ECN CoverE&C Commissary News

Editorial Comment — November 2016

The Domino Effect …

There is no doubt that the military commissary benefit will be eroded if current transformation efforts are carried to their conclusion, and that erosion will reverberate throughout the entire quality-of-life arena.

Despite Pentagon assurances that customers will be highly satisfied, high-quality products provided and “discount” savings sustained in a transformed commissary system, drastically reducing the selection of brand-name products and devoting expansive shelf space to an array of untried private label products, based on flimsy evidence of possible patron support, would not appear to lead to high customer satisfaction.

The much-anticipated November General Accountability Office (GAO) report on DoD Commissaries and Exchanges faults the Defense Department for not defining specific metrics for each of the three benchmarks — satisfaction, quality, savings — and questions whether the department’s cost savings target is either accurate or achievable, calling it “an arbitrary estimate.”

The DoD plan GAO analyzed was derived from recommendations made in mid-2015 by the Boston Consulting Group. In addition to GAO’s “arbitrary estimate,” recent opinions expressed in private by commissary experts, both within the system and outside it, regarding the savings figures postulated in the BCG report ranged from “incomplete” and “distorted” to “fictitious.”

Since making that first report, BCG has been further involved in Defense Commissary Agency initiatives as the agency tries to move full-steam-ahead with developing a system-wide private label program, as well as attempting to drive down its cost of goods to barebones levels and badgering suppliers to refund portions of past years’ payments.

One current BCG contract provides incentives of up to $17 million for providing DeCA “savings” on its cost of goods with a “repeatable and scalable” model capable of providing additional future savings. Any amount left over from that arrangement is almost certainly destined to be added to Defense Department ledgers to fund commissary operations.

What about the patrons? Will they even see a dime? Or, more likely, will they soon find themselves paying for more and more of their own “benefit,” even after those “savings” are taken into account?

These are all questions that are shared not only at E and C News. They are concerns among patron advocates and also throughout an industry whose finest leaders and representatives pride themselves on being part of a mission that cares about the military family patron.

Until now, it has never been up to servicemembers to pay for the benefit. The commissary privilege has been part of their non-pay compensation. The Congress, which has authorized implicit and sometimes explicit — if not unwitting — fundamental system-wide changes, under the guise of “pilot programs,” to laws that have been painstakingly and methodically tweaked over countless decades, needs to diligently oversee the safeguards it has put in place and clean up any mistakes before the resale system suffers further erosion.

Even so, as the process of “defense resale business optimization” progresses, what is missing here is a genuine fiscal accounting and recognition of the savings through efficiencies that exchanges and commissaries have already achieved through streamlining their workforces, organizational structures and processes. Exchanges are well-oiled machines in this regard. AAFES alone has cut the equivalent of 7,000 FTEs since around 2012. NEXCOM and MCX have also tailored their workforces to the size of their businesses and then some. DeCA says its total efficiencies are now at about $850 million in the 25 years since its inception, including $80 million already this fiscal year ... perhaps enough to cover the cost of the year’s BCG contracts.

The military resale systems can’t keep on being offered up as an appropriations sacrifice without damage to their viability and the benefits they deliver.

And now, the side effects of poor policy are coming home to roost. Morale, Welfare and Recreation (MWR) funding is in trouble from all directions.

“MWR Funds Fall Short” headlines prompting action by Assistant Secretary Weiler and Secretary Fanning only tell the appropriated-fund part of the story. Trouble will also be brewing for the exchange dividends that help support MWR if commissary sales continue to fall. And ever since the winds of transformation began to blow, fall they have — commissary sales continue to decline more than troop reductions and producer price indexes can account for.

It’s time to wise up. MWR depends on military resale as an important source of its funding, not to mention a good part of its foot traffic. It does not take a genius to recognize that with the coming diminution of the national brand assortment and elimination of the at-cost commissary benefit model, and falling commissary sales, the knock-on effect on exchanges and MWR dividends already being felt is only going to get worse.

Exchanges have done their utmost to weather not only the decline in commissary traffic but also trends in multichannel shopping and e-commerce. But they could have done a lot better at the cash register without adding the headwinds of commissary transformation to those of force downsizing and increased competition.

Resale has already done more than its share of cutting workforce and expenses. If DoD cannot afford to fund all the family MWR and community services required of it, how about taking some of the millions of dollars being handed over to BCG for training buyers in ways to strong-arm suppliers and let the redefined DeCA kick in for a change to give some of those funds back to the services for MWR?

To receive your own advance copy of the EandC News editorial each month,