In an April 27, 2024 article, Elaine McCusker asked the titular question “Can Defense Commissaries be Fixed?” Her assertion is that commissaries “limp along under an outdated management and buying model” and that the only way to fix them is by privatizing them. Any defense of commissaries was construed by McCusker as “emotional”. Well, let’s look at the facts.
In FY23, according to the Annual Report of the Defense Commissary Agency (DeCA), sales in the commissaries increased by 9.77% to $4.6 billion when most grocery retailers saw flat to declining year-over-year sales. These sales were accompanied by increases in foot traffic as transactions increased 7.75%, or by 4.9 million. In the first seven months of FY24, sales have continued to climb another 3.6% and transactions by 4.45%, or 1.7 million. Savings on an average market basket of products in FY23 were 25.5% compared to outside the gate, allowing military families to keep $1.6 billion to meet other needs.
Further, DeCA’s Customer Satisfaction Survey increased from 80 in FY22 to 89 in FY23, putting them in the top tier of companies in terms of customer satisfaction. These are not the numbers of a retail operation that is limping along as military patrons are voting with their feet, as Ronald Reagan would say, and demonstrating the value provided in the commissaries is worth the trip.
McCusker claims military brokers charge 30 - 40%. Actual rates are between 1 and 4 percent. What she doesn’t account for are the value-added services that manufacturer representatives provide to the commissaries that help to reduce the cost of doing business for DeCA and its manufacturers, resulting in a lower taxpayer subsidy and higher savings for patrons. These services include ordering assistance and follow-up, category management, vendor-managed inventory, associate education and training, shelf stocking, pricing validation, and merchandising (space allocation, promotions, display-building assistance), among many other things. Because these necessary efforts are spread across multiple manufacturers, rather than each doing them separately, it results in cost efficiencies.
She criticizes DeCA’s late entry into home delivery and uses that as a basis to abandon the commissaries. Incidentally, sales for home delivery are flat across the grocery industry and many grocery chains have struggled to deploy a cost-effective program. However, what is seeing growth is curb-side pick-up. DeCA has had a robust Click-to-Go curb-side pick-up program for years and it also continues to see year-over-year growth.
As for the $120 million increase in the Defense Commissary Agency (DeCA) budget, there is a reason why this increase is necessary and many of the reasons are beyond the control of DeCA. For instance, when President Biden imposed through executive order a $15 minimum wage increase for all departments and agencies, as well as contractors and concessionaires, it caused wage inflation at the starting level and wage compression at pay levels above. If the commissaries were privatized, the operator would have the same requirements.
Additionally, because of a government mandate related to refrigerants, DeCA is required to replace refrigerators, freezers and HVAC systems. This is an expensive endeavor and one that would also be imposed on a privatized system.
DeCA, like any other organization, has its challenges. Its distribution, which is currently funded and organized by private industry, has met with challenges coming out of the pandemic. The Pacific region has been hit hard by these challenges due to shipping issues in West Coast ports. However, DeCA leaders have been proactive at addressing these challenges in partnership with industry to improve the distribution network where it is more transparent, predictable, and cost effective. As a result, DeCA’s in-stock rate is 96.6% and continues to improve each month.
Ms. McCusker, who has no experience in the grocery business, encourages leaders to support a “recommended” privatization test. Interestingly, the organization pushing for this test has not demonstrated experience operating a grocery store, much less a grocery chain, has no logistical capabilities, and would only cherry-pick the most profitable stores while not supporting those in remote and overseas locations, which represent nearly 60% of DeCA’s appropriation. Additionally, as a private entity, it would have to charge sales tax on military families, eliminating the tax-free benefit.
Because commissaries are primarily a benefit to military families, most manufacturers offer DeCA preferred bracket pricing on par with the largest discount retailers. They also provide substantive trade and promotional funding that further enhances savings on a near dollar-for-dollar basis. A privatized, for-profit system would not be able to purchase products at the same lower bracket pricing as DeCA and would also lose the additional funding support from manufacturers, resulting in significantly higher prices on military families.
In an industry where the average margin is 1 to 3 percent, it is hard to imagine how a group of individuals with no grocery experience and no supply chain infrastructure would be able to deliver 25% savings to military families on their groceries. The math doesn’t work.
Fortunately, the leadership of the Department of Defense and in Congress, as well as military and veteran family groups, continue to demonstrate their confidence in DeCA and its leadership to deliver a world-class grocery benefit to military families while delivering savings over 25%. While DeCA is not perfect, it is far from limping along. No emotion, just the facts.
Biography: Tom Gordy is the President of the Armed Forces Marketing Council, which serves to strengthen and enhance resale quality of life programs for military families. He is also a veteran of Operation Iraqi Freedom and continues to serve as an officer in the US Navy Reserve.
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