Commissary
Shoppers to Get Clearer View of Their Savings
August 25, 2016
By Tom Philpott
Commissary shoppers have long suspected that they save
more on groceries at some bases than at others, compared to local commercial
stores. Defense Commissary Agency (DeCA) will soon show them how right
they are.
Sometime next year DeCA will begin to calculate and
publish separate cost-saving averages for commissary shopping across seven
newly defined regions that will encompass all of the United States.
The regional savings calculations are to serve as a more
accurate baseline for valuing the benefit than the national average of “30
percent or more” DeCA has touted for years. That national average, based
on annual price comparisons of most items sold in commissaries, fails to
reflect the wide disparities in savings some shoppers experience locally.
Once regional savings are calculated, DECA will commit to
sustaining them as it experiments with variable pricing and selling its own
private label products. Both concepts, used widely by retail grocers, are
seen as key to lowering the $1.4 billion taxpayer subsidy now needed annually
to operate commissaries. At least some of those dollars, military leaders
have told Congress, need to be saved and diverted to more pressing readiness
needs.
As a first step to comply with new efficiency goals for
base grocers, Congress tasked Defense officials to develop a plan to calculate
commissary savings more like the private sector would do.
“For the first time through this new approach, we will
compare our prices with local grocers on a more frequent basis to better inform
our customers of potential cost savings over stores” nearby, said Joseph H.
Jeu, DeCA's director, in announcing the new method for calculating savings.
He added that the new method “will not impact the prices
our customers pay or the dollar benefit that they receive.”
The current method of estimating savings produces only a
“global view,” officials said. For the continental United States, DeCA
yearly directs a comparison of commissary prices with national average prices
on 38,000 grocery items having a Universal Product Code. Research firm Nielson
maintains the data. To compare meat and produce prices, DeCA relies on
in-store audits of randomly selected commissaries with nearby retailers.
Commissary price comparisons include the five-percent
surcharge at checkout. Commercial prices include all applicable sales taxes.
The new method will compare prices on only about 900 of
the most popular items sold at each commissary and prices for its strongest
three competitive retailers off base. Done once a year, the price
comparisons will include retailers’ private label brands and “items from across
the store,” including meat and produce. Individual commissary results
then will be combined with other base stores to calculate a regional average of
savings.
The regional averages will be the savings levels DeCA
promises to maintain, said Joyce Wessel Raezer, executive director of National
Military Family Association. “So as they negotiate prices with suppliers, as
they explore private label and variable pricing, this becomes their savings
floors.”
Raezer said it’s important for DeCA to be “very
transparent” on the 900-item market basket it uses, how the product mix is
adjusted and what competing retailers are used to make price comparisons.
Because commissaries now sell national brands and set
identical prices across the system (cost plus a surcharge), military shoppers
in a high cost area like San Diego save substantially more compared to local
prices than do shoppers at a low-cost area like Fort Sill. Some of that
savings disparity will be captured in the regional baseline savings, Raezer
said, and that’s okay.
Why should shoppers have to pay more for groceries when
they live in high cost-of-living area, she asked. So it’s right that the new
method show “the reality of savings people get now.” It’s also right that
DeCA stop using “that 30 percent figure because it doesn’t reflect actual
savings.”
DoD officials haven’t announced how regions will be set
except to note one will be called South Central and another will include both
Hawaii and Alaska. DeCA also will continue to use Nielson data on 38,000
items to compare prices nationally and will begin to update monthly versus
yearly. But the purpose of that Nielson data will be to help verify that
the regional method of calculating customer savings “stays constant,” officials
said.
Congress supports Defense plans to reform how
commissaries purchase, price, promote and sell groceries, using new authorities
to test variable pricing by store or region, private label brands and the
conversion of base grocers to non-appropriated fund activities like base
exchanges.
The key condition Congress set is that patron savings be
preserved as officials strive to modernize store operations and lower DeCA
funding by more than $500 million a year by 2021.
“This is real complicated stuff they’re doing here,” said
Raezer. “It’s beyond what most retail grocery stores go through. They’re
putting themselves on the line, saying we’re going to hold to these savings.”
When the first figures come out next year, Raezer
predicted, patrons are going to be surprised at how small commissary savings
are in some locations. DeCA will need to give assurances that “this is
just the floor for savings…not the ceiling and it will “work hard to generate
more,” she said.
In a May report to Congress, Defense officials dismissed
as unachievable the idea of some lawmakers that commissaries can achieve
“budget neutrality,” that is, operate without taxpayer support. That would wipe
out savings and destroy the highly prized benefit, officials concluded.
Over time, however, commissary prices no longer will be
based on the simple formula of cost plus a five-percent surcharge. The
May report said that formula “prevents DeCA from fully capturing the margin
benefits of trying to lower the cost of goods sold through private brands or by
varying the price of product locally.
“Under cost-plus pricing, any reduction in DeCA's cost of
goods sold would have to be passed directly to the patron” rather than be used
to reduce the annual appropriation for commissaries. “Thus while managing the
cost of goods sold is a key driver of profitability for private sector grocers,
this practice is currently largely irrelevant” for commissaries.
That will change once DeCA knows what savings it must
protect.
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twitter: Tom Philpott @Military_Update