By now, if you have any connection to the military community you’ve likely heard some heated discussion and some of the rampant rumors about the possible closure of all CONUS commissaries.
An outside view the commissary located at Naval Station Norfolk. Source: U.S. Navy
In the Report on Plan to Obtain Budget Neutrality for the Defense Commissary System and the Military Exchange System dated May 2016, the Department of Defense reported to Congress details on the current sales and usage of the commissary system and explored options for reducing the $1.5 billion shortfall between projected costs and the revenue required to achieve budget neutrality by October 1, 2018. The report reiterated the DoD’s commitment to keeping both commissary and exchange services.
But perhaps the most surprising boost in the fight to keep our commissaries open came from the report’s recommendation that neither commissary closures nor the implementation of significant price increases be seen as viable budgetary solutions.
How often do you shop at your commissary? Would you shop there less if the prices were increased by 5 percent?
It’s All About Buying Power
As any savvy shopper knows, buying in bulk is a great way to save money. Buying in bulk is a great budgeting tool for individual consumers, but it also is the ace in the hole for large retailers like the commissary. Just like commercial grocers, DeCA leverage large-volume buying power in price negotiations with manufacturers and brokers.
Closing commissaries reduces DeCA’s buying power and reduces its ability to negotiate for the best possible pricing. Close too many commissaries and the significant decrease in volume could even eliminate DeCA’s ability to negotiate directly with manufacturers, forcing them into buying relationships with wholesalers and introducing a “middle man” into price negotiations.
In order for DeCA to offer our community the products and pricing we need and expect, significant decreases in volume must be avoided.
What About a Simple Price Increase?
Another alternative explored included the feasibility and impact of raising prices unilaterally above the cost-plus-five-percent level currently in place.
The report cited research in the Military Resale Study performed by the Boston Consulting Group in July 2015 which noted that polled commissary patrons indicated that “if prices increased even five percent, they would shop 25 percent fewer times per month.”
And while the finite impact of raising prices is difficult to quantify, if commissary sales decreased by 25 percent, the resulting loss of revenue would total nearly $2.1 billion. Additional price increases would then be needed, resulting in additional losses in sales, creating a vicious cycle of higher prices and decreasing sales until the commissary system became entirely defunct.
What if We Closed Them All?
Not only would closing all CONUS commissaries greatly impact moral, but it would create an even greater burden on already difficult budget constraints. The DoD report indicated that nearly 80 percent of all active duty families use the commissary at least once annually, with the greatest percentage of patrons utilizing services “two to three times per month.”
According to DeCA calculations, at this level of patronage, active duty families average just over $1,500 per year in savings. If the DoD were to compensate military families for this loss of benefit, the cost would be nearly $2.4 billion, a significant increase over the current projected budget shortfall. This analysis also fails to take patronage and sales to retirees and their families.
Commissary closures would also have several second and third order effects. AAFES exchange stores rely heavily on the proximity to commissaries to support their revenue.
AAFES estimates that between “20-30 percent of its foot traffic” and the resulting $1 billion in sales comes from exchange locations in close proximity to commissaries. Subsequently, the significant contributions to MWR funding made by AAFES would be greatly impacted.
And let’s not forget about our commissaries located OCONUS. These facilities derive great benefit from their connection to the stateside system.
Decreased buying power would greatly impact cost and availability of products that can make an overseas assignment feel a bit more like home.
According to report calculations, if all CONUS commissaries were closed, the resulting loss of buying power and management support would result in nearly a 25 percent increase in costs for OCONUS commissary operations.
We are by no means out of the woods when it comes to the future of our commissary benefits. The DoD is still examining options that include privatization or varied pricing to help DeCA achieve budget neutrality by the target date.
However, this report seems to solidify the DoD’s intent to ensure commissary benefits for active duty families and retirees remain in place and intact for as long as possible.
