Despite congressional criticism, and charges by military associations of benefit tampering, the Department of Defense has hired consultants to do a quick study on use of "variable pricing" in base grocery stores.
By law, commissary items are sold at cost plus a 5 percent surcharge, which is used to renovate and replace aging stores. With variable pricing, items could be sold above or below cost. But to test the concept, the Bush administration needs to win approval from a skeptical Congress.
The $500,000 study began Jan. 12 and has a tight deadline. A final report is due to the Defense Commissary Agency (DeCA) by Feb. 27.
"If the study says variable pricing won’t work in commissaries, we won’t pursue it," said DoD officials in written responses to questions posed by Military Update.
John McHugh, R-N.Y., chairman of the House Armed Services Subcommittee that oversees military stores, said he worries that the department seeks to raise store prices and use the revenues to reduce the $1.2 billion that the department spends on commissary operations annually.
"The clear danger of variable pricing is that where you charge less (for some items), you’re inclined in other areas to charge more," he said. "And if what you’re trying to do is find justification to cut appropriations to commissaries, you use it as a means to increase revenues."
Defense officials said variable pricing, in theory, should provide "greater flexibility to manage the overall savings that customers receive."
This administration is the first to adopt a specific 30-percent savings goal for commissary shoppers. Some critics note that the average savings now is 32 percent over commercial grocers. By replacing cost plus 5 percent with variable pricing, they suggest, DoD could convert any savings now over 30 percent into revenues via higher prices. Rather than stay in shopper pockets, the money could reduce the $1.2 billion subsidy.
Defense officials admit to trying to lower the subsidy. But they contend variable pricing could create a "better commissary benefit."
The House Armed Services Committee will oppose any initiative that would raise prices or reduce the commissary subsidy, McHugh said. Besides being a threat to shopper savings, variable pricing could change the character of commissary shopping.
"It goes contrary to the across-the-board savings concept that has been extended to virtually every item on commissary shelves since commissaries were in existence," he said.
With McHugh and House colleagues vowing to protect shoppers from variable pricing, service associations hope to shore up Senate support.
In letter Jan. 16 to Sen. John Warner, R-Va., chairman of the Senate Armed Services Committee, James D. Stanton, executive director of the Air Force Sergeants Association, said "it defies logic that DoD could successfully manipulate costs to make the annual $1.2 billion commissary appropriation go away without transferring the cost to the beneficiary."
David Chu, undersecretary of defense for personnel and readiness, said DoD "intends to maintain the commissary benefit, while securing its use for future generations of our armed forces." As proof, he noted that the department had doubled recent investment in new and renovated stores. He pointed to rising customer service ratings and sustained price savings.
Chu also said, however, that the department is committed to "instituting efficiencies that keep the taxpayer subsidy reasonable."
If the study endorses variable pricing, Defense officials likely will ask Congress for money and authority to test the concept in the fiscal 2006.
Comments are welcomed. Write to Military Update, P.O. Box 231111, Centreville, VA 20120-1111, e-mail milupdate@aol.com or visit Web site at www.militaryupdate.com.
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