Prized military discounts at risk

Crowds that shop daily in base commissaries and exchanges perhaps are oblivious to a confluence of forces threatening to dismantle their multi-billion dollar resale systems.

Thomas C. Shull, chief executive officer of the Army and Air Force Exchange Service (AAFES) is not, which helps to explain his March 17 memo proposing a merger of commissaries with exchanges to try to save both.

While Department of Defense civilian and military leaders testify that base grocery stores can survive 20 percent higher prices, and that base department stores can weather falling sales, behind the scenes the systems’ top managers are sounding alarms.

At risk are the prized discounts on groceries and merchandise the military has enjoyed for decades. Industry sources contend the threats have never been more real, more numerous or potentially more destructive.

Automatic defense spending cuts from the sequestration scheme in the 2011 Budget Control Act is the greatest threat. However, the Obama administration’s plan to cope with some of the cuts by slashing taxpayer support of commissaries, from $1.4 billion a year down to $400 million by fiscal 2017, is viewed as reckless if the real goal is to save the stores.

If the plan is enacted, Shull wrote, so many patrons would leave as “to render the commissary system unsustainable,” forcing stores closures across the continental United State with “devastating” effects on exchanges.

Where commissaries close, customer traffic into exchanges would drop 20 to 30 percent, threatening the viability of AAFES, Shull predicted.

“A conservative estimate of the financial impact … is a loss of over $1 billion in sales, which translates into about a loss of $200 million in earnings,” Shull wrote. That drop, in turn, would force cut to dividends used to support base-run qualify-of-life programs.

In fiscal 2012, roughly $330 million in exchange profits helped to fund recreation centers, youth services, arts and crafts, aquatic centers, golf courses and more.

To save commissaries and protect exchanges, Shull proposed to Frederick E. Vollrath, assistant secretary of defense for readiness and force management, a plan to merge commissary operations with exchanges and use resulting efficiencies to stabilize grocery prices and keep patrons.

This would be far better, Shull wrote, than turning the Defense Commissary Agency (DeCA) into a new and separate “non-appropriated fund instrumentality” like AAFES and Navy and Marine Corps exchange systems.

“Using the best of exchange and DeCA leadership to lead a transition of the commissary from a cost-plus-reimbursement environment into one based on profit and loss principles is a much better solution than the one proposed,” Shull argued. “The exchanges have a core competency of controlling costs while delivering value to our service members and families.”

Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at:

[email protected]