Thursday, September 18, 2014
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Merged eyed for exchanges, commissaries

By
From page C4 | March 30, 2014 |

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

Thomas C. Shull, chief executive officer of the Army and Air Force Exchange Service, 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 are 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 quality-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 into a new and separate “nonappropriated 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 said. “The exchanges have a core competency of controlling costs while delivering value to our service members and families.”

Resale industry sources said Shull correctly warns of the catastrophe awaiting base stores if $1 billion a year is cut to commissary funding. There are, however, many more developments occurring simultaneously that also put base shopping at risk. These include:

Falling sales

The three exchange services are seeing sales drop markedly by an average of 5.9 percent in 2013 alone. AAFES blames its $900 million drop on a pull back of troops from Afghanistan, Army restationing of forces from Europe and stiffer sales competition off base. To soften the effect on dividends that support morale, welfare and recreation programs, AAFES aggressively lowered overhead cuts, cut full-time staff, cut spending on transportation, utilities, travel, supplies and future construction.

Force cuts

The size of the military has fallen from wartime peaks, but the steepest drops, in ground forces, began this year and will accelerate. Active-duty strength will shrink 6 percent from 2015 to 2019 and Reserve and Guard forces by another 4 percent. Those totals assume some extra relief from sequestration. If none occurs, the active Army will have to shed an additional 20,000 troops in that period, officials warn.

Curbs on tobacco

Exchanges have relied heavily on sale of tobacco products for profits. Most commissaries also sell cigarettes, but on consignment from the exchanges. In fiscal year 2012, tobacco sales in military stores totaled $711.4 million, generating profits of $125.7 million.

Inspired by the recent decision by CVS Caremark pharmacies to pull tobacco products off its shelves, Navy Secretary Ray Mabus is preparing to announce soon he will end tobacco sales on Navy and Marine Corps bases and in ship stores by September. Proponents say it would end the hypocrisy of selling tobacco conveniently and at deep discounts while encouraging service members and families to stay healthy and fit.

If Mabus executes his plan, shopper traffic on bases would fall, further straining exchange profits. Yet AAFES would be under intense pressure to follow the Navy lead, which would make its own sales more anemic.

The Navy Department has taken other steps to discourage tobacco use, arguing it drives up medical costs and drives down individual readiness. In 2012, it narrowed discounts on cigarettes sold on base. Later that year, the submarine community became the first to ban smoking across its fleet.

Defense health officials strongly support such actions. The department estimates it spends more than $1.6 billion a year on tobacco-related medical care, from higher hospitalization rates to lost workdays.

Christopher K. Haddock with the Institute for Biobehavioral Health Research, co-author of several articles on military cigarette pricing and impact on health policy, agrees that Mabus is putting rounds on target.

“Availability and price have always been two of the biggest drivers of tobacco use. Study after study has shown that,” Haddock said. As long as base stores not only sell tobacco but at a discount, “it sends a message that the military must not be serious about tobacco and health because they’re making it convenient and cheap.”

Minimum wage

Resale industry officials also blame President Barack Obama’s recent executive order raising the minimum wage in federal contracts to $10.10 an hour for forcing some base franchises to close.

Send comments to Military Update, P.O. Box 231111, Centreville, VA, 20120, email milupdate@aol.com or tweet @Military_Update.

LEAVE A COMMENT

Discussion | 2 comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

  • Dave ShreeveMarch 30, 2014 - 10:18 am

    Sequestration as an excuse is a crock. Sequestration didn't cut anything, it only reduced the amount of growth. Last year DoD still got more money in FY 2013 than it did in FY 2012, just not as much as originally planned.

    Reply | Report abusive comment
  • Rich GiddensMarch 30, 2014 - 2:18 pm

    Congress and the maladministration need to explain why they lost the war on terror. Seen it happen yet?

    Reply | Report abusive comment
.

Solano News

Suisun council candidates all voice business-friendly platforms

By Ian Thompson | From Page: A1 | Gallery

 
Theatre DeVille in Vacaville closes

By Barry Eberling | From Page: A1 | Gallery

 
Focus on school attendance now, always

By Mayrene Bates | From Page: A2

 
Pepperbelly’s for sale

By Ryan McCarthy | From Page: A3

Jury selection begins in 2011 Fairfield murder trial

By Jess Sullivan | From Page: A3

 
Seniors get help at Kroc Center health fair

By Barry Eberling | From Page: A3 | Gallery

Drug court success stories tell their tales

By Jess Sullivan | From Page: A3 | Gallery

 
Suisun City Senior Center seeks holiday donations

By Susan Hiland | From Page: A3

Lunafest returns to Fairfield in November

By Susan Hiland | From Page: A3

 
Weather for Sept. 18, 2014

By Daily Republic | From Page: B10

 
Fairfield police log: Sept. 16, 2014

By Susan Hiland | From Page: A10

Suisun City police log: Sept. 16, 2014

By Susan Hiland | From Page: A10

 
.

US / World

Emotions mount on final day of Scottish campaign

By The Associated Press | From Page: A1

 
More than 2,000 homes threatened in California fire

By The Associated Press | From Page: A4

Maps provide early warning of California fire risk

By The Associated Press | From Page: A4

 
School district police stock up free military gear

By The Associated Press | From Page: A5 | Gallery

NASA’s Maven spacecraft reaches Mars this weekend

By The Associated Press | From Page: A5

 
US military role in Iraq raises combat questions

By The Associated Press | From Page: A5

Police: Ambush suspect was military re-enactor

By The Associated Press | From Page: A5 | Gallery

 
House grudgingly approves arms for Syrian rebels

By The Associated Press | From Page: A5

Ex-VA doctor: Phoenix report a ‘whitewash’

By The Associated Press | From Page: A5

 
Doctor says Toronto Mayor Rob Ford has cancer

By The Associated Press | From Page: A6

US scientist: Ebola unlikely to become airborne

By The Associated Press | From Page: A6

 
Liberia president praises US for Ebola help pledge

By The Associated Press | From Page: A6

Obama reaffirms opposition to US combat in Iraq

By The Associated Press | From Page: A6

 
AP Interview: Iraq premier says no foreign troops

By The Associated Press | From Page: A6

.

Opinion

Give new crime report a chance

By Kelvin Wade | From Page: A7

 
Why Obama needs congressional authority to wage war

By Albert R. Hunt | From Page: A7

Democrats shouldn’t rely on pot and gay marriage

By Ramesh Ponnuru | From Page: A7

 
Homeless find welcome in Vallejo

By Letter to the Editor | From Page: A7

 
.

Living

Today in History: Sept. 18, 2014

By The Associated Press | From Page: A2

 
Community Calendar: Sept. 18, 2014

By Susan Hiland | From Page: A2

My brother fails to make an effort to when it comes to my kids

By Kathy Mitchell and Marcy Sugar | From Page: A9

 
Horoscopes: Sept. 18, 2014

By Holiday Mathis | From Page: A9

.

Entertainment

Directors Guild finds TV diversity hiring stalled

By The Associated Press | From Page: B4

 
TVGrid

By Daily Republic Syndicated Content | From Page: B4

U2 returns to iTunes Top 100 — 26 times

By Los Angeles Times | From Page: B4

 
.

Sports

Rodriguez gets 1st MEL soccer win since return to league

By Daily Republic staff | From Page: B1

 
Giants snap tie in 9th, beat Arizona to narrow gap in West to 2

By The Associated Press | From Page: B1

 
49ers’ Kaepernick fined for inappropriate language

By The Associated Press | From Page: B1 | Gallery

Sharks sign D Braun to 5-year, $19 M extension

By The Associated Press | From Page: B2

 
Rockets acquire Jason Terry, picks from Kings

By The Associated Press | From Page: B2

Panthers remove DE Greg Hardy from active roster

By The Associated Press | From Page: B2

 
Barry Bonds appeal heads back to court

By The Associated Press | From Page: B2

NFL, union agree to new drug policy, HGH testing

By The Associated Press | From Page: B2

 
Raiders rookie Derek Carr focuses on job at hand

By The Associated Press | From Page: B2 | Gallery

Pegulas’ bid to buy Bills OK’d by NFL committee

By The Associated Press | From Page: B2

 
FSU benches Winston for 1st half of Clemson game

By The Associated Press | From Page: B2

Umpire West suspended 1 game for grabbing jersey

By The Associated Press | From Page: B2

 
After making ‘mistake,’ Vikings bench RB Peterson

By The Associated Press | From Page: B2

.

Business

Brown signs ride-sharing insurance legislation

By The Associated Press | From Page: B5

 
US homebuilder confidence soars in September

By The Associated Press | From Page: B5

Anthem, hospitals join to offer new insurance plan

By The Associated Press | From Page: B5

 
Drag queens dress down Facebook over names

By The Associated Press | From Page: B5

Wells Fargo pays $290,000 in sex harassment case

By The Associated Press | From Page: B5

 
Fed signals plan to keep key rate at record low

By The Associated Press | From Page: B5

.

Obituaries

Margaret King

By Susan Hiland | From Page: A4

 
.

Comics

Beetle Bailey

By Daily Republic Syndicated Content | From Page: A8

 
Peanuts

By Daily Republic Syndicated Content | From Page: A8

Blondie

By Daily Republic Syndicated Content | From Page: A8

 
Zits

By Daily Republic Syndicated Content | From Page: A8

Dilbert

By Daily Republic Syndicated Content | From Page: A8

 
Wizard of Id

By Daily Republic Syndicated Content | From Page: A8

Sally Forth

By Daily Republic Syndicated Content | From Page: A8

 
Baldo

By Daily Republic Syndicated Content | From Page: A8

Get Fuzzy

By Daily Republic Syndicated Content | From Page: A8

 
For Better or Worse

By Daily Republic Syndicated Content | From Page: A8

B.C.

By Daily Republic Syndicated Content | From Page: A8

 
Garfield

By Daily Republic Syndicated Content | From Page: A8

Frank and Ernest

By Daily Republic Syndicated Content | From Page: A8

 
Rose is Rose

By Daily Republic Syndicated Content | From Page: A8

Pickles

By Daily Republic Syndicated Content | From Page: A8

 
Baby Blues

By Daily Republic Syndicated Content | From Page: A8

Sudoku

By Daily Republic Syndicated Content | From Page: A9

 
Bridge

By Daily Republic Syndicated Content | From Page: A9

Crossword

By Daily Republic Syndicated Content | From Page: A9

 
Cryptoquote

By Daily Republic Syndicated Content | From Page: A9

Word Sleuth

By Daily Republic Syndicated Content | From Page: A9