DOD plan would ‘destroy’ commissaries, industry representatives say

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The entrance to the commissary at Ramstein Air Base, Germany. The American Logistics Association says that a fiscal 2016 budget request would slash taxpayer support of base grocery stores enough to “destroy” the shopping benefit. (Joshua L. DeMotts/Stars and Stripes)
The entrance to the commissary at Ramstein Air Base, Germany. The American Logistics Association says that a fiscal 2016 budget request would slash taxpayer support of base grocery stores enough to “destroy” the shopping benefit. (Joshua L. DeMotts/Stars and Stripes)

DOD plan would ‘destroy’ commissaries, industry representatives say

by: Tom Philpott | .
Special to Stars and Stripes | .
published: February 20, 2015

The Defense Department’s fiscal 2016 budget request would slash taxpayer support of base grocery stores by $322 million in 2016 and by $1 billion next year, enough to “destroy” the shopping benefit, warns the American Logistics Association.

ALA, which represents manufacturers, distributors and brokers of products sold in commissaries and base exchanges, released a position paper that contrasts DoD’s plan to “wreck” commissaries with less onerous recommendations of a blue-ribbon panel to consolidate all base store operations to gain efficiencies.

That would seem to leave Congress with an easy choice.  But the Army and Air Force Exchange Service warns in its own position paper that the store consolidation path laid down by the Military Compensation and Retirement Modernization Commission won’t produce the savings it touts.

AAFES says requiring the three exchange services, including Navy and Marine Corps store systems, to merge with Defense Commissary Agency (DeCA) into a new Defense Resale Activity would add near-term costs of $466 million, which wouldn’t be recouped through efficiencies for “85 years.”

That is no typo.  AAFES says the commission’s plan to integrate four “companies” that provide shopping discounts on base could take six to nine years to execute.  Meanwhile, it says, AAFES stores alone would suffer “lost improvements” over that span of $45 million to $80 million a year.

On the commission idea that exchange profits be used to fund commissary and other store operations that historically have been backed by defense appropriations or tax dollars, AAFES warns it lower or eliminate exchange “dividends” which for decades have paid for base morale, welfare and recreational activities such as gymnasium and libraries.

Analysts at the Pentagon are studying whether to recommend replacing or modifying DeCA budget plans based on the commission’s report.

Other commission ideas also would have unintended consequences, AAFES says.  For example, trying to preserve shopper savings at commissaries by allowing base grocers to sell items now sold only in exchanges would “cannibalize exchange sales, earnings and MWR dividends.”

AAFES cites studies showing that up to 60 percent commercial store mergers “destroy or fail to create value as expected.”  Such mergers typically save the equivalent of a third of one percent of sales.  AAFES warns to expect even less savings from consolidating military systems, which have no brands to merge, no tax relief to gain and no unprofitable stores to eliminate.

And yet the military resale industry nearly howls with delight at the consolidation idea versus DoD’s budget plan to gut commissary funding.

“The President’s own Commission report stands in stark contrast to the President’s own 2016 budget” which “would destroy these valuable benefits,” ALA argues.  “The Commission seeks to sustain these benefits and calls for management efficiencies to be implemented instead of diminishing the savings that patrons now realize.”

One commissioner, retired Air Force Lt. Col. Michael Higgins who served an even longer second career as professional staff on compensation for the House Armed Services Committee, warned in testimony this month that commissaries will remain under attack if operations aren’t consolidated.

“There should be no illusions that DOD is not going to come after commissary money year after year after year…You are going to have a very difficult time here in the Congress protecting commissary funding.  That means services are going to erode.”

The commission seeks to preserve the sale of groceries on base at cost-plus-a-five-percent-surcharge, Higgins said.  But if store hours drop and days that stores are open are cut, he warned, commissary shoppers will go elsewhere and “the exchanges are going to take a terrible hit.”

“We need to reform [to] a single manager” to be able “to negotiate deals that protect MWR funding.  We can do that,” Higgins told Congress.

The president’s budget goes down the path he warns against.  It reflects the Joint Chiefs of Staff desperate search for budget trims to help stay a freefall in readiness from the mindless cost-cutting formula of sequestration.  Congress adopted sequestration in 2011 and has lacked the courage to repeal it by reaching a compromise that will both slow spending on entitlements and close tax loopholes for the wealthy and special interests.

Commissary funding, in this environment, is a ripe plum to pick.  The defense budget request would do so in stages, explained Joseph Jeu, DeCA’s director, in a budget memo drafted for an under secretary of defense.

First, DeCA would lower its $1.4 billion budget by $183 million through administrative actions, saving $29.5 million by cutting store hours; $4.5 million by closing stores on holidays; $58.2 million by reducing days stores are opened and $18.8 million by cutting staff.

Store staffs would be cut by an average of six employees next year.  The number of days commissaries open would be cut a day or two per week across 183 locations.  If a base would want to keep its store open longer than DeCA proposes, it would have to find the money in its own budget.

DOD proposes securing an additional $139 million in DeCA savings next year through legislation.  It seeks authority to raise prices enough to pay the cost of shipping products to stores overseas.  It also wants a change in law so DeCA can pay for store supplies from surcharges collected at checkout.  This presumably would lower the amount of money available to maintain commissaries and to build new ones.

The $1 billion cut to DeCA in 2017 would force most stateside stores to become self-sustaining, which would mean deep cuts to shopper discounts. Commissaries also would have to sell items they cannot today, including beer and wine, gift cards and greeting cards, which would put exchange profits at risk.  DeCA also would have to advertise heavily, budget documents explain, to be able to persuade patrons that shopping on base still has value.

This same legislative package was proposed last year and Congress ignored it.  Without sequestration relief, it will be harder to ignore this year.

To comment, write Military Update, P.O. Box 231111, Centreville, VA, or email milupdate@aol.com or twitter: Tom Philpott @Military_Update

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