent of grocery industry sales by 2006;



* make business sense because they offer a 20 to 40 percent price 

advantage over national brands and, in addition, provide retailers a 35 

to 40 percent margin compared to the 27 percent margin of national 

brands; and:



* are perceived within the industry as promoting customer loyalty to a 

retailer.



Sales of private label products vary significantly by product category, 

and in some categories exceed 30 percent of the sales of a category. 

The top 20 categories of private label product sales are listed in 

appendix IV.



DeCA officials have been considering the industry trend toward private 

label sales. In 1997, a limited evaluation of the private label concept 

by DeCA staff suggested, at that time, that (1) DeCA customers appeared 

to be demographically ideal purchasers of low cost private label 

products, (2) a private label program would be impractical for DeCA 

because it may not reduce overall prices and would require significant 

operations changes; and, (3) it may be necessary for DeCA to respond to 

industry trends by selectively carrying low cost alternative 

products.[Footnote 18] In July 2000, DeCA started its Best Value 

Items program, which offers name brand products at the lowest prices 

DeCA can obtain. The Best Value Items program responds, in part, to a 

commissary customers request to DeCAs director for private label 

products, and the recognition by DeCA that commissaries were at a 

competitive disadvantage compared to private label programs in serving 

some customers, such as its younger service members who desire the 

lowest priced products. As of September 2002, DeCAs Best Value Item 

program contained about 400 items and accounted for about 2.3 percent 

of DeCA annual dollar sales, according to DeCA information.



In discussing the potential for private label products, DeCA officials 

raised concerns about the effects of a private label program that 

require serious consideration. DeCA officials said that the private 

label concept may not increase customer traffic from current levels, 

nor succeed in reducing product costs overall. More specifically, DeCA 

officials noted that the private label concept could be difficult for 

DeCA to initiate, and the DeCAs major suppliers may respond by raising 

prices on products now sold through commissaries and withdraw the labor 

support that they now provide to commissaries. According to DeCA 

officials, there would also be implementation issues such as (1) the 

pricing of products, which may require a change in DeCAs legal 

authority if variable pricing would be helpful; (2) the expense of 

advertising DeCA private label products; and (3) controls over product 

quality. Due to these concerns, DeCA officials have not performed a 

thorough study of the potential for selling private label products.



On the other hand, the Department of Defense has stated that it is 

important for the future of the commissary system to focus on the 

emerging trends in the supermarket industry and for commissaries to be 

positioned to retain their appeal. In addition, the department has in 

the past expressed concern that discount retailing could lead to strong 

competition for military members business in common markets. In 

discussing the potential offered by private label products, as well as 

the issues that would be involved, DeCAs Director concluded that 

although there may be difficulties associated with the application of 

the private label concept to commissaries, it would be reasonable to 

perform a study to determine whether the sale of private label products 

could enhance the commissary benefit overall.



Conclusions:



The legal requirement that name brand products must first be introduced 

through multiple retail operations on at least a regional basis may 

preclude DeCA from purchasing some small business brand name products 

that it may desire to purchase. In addition, this requirement may 

thereby have the effect of lessening the opportunities to implement the 

federal policy of fostering the development of small businesses. We 

recognize that even if this provision is removed from the law or some 

other adjustment is made to the requirement to open the door to the 

consideration of all small business products offered to DeCA, it is 

uncertain whether there will be a positive effect on the sales of small 

business products in commissaries because commissary shelf space is 

limited and open to competition. Nevertheless, a change in the 

requirement could at least open the opportunity for small businesses to 

make the case that their products deserve a place on commissary 

shelves.



Private label products may provide further opportunities for DeCA to 

offer its customers good alternatives in low-cost grocery retailing. 

The growth of private label products in the grocery supermarket 

industry appears to be a compelling trend, with thousands of private 

label products capturing a portion of sales in major national 

supermarket chains, and significant portions of particular product 

categories. Unless the potential for private label products is examined 

more thoroughly than it has been thus far, along with a review of 

implementation alternatives and the issues that can be expected to 

arise if further steps in that direction were to be taken, the 

potential for applying this successful retailing to the benefit of 

commissary patrons will remain in question.



Recommendations for Executive Action:



Because of the potential limitation on small businesses opportunity, 

GAO recommends that the Secretary of Defense consult with the 

Administrator, U.S. Small Business Administration, on the provision of 

law restricting DeCAs consideration of products that have not yet 

achieved regional distribution, and together inform the Congress if 

small business opportunity could be improved by removing or modifying 

the provision.



In addition, to evaluate the potential to better serve commissary 

customers, GAO recommends that the Secretary of Defense perform a study 

to examine the benefits, costs, and implementation issues associated 

with the sale of private label products through commissaries, and act 

on study results, as appropriate.



Agency Comments and Our Evaluation:



We requested comments from the Department of Defense on a draft of this 

report. The department concurred with our recommendations and its 

comments are presented in appendix V. Specifically, the department 

stated that (1) it would consult with the Small Business Administration 

on whether to suggest that the provision of law restricting the 

consideration of products be modified or removed from law; and (2) that 

it will conduct a study in 2003 to assess the potential benefits, costs 

and implementation issues associated with selling private label 

products through commissaries, and act on the results, as appropriate. 

In addition, DeCA officials told us that they agreed with the contents 

of the draft report and they also provided some technical corrections 

and clarifications to the draft report that we incorporated 

as appropriate.



We conducted our review from January 2000 through October 2002 in 

accordance with generally accepted government auditing standards. 

Details of our scope and methodology are discussed in appendix I.



As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days 

from the date of this letter. We will then send copies to other 

appropriate congressional committees; the Secretary of Defense; the 

Director, Defense Commissary Agency; and the Director, Office of 

Management and Budget. We will make copies available to others 

upon request. In addition, the report will be available at no charge on 

the GAO Web site at http://www.gao.gov.



If you or your staff have any questions about this report, please call 

me at (202) 512-3841 or Charles Adams at 202-512-8010 or e-mail us at 

dyckmanl@gao.gov or adamsc@gao.gov. Key contributors to this report are 

listed in appendix VI.



Sincerely yours,



Lawrence J. Dyckman

Director, Natural Resources and the Environment:



Signed by Lawrence J. Dyckman



[End of section]



Appendix I: Objectives, Scope, and Methodology:



To determine the extent to which DeCA requires grocery suppliers to pay 

for shelf space in commissaries, and DeCAs large suppliers select the 

products that are sold by commissaries, we reviewed U.S. Federal Trade 

Commission documents and industry studies concerning slotting practices 

and category management, reviewed DeCA documents, and interviewed DeCA 

and industry officials. More specifically, we reviewed DeCAs basic 

contract with its suppliers, DeCAs performance-based agreements for 

fiscal year 2000 and fiscal year 2001, DeCA category management 

documentation, and studies and reports about DeCAs history, 

organization, and operations[Footnote 19]. At DeCA headquarters at Fort 

Lee, Virginia, we met with DeCAs Director, and interviewed DeCA 

officials including among others, DeCAs General Counsel, category 

management officials, category managers, buyers, and accounting and 

contracting officials. We also interviewed several of DeCA suppliers 

including large distributors as well as individual companies. We also 

visited commissaries located in Texas and Virginia to discuss 

commissary operations and the use and management of commissary shelf 

space. To determine whether small businesses face barriers in selling 

their products in commissaries, we interviewed officials of DeCAs 

Office of Small and Disadvantaged Business Utilization; reviewed DeCA 

correspondence on complains from small businesses; interviewed DeCAs 

regional officials involved in deciding whether the products of small 

businesses would be attractive additions to DeCA selection of regional 

and local products, and officials of small businesses supplying DeCA. 

We contacted over 50 companies and discussed DeCAs use of category 

management, slotting fees, and sales of products from small businesses. 

In addition, we interviewed officials of the Food Marketing Institute, 

several industry trade associations, and the Private Label 

Manufacturers Association.



To estimate commissary sales of the products of small businesses and 

foreign businesses, we obtained a database from DeCA containing 

45,200 products sold through commissaries over the 10-month period 

August 2000 through May 2001. For each product, the file contained the 

products brand name, a commodity description, unit and dollar sales, 

and the Universal Product Code. Also, at our request, DeCA officials 

classified each product as being supplied by either a large or a small 

business based on its knowledge of its suppliers and the industry. We 

drew a random sample of 700 products from DeCAs population of 

products.[Footnote 20] To assist in verifying the identity of each 

company that produced or distributed each product in our sample, we 

obtained information from the Uniform Code Council, Inc., that enabled 

us to identify the company that obtained a products Universal Product 

Code. We then matched DeCAs product information with the corresponding 

information from the Uniform Code Council database. In some cases, the 

matching procedure was unsuccessful, and we used the product brand name 

to identify the company that produced or distributed the product. For 

the products in our sample, we verified the parent companies, the size 

of each company, and identified foreign companies. Our verification of 

the number of employees of each company was based on data obtained from 

business sources available on the Internet and phone calls we made to 

company representatives. We were able to determine the size of the 

company[Footnote 21] and its parent company, if any, and whether it was 

foreign or domestic for 669 of the 700 products we sampled. The 

proportions of small and foreign companies were estimated by 

determining the number of products in the sample associated with each 

firm and then using the collection of relative frequencies of each 

company to estimate the percent of small and foreign companies in the 

population. We also used this information to estimate the numbers of 

products produced by these companies and sold by commissaries, and the 

dollar sales of their products.



[End of section]



Appendix II: Examples of the Terms of DeCAs Performance-Based 

Agreements:



Agreement number: 1; Length of

agreement: 7 months; Performance of promotion activities: 1. DeCA to 

expand bulk sales sections where practical. Space to remain unchanged 

where previously expanded. Specific displays to be added in the two 

largest store categories for 6-month period; 2. Company will continue 

to have a dedicated sales section in stores that excludes others 

products; 3. Two other sets of products to be promoted for 3 months 

each; Basis for payments to DeCA: Company to pay a specified amount 

for achievement of base annual sales volume. In addition, as sales 

increase above the base annual volume, company to pay an 

increasing percent of additional sales (up to 8 percent) to DeCA.



Agreement

number: 2; Length of

agreement: 1 year; Performance of promotion activities: DeCA to provide 

display of specific products at specified commissaries; Basis for 

payments to DeCA: Company to make minimum specified quarterly payments. 

Above minimum target sales, company to increase total payments based on 

pounds of product sold.



Agreement

number: 3; Length of

agreement: 16 months; Performance of promotion activities: Company to 

place freezers in specified number of commissaries for display of 

company products; Basis for payments to DeCA: Company to make 

specified payment at end of performance period.



Agreement

number: 4; Length of

agreement: 1 year; Performance of promotion activities: DeCA to promote 

and display specified products on various timetables such as once per 

quarter, and two times over one year period; Basis for payments to 

DeCA: Company to pay specified amount for each primary display plus a 

bonus based on percent of invoiced dollar sales, with the percent 

increasing at specified sales amounts.



Agreement

number: 5; Length of

agreement: 1 year; Performance of promotion activities: 4. Off shelf 

displays to occur in each of 24 display periods. DeCA to allocate space 

for company to build and maintain displays. Only company brands to be 

placed on company display equipment; 5. DeCA to provide a minimum of 1 

endcap or shop-around display in specified stores. In other specified 

stores, DeCA to provide a table, rack, or other display space for 

company use; 6. DeCA to promote two specific brand products; 7. 

Competitors to have proper allocation of shelf space. Company shelf 

space to be based on sales volume and agreed formula; Basis for 

payments to DeCA: * Company to pay specified quarterly cash payment;  

Company to provide various promotions of a specified value in 

coordination with DeCAs category manager.



Agreement

number: 6; Length of

agreement: 1 year; Performance of promotion activities: DeCA to execute 

specified number of primaries/power buys in various product 

categories; Basis for payments to DeCA: Company to make specified 

payments to DeCA per agreement based on performance. Also, incentive 

payments added when sales reach or exceed 105 percent of base.



Agreement

number: 7; Length of

agreement: 1 year; Performance of promotion activities: 8. DeCA to 

allow racks for display of company products. Rack types specified in 

agreement; 9. Specific products to be displayed in off the shelf 

locations a specified number of times per year; Basis for payments to 

DeCA: Company to pay a specified amount per rack.



Agreement

number: 8; Length of

agreement: 1 year; Performance of promotion activities: DeCA to use 

company display rack at all commissaries for company product; DeCA to 

follow company specified annual promotion plan; Basis for payments to 

DeCA: Company to make specified payments to DeCA for each rack placed 

in use.



Source: GAOs analysis of DeCAs performance based agreements.



[End of table]



[End of section]



Appendix III: Steps in DeCAs Category Management Process:



The basic steps in DeCAs category management reviews, based on 

GAOs analysis of DeCA documents and interviews with DeCA officials, 

are as follows:



1.	 DeCA announces a category review including the goals of the review, 

and invites companies supplying products to supply information and 

analyses of product sales and trends within the category.



2.	 DeCA conducts individual meetings with interested companies, 

including manufacturers, brokers, and broker-distributors, at 

Fort Lee, Virginia. DeCA receives information developed by 

participating companies and listens to company presentations 

and recommendations for the category.



3.	 DeCAs category buyer obtains market information from Information 

Resources, Inc., on the performance of products within the category. 

This information is gathered from cash register scanner data, and it 

shows for each product such data as number of items sold, dollar value 

of sales, and changes from prior periods. The data provides a basis for 

comparative analyses of sales patterns.



4.	 DeCAs buyer analyzes data provided by Information Resources, Inc., 

along with data and recommendations submitted by participating 

companies. Based on the buyers analysis, the buyer prepares a schedule 

of its category decisions indicating which products will be added, 

which will be retained with or without distribution changes, and which 

will be deleted from inventory.



5.	 DeCA officials develop and sign-off on shelving plans called 

plan-o-grams illustrating how nationally distributed products are to 

be arranged and that provide shelf space for products that have been 

specifically selected to meet regional and local demand. These plans 

are used as guides for resetting products on the shelves of individual 

commissary stores. Under DeCAs supervision and with the participation 

of product distributors, brokers, and manufacturers representatives, 

products on the shelves of individual commissary stores are 

periodically reset based on DeCAs display plans.



6.	 DeCA releases its category review decisions and solicits comments 

from companies participating in the category.



6.	0.	 DeCA responds in writing to each company that objects to DeCAs 

decisions (an objection to a DeCA decision is termed a reclama), and 

usually provides a brief explanation for its decision.



7.	 After a 90-day period, DeCA removes deleted items from its 

stock system.



[End of section]



Appendix IV: Top 20 Private Label Product Categories in the Supermarket 

Industry, 2001:



Dollar volume leaders:  1. Milk; Dollar value: $6.4 billion.



Dollar volume leaders:  2. Cheese; Dollar value: 2.3 billion.



Dollar volume leaders:  3. Fresh bread & rolls; Dollar value: 

2.1 billion.



Dollar volume leaders:  4. Fresh eggs; Dollar value: 1.6 billion.



Dollar volume leaders:  5. Ice cream/sherbet; Dollar value: 

1.0 billion.



Dollar volume leaders:  6. Carbonated beverages; Dollar value: 

909 million.



Dollar volume leaders:  7. Juice/Beverages-refrigerated; Dollar value: 

714 million.



Dollar volume leaders:  8. Vegetables; Dollar value: 688 million.



Dollar volume leaders:  9. Frozen plain vegetables; Dollar value: 

680 million.



Dollar volume leaders: 10. Sugar; Dollar value: 629 million.



Dollar volume leaders: 11. Bottled juices; Dollar value: 573 million.



Dollar volume leaders: 12. Cold cereal; Dollar value: 496 million.



Dollar volume leaders: 13. Cups and plates; Dollar value: 486 million.



Dollar volume leaders: 14. Butter; Dollar value: 484 million.



Dollar volume leaders: 15. Canned/bottled fruit; Dollar value: 

446 million.



Dollar volume leaders: 16. Entre/side dishes; Dollar value: 

443 million.



Dollar volume leaders: 17. Food and trash bags; Dollar value: 

433 million.



Dollar volume leaders: 18. Luncheon meats; Dollar value: 415 million.



Dollar volume leaders: 19. Breakfast meats; Dollar value: 408 million.



Dollar volume leaders: 20. Cookies; Dollar value: 407 million.



Source: Information Resources, Inc., data as reported by the Private 

Label Manufacturers Association.



[End of table]



[End of section]



Appendix V: Comments from the Department of Defense:



UNDER SECRETARY OF DEFENSE 4000 DEFENSE PENTAGON WASHINGTON, D.C. 

20301-4000:



PERSONNEL AND READINESS:



DEC 5, 2002:



Mr. Lawrence J. Dyckman:



Director, Natural Resources and the Environment U.S. General Accounting 

Office:

Washington, DC 20548:



Dear Mr. Dyckman:



This is the Department of Defense (DoD) response to the GAO Draft 

Report, GAO-03-160, DEFENSE COMMISSARIES: Additional Small Business 

Opportunities Should be Explored, dated November 4, 2002 (GAO Code 

860028).



The DoD concurs with the overall comments and recommendations in the 

report. Specific comments on the recommendations are enclosed.



Thank you for the opportunity to comment on this report.



David S. C. Chu:



Signed by David S. C. Chu



Enclosure: As stated:



GAO DRAFT REPORT - DATED NOVEMBER 4, 2002 GAO CODE 860028/GAO-03-160:



DEFENSE COMMISSARIES: ADDITIONAL SMALL BUSINESS OPPORTUNITIES SHOULD 

BE EXPLORED:



DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:



RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 

consult with the Administrator, U.S. Small Business Administration on 

the provision of law restricting the Defense Commissary Agencys (DeCA) 

consideration of products that have not yet achieved regional 

distribution, and together, inform the Congress if small business 

opportunity could be improved by removing or modifying the provision.



(p. 16/GAO Draft Report):



DOD RESPONSE: Concur. The Department will consult with the Small 

Business Administration on whether to suggest to the 108TH Congress 

that the provision be modified or removed from the law.



RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 

perform a study to examine the benefits, costs, and implementation 

issues associated with the sale of private label products through 

commissaries, and act on study results, as appropriate. (p. 16/GAO 

Draft Report):



DOD RESPONSE: Concur. The Department will conduct a study in 2003 to 

assess the potential benefits, costs and implementation issues 

associated with selling private label products through commissaries, 

and act on study results, as appropriate.



ENCLOSURE:



[End of section]



Appendix VI: GAO Contact and Staff Acknowledgments:



GAO Contact:



Charles M. Adams, (202) 512-8010:



Acknowledgments:



In addition to the name above, Nancy Crothers, Robert Crystal, James 

Dishmon, Curtis Groves, Frank Papineau, and Sidney Schwartz made key 

contributions to this report.



FOOTNOTES



[1] Exceptions, among others, include breakfast cereal manufacturing, 

fats and oils refining and blending, and specialty canning--1,000 

employees or fewer; and cookie and cracker manufacturing, and cane 

sugar refining--750 employees or fewer.



[2] 10 U.S.C. 2304(c)(5).



[3] Although not required, DOD sets a goal for the portion of DeCA 

resale dollars that small business suppliers are to receive--based on 

the companies with DeCA resale agreements. These companies include 

brokers and distributors (who represent multiple manufacturing 

companies both large and small) and the individual manufacturers who 

deal directly with DeCA. For fiscal year 2002, DeCAs goal was that 

14.5 percent of sales would be attributable to the resale agreements 

with small businesses, and 14.9 percent was achieved.



[4] Federal Trade Commission, Report on the Federal Trade Commission 

Workshop on Slotting Allowances and Other Marketing Practices in the 

Grocery Industry (Washington, D.C.: Feb. 2001). The report stated that 

commission staff prepared it and said It does not necessarily reflect 

the views of the Commission or any individual Commissioner. The 

commissions workshop report contained little information about the 

amounts of the fees and their frequency of use and concluded that much 

more information needs to be obtained about slotting practices.



[5] Commercial bribery occurs when an under the table payment to a 

retailers purchasing agent for placing a product on a store shelf goes 

into the agents pocket.



[6] Federal Trade Commission, Slotting Allowances and the Antitrust 

Laws, Testimony of Willard K. Tom, Deputy Director, Bureau of 

Competition, before the Committee on the Judiciary, U.S. House of 

Representatives (Washington, D.C.: Oct. 20, 1999). In addition, the 

Federal Trade Commission staff report indicates that, among other 

things, the exclusion of competitors is cause for antitrust concern 

only if it impairs the health of the competitive process and that the 

exclusion of individual firms is not a competitive concern if the 

relevant market as a whole remains competitive. The staff report also 

states that this perspective flows from the principle, often repeated 

by the Supreme Court, that antitrust laws are intended to protect 

competition rather than competitors.



[7] Department of Defense, Procurement Management Review: Defense 

Commissary Agency (Washington, D.C.: Nov. 10, 1998).



[8] National Defense Authorization Act for fiscal year 2002.



[9] Information Resources, Inc., is a leading source of statistical 

data on supermarkets and their products. It purchases point of sale 

data for analysis from industry retailers.



[10] We identified the parent company, if any, for 669 of the products 

we sampled. Some 138 small companies, 164 large companies, and 40 

foreign companies supplied these 669 products.



[11] The 1997 data is from the U.S. Census Bureaus 1997 Economic 

Census: Manufacturing Subject Series, the latest economic census 

performed (Washington, D.C.: 1997). The next economic census of U.S. 

businesses is being conducted by the Census Bureau starting in January 

2002 and will be reported starting in 2004.



[12] 10 U.S.C. 2486 (e).



[13] Committee on National Security, House of Representatives, House 

Report 105-132, National Defense Authorization Act for Fiscal Year 1998 

(Washington D.C.: June 16, 1997).



[14] Private-label products are goods produced by a manufacturer under 

contract with a retailer, which distributes them exclusively under its 

own label. Also known as house brands, private-label products let a 

supermarket offer products that can only be found in its stores.



[15] Some large companies that produce name brand products also produce 

private-label products to use excess capacity in their plants.



[16] Information Resources, Inc., as reported by the Private Label 

Manufacturers Association for 2001.



[17] Standard and Poors, Supermarkets and Drugstores (New York, N.Y.: 

Aug. 2001).



[18] Analyses of the financial issues and alternatives for implementing 

a private label concept were not included.



[19] For example, we reviewed reports pertinent to DeCA operations, 

relationships with its suppliers, and operations including: SRA 

International et al., Category Management Survey Final Report, 

(Arlington, Va.: May 7, 1997) prepared for DeCAs Marketing Business 

Unit; and the Jones Commission, Office of the Assistant Secretary of 

Defense, DOD Study of the Military Commissary System, (Washington, 

D.C.: Dec. 18, 1989).



[20] Because we followed a probability procedure based on random 

selections, we are 95 percent confident that the confidence intervals 

in this report include the true values in the population. 

All percentages we derived have confidence intervals that extend no 

more than 10 percentage points away from estimates, as do our numeric 

estimates, unless otherwise noted. We used a resampling technique to 

derive the 95 percent confidence intervals around the estimated 

proportions of small and foreign parent companies. To do this, we 

generated 1,000 repeated samples (resamples) of the same size as the 

original sample (669), each time selecting products with replacement 

from our original sample of products. The proportion of small and 

foreign parent companies was calculated for each resample, generating a 

distribution of 1,000 resampled percentages. We computed the 2.5% and 

97.5% percentile points of this distribution and used them as the 

endpoints of our 95% confidence interval. Estimates and associated 

confidence intervals for (1) the proportion of products from small and 

foreign parent companies, (2) the total number of products from these 

companies, and 3) the percent and total sales dollars of products sold 

were derived using standard statistical estimation procedures.



[21] Our classification of the size of companies was based on 

information from the U.S. Small Business Administration.



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