Ex-commissary chief warns defense cuts could topple resale system
By Tom Philpott | Special to Stars and Stripes | Published: April 24, 2014
A retired Army sergeant first class living in Northeast El Paso, Texas, says he and his wife will stop shopping on Fort Bliss if the Department of Defense, as planned, allows commissary prices to climb within 10 percent of local grocers.
“I am not the only one here who thinks the same way,” said Louis Lindemann. “By the time we pay for gas alone, we could go to the local Albertson’s or the Walmart food store around the corner. The commissary already has a number of items we can purchase cheaper on the economy.”
His email arrived moments after I had concluded a phone interview with retired Army Major Gen. Richard E. Beale Jr., former director of the Defense Commissary Agency (DeCA), who believes Lindemann is correct.
So many retirees, Reserve and Guard members and even active duty families would stop shopping on base, if DOD is allowed to slash commissary budgets, that the entire military resale system would be at risk, Beale said.
Defense Secretary Chuck Hagel, backed by the Joint Chiefs of Staff, wants DeCA’s annual appropriation of $1.4 billion cut to $400 million by 2017. Average shopper savings of 30 percent would fall to 10 percent as commissaries become self-supporting like the military exchange systems.
Beale, who led DeCA from 1992 to 1999 both as an officer and as the agency’s first civilian director, said such a deep cut is enormously risky.
“The role of the dice is not just on whether the commissaries will survive, it’s whether the entire system can survive,” including exchanges and the on-base quality-of-life programs that exchange profits now support.
“I certainly understand the predicament in which our civilian and military leaders find themselves,” Beale said to begin our interview. With defense budgets squeezed and automatic cuts threatened if Defense officials don’t identify enough cuts on their own, “there are no good choices.”
However, Beale said, leaders are mistaken to assume commissaries can be converted into self-supporting stores and still offer discounts that attract enough customers to sustain a low-cost grocery benefit.
“What makes the commissary benefit are the appropriated dollars,” Beale said, urging me to underscore the point. “And every dollar you take away from the appropriation is a dollar out of service members’ pockets.”
Defense officials believe by 2017 they will only need $400 million a year for commissaries, to transport goods to stores overseas and to subsidize stores in remote stateside locations. Otherwise, stores can operate on their own if prices are raised, and average savings lowered, from 30 percent to 10.
What they overlook, Beale said, is how critical robust commissary savings are to exchange operations. Traditionally, 35 to 45 percent of exchange shoppers are enticed to shop on base by commissary savings, where food prices are set at cost plus a five percent surcharge.
If those prices climb 20 percent to be able to pay staff salaries and other costs, not only would the number of commissary patrons fall sharply but also exchanges would see their businesses plummet, Beale predicted.
“Can you put commissaries on a cost-recovery basis using a business model like the exchanges and JC Penny and Walmart? In theory yes,” Beale said. “In reality the answer probably is no.”
The big reason is patrons won’t accept it.
“Every dollar you take away from the appropriation has to be paid by someone. That someone, in this case, is the patron,” Beale said, “because DeCA has no other way of raising revenue.”
Without hefty savings, many retirees, Guard and Reserve personnel and even active duty families living far from base have little incentive to drive past their local supercenters and grocery stores to shop on base.
Another reason the idea is risky, Beale said, is that as food discounts narrow and sales drop, commissary suppliers will raise product prices to try to offset lost profits.
Beale recalled that while he was DeCA director, the agency also was under enormous pressure to reduce its appropriations. That’s when it began using a nationwide estimate of average shopper savings to tout the benefit.
“The notion of 30 percent savings on groceries for the military community was a useful sound bite, slogan, bumper sticker and rally cry,” he said. But “it has now created a perception of a standard which can be trimmed with minimum consequences.”
The 30-percent savings estimate is derived by comparing DeCA’s Basic Ordering Agreement price points, as offered by suppliers, with pricing strategies used by grocery chains. But what commissary shoppers actually save varies widely by region based on local food prices, Beale explained.
“For example, in my last year at DeCA when the published national savings exceeded 29 percent, the Southern Region savings were in the low 20’s whereas in the Northwest-Pacific region savings were in mid-30’s. And so it went across the country,” Beale said.
More than half of active duty forces and retired military live between Tidewater, Va., and East Texas, he said, where actual commissary savings are “much lower than the published national average. I have maintained that position personally since I was the director. Publicly, I stuck with the party line. In retrospect, that may have been a mistake.”
It means that if commissary prices are allowed to pop by 20 percent over the next three years, shoppers in the south and southeast are likely to see their discounts from shopping on base all but disappeared.
“Basing budget decisions for DeCA, and the welfare of service members, on an average national commissary savings figure is about as useless as trying to calculate an average supplement for basic housing allowances by relying upon a single nationwide figure for cost of housing,” Beale said.
And so a figure used for the last 15 to 20 years to help justify the commissary benefit is now used to justify reducing it, he said.
A better figure for leaders to weigh today might be “one quarter of one percent of the defense budget.” That’s all that’s needed, he said, to preserve a benefit the U.S. military has enjoyed, in some form, for the past 189 years.