In Uniform

Defense officials appear ready to ask Congress to repeal a law that commissaries must sell products at cost plus 5 percent, a formula that for decades has ensured commissary shoppers everywhere pay the same prices.

Officials have drafted a replacement formula that would allow prices to vary from store to store to meet a new twin goal: reducing taxpayer support for commissaries while maintaining still attractive savings for patrons.

Variable pricing would seek to keep savings consistent across the commissary system by pegging local commissary prices for a market basket of goods at some target percentage level below prices of “lowest-price” competitors nearby such as Wal-Mart stores.

Critics of the plan, including suppliers and manufacturers of commissary products, say it would cut shopper savings overall and hit particularly hard those patrons who live in high-cost areas of the country.

That’s because setting grocery prices at, for example, 15 percent below competitive off-base retailers would affect shoppers differently if assigned to high-cost San Diego than to low-cost Fort Sill, Oklahoma. Military members of equal rank and years served get the same basic pay regardless of location. If grocery prices are set not by cost but tied to local prices, the San Diego shopper would see a higher proportion of pay go to groceries than the shopper at Fort Sill where food prices, on and off base, are lower.

Defense officials contend, however, that through variable pricing shopper savings can be preserved and stores can operate with business-like efficiency. That, in turn, would allow cuts in the $1.4 billion annual appropriation of the Defense Commissary Agency, an announced goal of the department for the past couple of years.

“DoD’s stated objective all along has been to reduce appropriations for the commissary benefit,” said Candace Wheeler, spokesperson for The Coalition to Save Our Military Shopping Benefits, which includes groups representing suppliers and manufacturers of good for military stores as well as military associations and national veterans organizations.

“The problem is that their ‘business speak’ does not match their ‘budget speak’ ” Wheeler said. Defense officials use “a myriad of business arguments … about a better commercial approach. The fact is they want to increase the costs to military patrons and make them feel good about it.”

The idea of replacing cost plus 5 percent with variable pricing is presented in the DoD’s “draft” response to recommendations for reforming on-base store operations from the Military Compensation and Retirement Modernization Commission, which released its report last January.

Defense officials intend to reject, at least for now, the commission’s call to consolidate DeCA and the three military exchange services into a single defense resale system. They note that DeCA and exchange services, which run base department stores and a host of other retail outlets, serve different purposes. Commissaries offer groceries at a discount and rely on appropriated funds. Exchanges sell products and services that generate profits and help to fund on-base morale, welfare and recreational activities. Exchanges get little taxpayer support. Indeed, the deeper discounts offered at commissaries help to attract exchange customers.

A merger now, before adopting common business processes and developing a solid business plan, would be impractical, officials contend. But they also assert that with some legislative relief, including repeal of cost plus 5 percent pricing, they can maintain current shopping benefits and achieve efficiencies that “result in significant savings for the taxpayer.”

To do this they need more flexibility in how commissary products “are sourced, where they are sold and how they are priced.” This would free commissaries “to adopt best commercial practices and act in a more business-like manner without reducing the benefits” to shoppers.

Requiring that all goods be sold at cost plus a 5 percent surcharge is a disincentive to efficient business practices, the DoD’s draft document says. Any retailer forced “to charge the same markup across its entire stock assortment will not be able to achieve the same efficiencies as a private-sector entity operating within a profit-driven market,” it says.

Congress ordered the DoD a year ago to commission a study of the military resale system by business experts who could propose changes to make stores more efficient while preserving the benefit. That study by the Boston Consulting Group is almost complete. An early draft runs to 270 pages and identifies actions to save DeCA by as much as $700 million a year.

Topping its list of “win-win opportunities” for taxpayers and patrons is transition from cost plus 5 percent to variable pricing. This would allow the introduction of private label goods if Congress removes a mandate that commissaries can stock only national brands. Commercial grocers use private labels to offer lower prices and raise profit margins. DeCA could too, it says.

Current commissary pricing, it says, prevents DeCA from capturing any profit besides the 5 percent surcharge. That means DeCA, in effect, incurs a loss on each transaction. With cost plus, it says, higher sales mean higher costs, a perverse incentive for retailers. That leaves DeCA with few levers to pull to cut costs that aren’t negative for shoppers, such as reducing store hours. It also dampens its incentive to lower prices because that would mean lower surcharge revenue on which it relies to modernize stores.

Critics say many costs targeted by consultants actually are the unavoidable expense of delivering a prized shopping benefit to the military.

One part of the Boston Consulting Group study that can’t thrill DeCA casts doubt on its claim of 30 percent average savings. Most patrons don’t believe that claim, the report says citing its own survey, and the claim doesn’t survive price comparisons with popular grocery stores off base.

“When compared to the lowest priced nearby competitor, we believe most patrons are actually experiencing 15 percent (to) 20 percent savings in (continental U.S.) locations,” the report says.

It cautions against narrowing savings too sharply, however. One finding of its patron survey is that a 5 percent price increase would shift 30 percent of commissary spending elsewhere.

To comment, write Military Update, P.O. Box 231111, Centreville, VA, 20120 or email milupdate@aol.com or twitter: @Military_Update.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Local News

Trader Joe’s customers walk in and out of the store on Monday, Nov. 20, 2023 in Everett, Washington. (Olivia Vanni / The Herald)
New Trader Joe’s opens this week at Everett Mall

It’s a short move from a longtime location, essentially across the street, where parking was often an adventure.

Ian Bramel-Allen enters a guilty plea to second-degree murder during a plea and sentencing hearing on Wednesday, March 6, 2024, at Snohomish County Superior Court in Everett, Washington. (Ryan Berry / The Herald)
‘Deep remorse’: Man gets 17 years for friend’s fatal stabbing in Edmonds

Ian Bramel-Allen, 44, pleaded guilty Wednesday to second-degree murder for killing Bret Northcutt last year at a WinCo.

Firefighters respond to a small RV and a motorhome fire on Tuesday afternoon in Marysville. (Provided by Snohomish County Fire Distrct 22)
1 injured after RV fire, explosion near Marysville

The cause of the fire in the 11600 block of 81st Avenue NE had not been determined, fire officials said.

Ashton Dedmon appears in court during his sentencing hearing on Tuesday, March 5, 2024, at Snohomish County Superior Court in Everett, Washington. (Ryan Berry / The Herald)
Everett Navy sailor sentenced to 90 days for fatal hit and run

Ashton Dedmon crashed into Joshua Kollman and drove away. Dedmon, a petty officer on the USS Kidd, reported he had a panic attack.

A kindergarten student works on a computer at Emerson Elementary School on Wednesday, Feb. 28, 2024, in Everett, Washington. (Ryan Berry / The Herald)
‘¡Una erupción!’: Dual language programs expanding to 10 local schools

A new bill aims to support 10 new programs each year statewide. In Snohomish County, most follow a 90-10 model of Spanish and English.

Logo for news use featuring the Tulalip Indian Reservation in Snohomish County, Washington. 220118
Woman drives off cliff, dies on Tulalip Reservation

The woman fell 70 to 80 feet after driving off Priest Point Drive NW on Sunday afternoon.

Everett
Boy, 4, survives fall from Everett fourth-story apartment window

The child was being treated at Seattle Children’s. The city has a limited supply of window stops for low-income residents.

People head out to the water at low tide during an unseasonably warm day on Saturday, March 16, 2024, at Lighthouse Park in Mukilteo, Washington. (Ryan Berry / The Herald)
Everett shatters record high temperature by 11 degrees

On Saturday, it hit 73 degrees, breaking the previous record of 62 set in 2007.

Snohomish County Fire District #4 and Snohomish Regional Fire & Rescue respond to a motor vehicle collision for a car and pole. The driver was pronounced dead at the scene, near Triangle Bait & Tackle in Snohomish. (Snohomish County Sheriff’s Office)
Police: Troopers tried to stop driver before deadly crash in Snohomish

The man, 31, was driving at “a high rate of speed” when he crashed into a traffic light pole and died, investigators said.

Alan Dean, who is accused of the 1993 strangulation murder of 15-year-old Bothell girl Melissa Lee, appears in court during opening statements of his trial on Monday, March 18, 2024, at Snohomish County Superior Court in Everett, Washington. (Ryan Berry / The Herald)
31 years later, trial opens in Bothell teen’s brutal killing

In April 1993, Melissa Lee’s body was found below Edgewater Creek Bridge. It would take 27 years to arrest Alan Dean in her death.

Logo for news use featuring the municipality of Snohomish in Snohomish County, Washington. 220118
Man dies after crashing into pole in Snohomish

Just before 1 a.m., the driver crashed into a traffic light pole at the intersection of 2nd Street and Maple Avenue.

Bodies of two men recovered after falling into Eagle Falls near Index

Two men fell into the falls and did not resurface Saturday, authorities said. After a recovery effort, two bodies were found.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.