Lawmaker is 'Ground Zero' for 2016 Commissary Reforms

Rep. Joe Heck (R-Nev.) is a brigadier general in the Army Reserve, a soldier-physician thrice deployed and also a discerning commissary shopper. Heck bristles at seeing half empty shelves and goods askew because commissaries, unlike commercial grocers, rely on vendors to stock most items, and some do so only a few times a week. Shoppers, he said, want lots of product, with cereals to sodas “faced up” neatly to shelf edges. Patrons also buy more if there's an aroma of food samples cooking somewhere and if they see aisle-ending “caps” of products on careful display as they leave one aisle and turn down the next. And nobody likes to see items “where they don’t belong because somebody picked something up in Aisle 3 but on Aisle 5 decided they didn’t want it,” Heck said. “Those are the kinds of things that diminish the shopping experience and make people buy less.” Heck knows grocery stores because his father spent a lifetime in the business, starting as a 17-year-old checkout clerk and rising to regional supervisor of a super market chain. “I used to go to work with him as a kid all the time,” Heck said. “That’s how I spent my Saturdays.” Perhaps that’s also why, as chairman of the House armed services’ subcommittee on military personnel, Heck is sounding so confident that Congress can reform base grocery stores. He plans to have his subcommittee shape legislation next year that will make commissaries more efficient and generating first-ever profits, thus lowering taxpayer costs for the benefit. His promise to shoppers is that the changes will be gradual, the overall value of the benefit will be preserved and store experiences will improve. However, reform likely means ending the practice of commissaries selling only brand name products and at the same cost-plus-five-percent-surcharge formula that has kept food prices identical across all commissaries for decades, whether patrons reside in Hawaii or in the rural southern states. Heck said he sees merit in many reform recommendations proposed by Boston Consulting Group in a study of the Defense Commissary Agency (DeCA) that Congress ordered. It has sparked the Defense Department to propose a shift to variable pricing and use of “private label” products, which commercial grocers use to deepen profits and expand customer savings. The study argues for commissaries to be run as non-appropriated fund activities, like base exchanges. Heck agrees with Defense officials that if this occurs then no current DeCA employees should see pay or benefits impacted by the shift. He also agrees that, to preserve shopper discounts, DeCA will always need some appropriated dollars. But once commissary sales do generate profits, it might make sense to allow defense civilian employees who work on base to shop there too, Heck said. Patrick B. Nixon, president of the American Logistics Association, which represents vendors, brokers and product manufacturers serving the military resale system, said Heck and Peter Levine, deputy chief management officer for the Defense Department, are “ground zero” for reforming base stores. In Congress, Heck must be considered the key lawmaker “because he’s going to start whatever is going to happen,” Nixon said. Heck said he largely agrees with the planned reforms Levine detailed to the ALA annual convention last week and which Levine briefed to Heck’s subcommittee earlier in a closed-door meeting. [See last week’s column.] The subcommittee also met privately with Boston Consulting Group on its findings and recommendations. Two other closed meetings are planned, one with commissary vendors and brokers and another with military associations to express concerns of commissary patrons. Heck promised transparency as legislation takes shape. But for now closed meetings are more effective for educating lawmakers on commissaries and possible paths for change than would open hearings be where individual lawmakers can question witnesses only for five minutes at a time. Given that commissaries are such a prized benefit, I asked, what’s wrong with continuing to operate as they are, providing grocery discounts of roughly 30 percent in return for $1.4 billion a year in taxpayer support? “That $1.4 billion we spend subsidizing the commissaries,” said Heck, “is $1.4 billion we’re taking out of readiness, whether it’s for training, equipping or other programs. So if the motivation…is to look for efficiencies, and we find efficiencies or best practices that allow us to save money while maintaining a benefit, than why shouldn’t we?” The Boston group study has been criticized for using only a modest price comparison survey to conclude that overall patron savings are nearer to 15 or 20 percent rather than 30 percent as touted by DeCA. Heck is comfortable with that, saying actual savings depend on items surveyed and results also will vary widely depending on where customers shop. Comparing commissary prices solely to Wal-Mart supercenters would narrow the savings found. So too would a comparison of grocery prices conducted in rural America versus in a high-cost state like California. With commissary prices now set based on cost, commissaries lose money on every transaction, Heck said. Variable pricing, he suggested, could lower operating costs. But brand items no longer would be identically priced across all stores, so that shoppers in San Diego might save 35 percent off local prices while shoppers in southern states save 20 percent or less. Variable pricing, Heck said, would level out the savings shoppers realize by setting commissary prices regionally to match some baseline average of commissary savings nationwide. How that baseline is determined will be critical and will almost certainly be controversial. “What we’re trying to do is control for all the variables and come up with a solid number for what we believe true cost savings are” for patrons, Heck said. “And then make sure, in any reform, that we try to maintain that level of cost savings” across the system, Heck said. Nixon said ALA hopes to counsel Congress on its reforms to avoid “unintended consequences,” and this might be one of them. Shoppers do need more savings on groceries if they live in higher cost areas, he said. “To take it from folks living in San Diego and give it to the folks in Mississippi and Alabama may not be in the best interest of shoppers,” Nixon said, given the penalty families might face for assignment to high-cost areas. To comment, write Military Update, P.O. Box 231111, Centreville, VA, 20120 or email milupdate@aol.com or twitter: @Military_Update