July 15, 2013
Store closures, beer and wine sales considered
Selling beer, wine and possibly other products at a markup in commissaries is among the proposals being floated in the Pentagon as officials scour every corner of their budget for potential savings, according to a source familiar with the discussions.
Defense officials ordered the Defense Commissary Agency to participate in a review of options for cutting its $1.4 billion annual operating budget by one-third. The review is due in July.
Other options being floated, according to the source, who spoke on the condition of anonymity:
*Shutting down some smaller stores already under consideration for closure by DeCA.
*Eliminating the Defense Department subsidy that covers overseas transportation costs and shifting those costs to the commissary system. DoD pays the cost of getting commissary products overseas so customers don’t have to pay more. In 2012, DoD spent almost $154 million to ship commissary products overseas, about 11 percent of DeCA’s budget.
Each option would require changes in law.
Beer and wine are sold only in exchanges. In 2009, commissary and exchange officials studied the idea of selling beer and wine in commissaries, but did not do a sales test and abandoned the idea.
At the time, exchange officials opposed letting commissaries sell beer and wine, arguing it would hurt their sales and reduce the dividends they return to morale, welfare and recreation programs.
Exchange officials are just as concerned now about selling beer and wine at a markup in commissaries, the source said. “They’d argue [the cost savings] is on the backs of the exchanges, because it takes business out of the exchanges’ pockets.” Tobacco is now sold at a markup in commissaries, provided by the Army and Air Force Exchange Service acting as a concessionaire.
Tobacco is sold at the same cost as in exchanges, which receive the profits from the commissary markup. It’s not known whether the new review could lead to revenue from those markups staying in the commissary system to reduce DeCA’s taxpayer-funded budget.
Exchanges mark up the price of items and use limited taxpayer funds for operations; commissary operations are funded solely by taxpayers. The exchanges use money from markups to pay for most operating expenses, and profits go to building or renovating stores and to MWR dividends.
Commissaries add 5 percent to the cost of all products, which is used for store renovation and construction.
But as it does with commissaries, DoD uses taxpayer money to transport exchange items overseas.
“I would think the exchanges are concerned about the implication on their funding source,” the source said. “If they lose [overseas transportation funding] it would have an impact on their ability to pay dividends” to MWR programs.
DoD spent about $288 million to get products to overseas stores and contingency areas for the Army and Air Force Exchange Service in fiscal 2012. AAFES returned $201 million in dividends to MWR funds last year; if it had been required to fund the bill for its own overseas transportation costs, those dividends would have been wiped out and AAFES would have seen an $87 million hole in its budget.
Eileen Huck of the National Military Family Association called the review worrying. Commissaries and exchanges are “very important to our families,” she said.