Are Commissaries in Jeopardy?

March 31, 2017

Last week, the GAO released an overdue report required as part of commissary reform measures included in the National Defense Authorization Act for Fiscal Year 2016. GAO briefed the Armed Services committees more than a year ago on their preliminary observations, but just released the report on its analysis and review of certain aspects of commissary operations. In the meantime, the Defense Commissary Agency (DeCA) has been moving full steam ahead on pilot programs in variable pricing and private-label products, directly impacting the experience of commissary patrons.   

The GAO report concludes that certain DeCA business processes “are not consistent with those generally employed by commercial grocery stores.” This isn't surprising, as DeCA is constrained by law regarding how much they can charge, to whom they can sell, where they can operate, etcetera.  But the report identifies certain areas where the standards used by DeCA are inefficient. This leaves MOAA concerned, because during GAO's evaluation of the processes, DeCA already was implementing new ways of doing business. Achieving data fidelity is difficult when the evaluation instrument is out of touch and out of sync with the subject.  The GAO concludes that:

  • DeCA's methodology for calculating the patron savings rate has limitations and “DeCA lacks reasonable assurance that it is maintaining its desired savings rate for patrons.” Not included in this report are DeCA's recent changes to its savings calculation. The report goes on to say, “at the time of this review, DeCA officials could not provide evidence to support how the revised savings methodology would address all the limitations we identified, including those related to seasonal bias, sampling methodology for overseas commissaries and geographic differentiation.” Additionally, DeCA's new calculation compares the prices of private-label items to commissary private-label items, which are not yet available at commissaries. Such a comparison is highly speculative in an area where GAO already is questioning DeCA's methodologies.  
  • The way DeCA manages products sold at commissaries limits its ability to operate efficiently. GAO recommends DeCA find efficiencies based on store sales or customer demand. While DeCA has seen decreasing sales numbers since 2012, it is in the process of rolling out its own private label. To make room for private-label stock, commissaries will have to remove some items. Will those items be ones patrons feel strongly about losing? The report says, “DeCA has not focused on improving the management of products based on consumer demand and consequently may be missing potential opportunities to improve sales, leverage efficiencies, and achieve savings in commissary operations.” Introducing the private label as a cost-savings maneuver seems risky when other efficiencies may not have been thoroughly explored.   
  • DeCA has not conducted a cost-benefit analysis for its service contracts for stocking and custodial services and for distributing products to commissaries. More than 70 percent of the appropriations dollars (the subsidy) go to labor costs, which include staff pay and benefits, shelf stocking, transportation of goods, janitorial contracts and purchased services. There is an argument to be made that DeCA should have explored some savings opportunities from the largest part of the government's subsidy prior to introducing variable pricing, a private label, and changing the way patrons shop.   

MOAA's main concern is that GAO's report indicates there are many more avenues of savings that have not yet been explored. If sales are decreasing, and DeCA loses additional patrons based on its new reforms, what does that mean for foot traffic at the exchanges - and the resulting dividends to local Morale, Welfare and Recreation funds?  

Commissary reform laws allow DeCA to become a non-appropriated fund (NAF) entity if existing pilots for variable pricing and private label are successful. DoD is required to brief the Armed Services committees before those extra steps can be taken. Some questions remain:   

  • Will those briefings be made public?
  • How have the three requirements of patron savings, satisfaction, and product quality been maintained?
  • Has the change in savings benchmark calculations lowered the bar for savings if it doesn't include exact comparisons?
  • What items will patrons see go away to make room for private label, and what assurance is there patrons will not be less satisfied as a result?    

The Armed Services committees have reserved oversight authority over all of these reforms. They need to hear from you - send a MOAA suggested message asking your legislators to ensure their oversight includes assessment of these gaps noted by the GAO. 

 

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