If experiences of civilian grocery stores are any indication, raising prices in commissaries wouldn't be good for service members and retirees or for the commissary system, according to Rand Corp. researchers.
Defense officials have proposed increasing prices in order to reduce the amount of taxpayer dollars funding commissary stores. But concerns have been raised about the effects of the potential price increases on military members and families who shop at the commissaries, and whether it could destroy the commissary benefit.
Officials in DoD's Office of the Under Secretary of Defense for Personnel and Readiness asked Rand to review how price increases have affected grocery stores in the private sector, and how those experiences might translate into changes in sales for the Defense Commissary Agency. The Rand report represents a review of economic literature on the effects of price increases at private grocery stores.
The report stated the obvious — that raising prices could negatively affect service members and retirees who shop at commissaries, because of increased grocery bills. If DoD's plan is carried out, it's estimated that commissary prices would have to increase by almost 29 percent to make up for the amount of taxpayer dollars DoD wants to save. It would decrease the commissary discounts from an average of 30 percent to about 10 percent.
But the report also suggests that affected customers will shop elsewhere if commissary prices are increased. Most studies find that when there are available shopping alternatives, any increase in revenue from increased prices "will be offset more than proportionally" by the negative effect of decreases in purchases, the researchers noted.
"We've all said it: You raise the prices, shoppers won't come, and you end the benefit," said Joyce Raezer, executive director of the National Military Family Association. "This is evidence that the DoD budget proposal will destroy the commissary savings.
"I'm grateful to DoD for telling Rand to look at this. Rand has validated what we've been saying."
Estimates suggest that a 1 percent change in prices will result in a greater than 1 percent change in the amount of products sold by stores, the researchers said.
"If these findings hold true for a change in the price of goods sold at commissaries, then an increase in prices will decrease revenues," the report stated.
Thus, "raising overall price levels will not be a successful strategy to cover shortfalls in costs caused by the elimination of the annual DoD appropriation," wrote the researchers in the report, titled '"The Likely Effects of Price Increases on Commissary Patronage."
They also noted the potential effects on exchanges, because some of the exchange traffic is tied to commissary trips. This could result in less profits for exchanges, and less funding for base morale, welfare and recreation activities.
Future research using shopping data of commissary customers, along with questions about their preferences, could be used to further examine what effects price increases would have on their shopping, the researchers stated.
DoD's budget proposal for fiscal 2016 includes cuts to the Defense Commissary Agency's budget by $151 million, reducing the taxpayer subsidy to $1.15 billion. Part of the savings would come from increasing commissary prices to cover the cost of transporting groceries overseas, which would be borne by all commissary customers, regardless of whether they're overseas or not. Currently taxpayer dollars are supposed to be used to fund overseas shipping costs so that overseas customers pay the same prices that customers pay in the continental U.S.
But DoD has larger plans for decreasing that taxpayer subsidy to commissaries — using "variable pricing," which means marking up the price and decreasing the commissary discount to about 10 percent, from the current average of 30 percent, compared to civilian grocers. Congress rejected that plan last year.
Right now, commissary items are sold at cost plus a 5 percent surcharge added at the register, by law. So that law would have to be changed. "DoD has been saying that military families will accept higher costs. Rand has said the evidence doesn't point to that," Raezer said.
"Military families will vote with their feet."
Among the authors of the report is Bernard Rostker, a former undersecretary of defense for personnel and readiness.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.
