March 25, 2016
The commissary continues to be a favorite benefit for servicemembers, retirees, wounded warriors, and survivors. Yet, every year, we find the program coming under budget scrutiny.
The money required to keep commissaries operating is small in terms of the overall defense budget, but the desire to use that money elsewhere (approximately $1.4 billion annually) is high.
Last year, Congress wrote a requirement into the defense bill for the Secretary of Defense to submit a report to achieve budget-neutrality for the commissary and exchange benefits no later than March 1, 2016. Then, the Department was tasked to begin pilot projects to achieve that goal - while also maintaining current levels of patron savings and satisfaction and product quality.
Recently, Defense Chief Management Officer, Peter Levine, acknowledged budget neutrality couldn't be achieved while still meeting those criteria. But the requirement to proceed with the report remains.
March 1, 2016 has passed, and the report release has been delayed, but is expected later this year. After the report is submitted, DoD will be allowed to begin pilot programs using concepts such as variable pricing.
Commissaries currently are not allowed to sell items for less than cost or more than cost. The variable pricing pilot would allow them to selectively modify product prices, up or down, for up to five years (or more if it works to reduce requirements for tax dollar support).
Although the pilot still requires DoD to meet benchmarks for savings, product quality, and customer satisfaction, variable pricing could change the way commissaries deliver those savings.
Civilian stores use variable pricing to create “loss leaders” - basic products that may be priced at a loss to the store, but attract patrons to buy other products with higher profit margins.
Variable pricing could also lead to varying commissary prices by location. For example, in areas where costs outside the gate are higher, commissaries could adjust pricing upward, so long as the patron experiences the equivalent level of savings compared to local groceries. Accordingly, if the local groceries are typically priced lower than the national average, the commissary would have to adjust their prices downward, potentially at a loss, to provide savings.
Therefore, some assignments may result in higher or lower out of pocket cost to the patron to put the same food on the table.
MOAA hopes these pilots are successful in finding efficiencies without deteriorating the benefit.
The commissary isn't just a store inside the gates of a military installation. It's one of the key mechanisms through which the Defense Department delivers a military benefits package intended to sustain long-term retention and readiness.
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