Study: Increasing Commissary Prices 29% Won't Make Up $1B Budget Cut

Going forward with a Defense Department plan to increase commissary prices by 29 percent is unlikely to make up for a $1 billion budget cut to the system because it will likely reduce commissary sales and hurt revenue, a new study found.

"Raising overall price levels will likely not be a successful strategy to cover shortfalls in costs caused by the elimination of the annual U.S. Department of Defense appropriation," the RAND Corporation study says. "Raising prices will likely negatively affect service members and retirees who currently patronize the commissary system through increased grocery bills."

Researchers were tasked by the Defense Department with examining how price increases have impacted those civilian stores and how they might impact the Defense Commissary Agency (DeCA), as well as their "secondary" effects on retention, Morale Welfare and Recreation (MWR) and recruitment. The study, conducted with DoD funding and released March 27, based its conclusions on how civilian stores would likely perform under such a plan, combined with information from previous studies on commissary shopper habits.

Based off that evidence, the researchers concluded that a price increase would drive many current commissary patrons to visit the commissary less frequently, purchase fewer items when they do shop there and increase their shopping at more convenient stores off base. That trifecta, they said, would not only impact the amount of revenue DeCA can bring in, making it more difficult to cover their costs at all, but would also impact the amount of money service members and retirees are spending on their groceries.

DeCA operates 245 stores worldwide. By law, goods there are sold at cost plus a five percent surcharge, which covers store maintenance and construction. The commissary yearly receives $1.3 billion in tax-payer funding, the majority of which covers employee compensation and the shipment of groceries to rural and overseas locations.

The Defense Department is seeking to cut that budget by $1 billion over several years while making up for the funding shortfall by raising prices. In a separate proposal, a congressionally mandated committee early this year suggested combining the commissary and exchange systems as a means of maintaining the current commissary pricing structure.

DeCA officials report that commissary prices are, on average, about 30 percent below the cost of identical products at off-base stores. Previous studies, however, have shown that shoppers perceive the savings to be closer to 20 percent. The result, the report warns, is that a 29 percent increase in prices within the store would entirely eliminate the value of the benefit to many shoppers.

"As the perceived difference in price levels between commissaries and substitute stores decreases, a large price change will be more likely to induce substitution to alternative retailers," the study says.

And since out of pocket costs to service members would increase, the DoD may need to raise the amount it spends on cost of living adjustments in certain areas, the report says. They may also have a harder time recruiting and retaining troops who see the commissary as part of their benefits package. And on-base benefits, such as MWR, which rely on funding from the exchange system, could suffer since those stores would see lower traffic as fewer people came on base to shop.

Officials with the Coalition to Save Our Military Shopping Benefits, a commissary advocacy group, agreed with the report's findings.

"While the RAND report is correct in pointing out flaws in DoD's arguments and major second and third order effects of destroying this benefit, it only scratches the surface of the major consequences of pulling the rug out from under a very successful program that delivers so much to so many for so little," said Candace Wheeler, a coalition spokesperson. "DoD is sailing in dangerous and uncharted waters and Congress needs to look behind the curtain and examine DoD's proposal to cut off the blood flow to services cherished and valued by millions of military, particularly young families and fixed income retirees."

Officials Defense Department declined to comment on the report.

-- Amy Bushatz can be reached at amy.bushatz@military.com