Reformers Urged Not to Redefine Commissary 'Savings'

Advocates for preserving the military commissary benefit warned a House subcommittee Wednesday to avoid reforms that promise to preserve current savings for patrons but instead change how savings are measured, creating a lesser benefit that shoppers over time might reject.

Advocates for service families and the military resale industry also criticized the tools that commissary reformers want tested to make base grocery stores cheaper to operate: variable pricing and private label brands.

Last October the Department of Defense finally agreed with congressional leaders that current commissary savings must be preserved as a condition for enacting reforms that would force stores to run more like commercial grocers in order to slash annual taxpayer support of $1.4 billion.

But advocates for commissaries advised the House armed services' military personnel subcommittee that they know "protecting the benefit" has multiple meanings.  What they want preserved are the 30 percent savings on groceries the Defense Commissary Agency (DeCA) has touted for years, and verifies using item-by-item price comparisons across thousands of products.

"Any proposal to alter the commissary operating structure or reduce its funding level must [also] preserve the savings," said Eileen Huck, deputy director of government relations for National Military Family Association.

Brooke Goldberg, deputy director of government relations for Military Officers Association of America, joined Huck in complimenting the Defense Department for making benefit preservation a priority of commissary reform.

"We hope this includes using DeCA's current market-basket calculation methods for savings," Goldberg added.  "It's important to not reinvent what the patron benefit is. If DoD uses new metrics to determine current savings levels, [then] going forward we will not be measuring apples to apples."

Peter Levine, deputy chief management officer for the Department of Defense, conceded last fall that earlier department proposals to reform commissaries focused primarily on saving money, as critics charged.

Levine promised a more gradual approach to commissary reform, guarding the benefit by initially testing concepts like variable pricing to replace a requirement that commissary goods be sold at cost plus a five- percent surcharge and one more percentage point to cover spoilage costs.

He said the plan likely would include authority to adopt "private label" or commissary-brand products to be sold alongside national brands as a way to increase profits while offering patrons even lower prices.

The department also will seek authority to convert commissaries to non-appropriated fund (NAF) activities such as for-profit exchanges. And a new defense retail board would be tasked to drive new efficiencies and adopt common business practices across all base stores.

Many of the recommendations are from a DoD-funded review of commissary operations completed in September by Boston Consulting Group (BCG).  Rep. Joe Heck (R-Nev.), subcommittee chairman, arranged for Levine and BCG representatives to discuss their ideas in closed-door meetings with the subcommittee late last year.

Wednesday he invited a few military associations and representatives from the military resale industry to sound off on the BCG report, including its call to sell private label brands and to vary store prices by base or by region.

Patrick B. Nixon, president of the American Logistics Association, which represents manufacturers, distributors and brokers of products sold in commissaries and exchanges, said patron confidence in current commissary pricing is "rock solid."  They know they pay cost plus a surcharge, regardless of what commissary they shop, and shelves are stocked with quality name brands, reflecting customer preferences in the private sector retail market.

"Its strength is predictability," Nixon said. "In a pilot that proposes to change product pricing, whether by store or region, can you improve on he current level of predictability?  If you introduce a private label program that requires a retailer to price, position and promote a product line [to spark] artificial customer preference in order to make a profit, can you improve on the current level of predictability?  What are you going to tell the patron?"

To ensure that their brands sell well in commissaries, manufacturers spend almost $500 million a year stocking shelves, promoting and displaying goods, managing inventories and holding special on-base events.  If DeCA creates private label products to compete with brand names, it will have to hire its own employees to stock and promote these goods.  In time, brand name manufacturers could decide to turn off that $500 million tap, warned Tom Gordy, president of the Armed Forces Marketing Council, which represents manufacturers of consumer products sold on base.

The BCG study failed to take account of how industry would react to commissaries promoting private label products, Gordy said.

"They are missing a major piece of the pie here," he added.

Heck hinted he favors at least testing the cost-lowering initiatives raised by the Boston Consulting Group including variable pricing of products using local prices off base.  If the target for patron savings stay at 30 percent, for example, Heck said, a commissary in San Diego still could price items higher than a commissary in Mississippi, and patrons at both stores could see 30 percent savings compared to prices off base.

Huck said her association opposed that idea because, apart from housing allowances, military pay doesn't change when families are assigned to higher cost areas.  So variable pricing would disadvantage these families.

Lawmakers seemed to divide over the reforms discussed.

Rep. Tim Walz (D-Minn.) said military lives are complicated enough without having to worry about shifting prices at their commissaries.

"Since I've been on this committee I've had more opportunity to look for cost savings in the commissaries than in the F-35 [Joint Strike Fighter program], said the retired Army National Guard command sergeant major.

Rep. Mike Coffman (Colo.), a retired Marine Corps Reserve officer, said he supports the reforms discussed, saying they won't harm the benefit but only threaten those who "run the system…We've got to challenge government to deliver services more efficiently.  And no area…ought to be immune."

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