Sweeping changes in the commissary system may be coming sooner than expected — including how groceries are priced — under draft legislation that would bypass the need for pilot programs.
Commissaries would be allowed to increase their profit margin so officials can reduce the amount of taxpayer dollars used to operate stores. The current-year budget for operating commissary stores worldwide is $1.4 billion. By law, commissaries sell grocery items "at cost," with no profit. A 5 percent surcharge is used to pay for construction and renovation of stores.
The draft bill released Tuesday would change that, allowing the Defense Department to use variable pricing and develop private label products, moving away from selling groceries at cost. DoD officials are figuring out a detailed baseline of savings under the current system — how much commissary shoppers save vs. shopping outside the gates, estimated around 30 percent overall.
It's not yet known what the expected level of savings would be under the reformed commissary system, but DoD documents laying out the plan say the savings for customers would be "reasonably consistent" with the level of savings under the current system.
The draft bill released Tuesday is an early step in the legislative process, from the House Armed Services personnel subcommittee, that will result in the 2017 National Defense Authorization Act once both houses of Congress have addressed it.
House staff members said the biggest piece of this reform is to maintain the commissary benefit for service members and that safeguards are built into the legislation to protect the commissary benefit and that the changes are "not irreversible" under the proposal.
"It's not irreversible," a staff member said of the draft legislation. DoD would be required to submit reports at least quarterly on the progress, and as lawmakers monitor the changes, if there are problems, DoD will have the authority to infuse more taxpayer dollars into the commissary system to make sure the benefit is maintained for service members.
"The one going-in argument is that we will maintain the benefit for our service members," the staff member said.
DoD and lawmakers have realized they will not be able to completely get rid of all taxpayer funding for commissaries, because some funding is needed to provide a savings benefit.
Under variable pricing, also called "flexible" or "alternative" pricing, commissary officials would determine the prices "in response to market conditions and customer demand," according to the Defense Department's legislative proposal laying out these reforms. The current pricing system, selling all items at cost, "constrains sales margins and limits potential savings benefits across disparate geographic markets," officials stated. Under a private label program, the commissary agency would develop its own store brands of certain items, similar to items found in commercial stores that are generally cheaper than name brands.
Sometime this summer, Defense officials will start testing those two concepts — variable pricing and private label products — sometime this summer, said DoD spokesman Air Force Major Ben. Sakrisson. Information was not available about how the tests will be conducted, or where. The tests were authorized in the 2016 National Defense Authorization Act.
But this draft legislation gives DoD authority to move ahead without so-called pilot programs.
"We're not calling it a pilot program, but there are enough escape valves that if it doesn't work, we'll go right back to appropriated funds," a House staff member said.
He said for pilot programs to work, they need to be conducted across the entire commissary system and that running a test at one store or in one region is too small a sample to see the effects that are balanced over the entire system, he said.
Over the next five years, officials want to save a cumulative $1 billion, with a goal of saving $512 million in taxpayer dollars in fiscal year 2021, according to DoD documents which outlining the reform proposals.
The DoD documents said the commissaries would ensure that the savings benefit for customers is "reasonably consistent" with the level of savings under the current system.
This draft legislation also gives DoD authority to convert the Defense Commissary Agency to a non-appropriated fund organization, allowing it to operate more like a business with the aim of gaining savings in its operations.
A lot of that savings would be in pay, a House staff member said, but commissary employees wouldn't see a reduction in pay, and appropriated-fund employees wouldn't be converted to non-appropriated fund employees. The positions would be converted when the current employee left the job or retired. But that conversion also depends on whether the new pricing systems meet DoD's to-be-determined benchmarks for success.
The commissary system would operate more like the military exchanges, which are non-appropriated fund entities.
The legislative changes are necessary to provide DoD with the flexibility to improve business practices across the DoD resale system "while delivering the same level of service and savings to commissary patrons as the current system at substantially reduced cost to the taxpayer," according to the DoD document outlining the reform proposals.
Karen Jowers covers military families, quality of life and consumer issues for Military Times. She can be reached at kjowers@militarytimes.com.
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.
