Commissaries to be run as business, not benefit

Behind the plan to slash taxpayer support of commissaries is a concept Defense Secretary Chuck Hagel and his senior advisers have embraced: that base grocery stores should operate as a business and not a benefit.

This shift is candidly revealed in budget documents released Tuesday and in a legislative packet for implementing the funding cuts drafted by the Defense Commissary Agency.

The documents make clear that individual stateside commissaries will survive only if they produce enough revenue to cover operating costs.

Hagel gave a softer summation to the Senate Armed Services Committee on Wednesday.

“We are not shutting down any commissaries. We recommend gradually phasing out some subsidies but only for domestic commissaries that are not in remote locations,” the defense chief said. Because stateside stores “will continue to operate tax-and-rent free, they will still be able to provide people with a very good deal.”

Resale industry officials and military associations dispute this and predict closure of most stateside commissaries. Only stores overseas and at 25 remote stateside bases would be funded after fiscal 2017. The Defense Commissary Agency’s annual appropriation of $1.4 billion would be cut by then to $400 million.

That’s enough to offer shoppers savings of 10 percent off “high priced private grocery stores,” the budget documents estimate. Savings would be even “more modest” in comparison to prices at “discount grocery chains.”

“In the end, patron usage of the commissaries will determine the savings and their comprehensive advantage,” explains the “overview” report from the Obama administration on its 2015 defense budget request.

Commissary shoppers now save an average of 30 percent compared to prices for a range of private sector grocery stores, the Defense Commissary Agency said. The hit to those savings would be felt “worldwide,” budget documents explain.

The draft implementing legislation has a telling description of commissaries run as businesses. Criteria for opening and closing stores, it says, would make cost recovery “the primary factor for their existence, as opposed to the needs of active duty members and their families or the welfare of the military community.”

That statement captures what’s ahead for a long prized benefit if Congress adopts the plan in the budget, said an industry official. He described the plan as carelessly conceived and devastating to the “ecology” of base stores, both exchanges and commissaries.

There were no signals of stiff resistance from the Senate Armed Services Committee on Wednesday when Hagel and Army Gen. Martin Dempsey, chairman of the Joint Chief, detailed the new budget with its sweeping changes impacting commissaries and the Tricare program.

Sen. Saxby Chambliss, R-Ga., called commissaries a “core benefit” that contributes “greatly to recruitment and retention, even though I am one of those who thinks [troops] may get just as good a deal at some other retail outlets around the country.” Encouraging commissaries “to act more like a business … makes sense. I agree with that,” Chambliss said.

But the senator questioned whether changes to this benefit should be delayed until the Military Compensation and Retirement Modernization Commission make its report in February 2015. He and Sen. Mark Warner, D-Va., have introduced a bill to mandate such a delay.

Hagel and his comptroller Robert Hale explained that some savings from compensation reforms are needed now because budget cuts already are impacting training, troop support and overall readiness.

Hagel noted that exchanges operate on the same business model and are successfully self-sustaining. So senior leaders, relying on “significant analysis,” decided “we knew enough about where we thought we’re going to have to eventually go with commissaries,” Hagel said.

On Feb. 24, the day Hagel first unveiled highlights of the budget with its plan for commissaries, he recognized “senior enlisted leaders in each of the services for [their] help and input in crafting this budget.”

Two days later, however, some of those enlisted leaders told a House appropriations subcommittee that their support for compensation reforms didn’t extend to the deep hit on the commissary benefit.

Sergeant Major of the Marine Corps Micheal Barrett and Chief Master Sergeant of the Air Force James Cody noted that young families in particular depend heavily on the shopping discounts.

Barrett called it “ridiculous that we’re going to go after something that saves some young lance corporal, an E-3, $4,500 a year.” If that E-3 has two kids, he added, “and every time he shops it’s $240, well unbeknownst to him he just put $80 worth of gas into his car.”

Base exchanges could also be at risk, say industry officials. Their profits already are stressed by base closures overseas, deep force cuts, and minimum wage hikes on service contracts. The plan for commissaries would deepen these challenges by reducing shopper traffic on base and by allowing commissaries to offer products now sold only in exchanges.

The Defense Commissary Agency’s implementing legislation shows commissaries would operate far different than they do today. A surcharge of at least 5 percent would still be collected on goods sold. But to capture more revenue, the Defense Commissary Agency seeks authorities to run its stores like very much like commercial supermarkets.

That means a broader mix of products including beer and wine. Restrictions would be lifted on sale of generic or local goods to compete with brand names. A legal requirement to sell goods at cost would end so prices could climb as needed and would vary from store to store.

The Defense Commissary Agency could advertise to try to keep patrons and hire private contractors to operate specific store functions. It also wants relief from “socio-economic” laws that dampen savings, including a requirement to buy certain supplies and services from nonprofit employers of persons who are blind or have other significant disabilities.

Next week: How the administration would transform Tricare.

Send comments to Military Update, P.O. Box 231111, Centreville, VA, 20120, email or twitter: Tom Philpott @Military_Update

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