Sunday, March 29, 2015

Merged eyed for exchanges, commissaries

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 [email protected] or tweet @Military_Update.


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

Vanden High library project nears completion

By Bill Hicks | From Page: A1 | Gallery

Vanden girls end stellar season

By Brian Arnold | From Page: C1, 1 Comment | Gallery

Cheers for Jupiter – and roller derby

By Brad Stanhope | From Page: A2, 2 Comments

Red Cross volunteers help assemble first aid kits

By Bill Hicks | From Page: A3 | Gallery

PG&E helps replace stolen equipment

By Bill Hicks | From Page: A3

Justin-Siena names new principal

By Bill Hicks | From Page: A3

Vacaville police make arrest after pursuit

By Bill Hicks | From Page: A3, 3 Comments | Gallery

Vacaville bridal, quinceanera show a hit

By Susan Hiland | From Page: A5

Event benefits child who attends Cambridge School

By Susan Hiland | From Page: A5 | Gallery

Free paper shredding option returns to Fairfield

By Susan Hiland | From Page: A5 | Gallery

Best barometer of investment success: Wealth

By Mark Sievers | From Page: B8

Tips on hydrozoning your garden

By Tina Saravia | From Page: B8, 2 Comments

Fairfield police log: March 27, 2015

By Susan Hiland | From Page: A12, 2 Comments

Suisun City police log: March 27, 2015

By Susan Hiland | From Page: A12


US / World

Crash victim’s father calls for more focus on pilot welfare

By The Associated Press | From Page: A1

Experts: Sex bias case will embolden women despite verdict

By The Associated Press | From Page: A1

Popular Yosemite National Park lookout opens early in season

By The Associated Press | From Page: A9

Some British Airways frequent flier accounts miles breached

By The Associated Press | From Page: A11

7 shot and injured at Florida spring break house party

By The Associated Press | From Page: A11

Boko Haram kills 39, legislator, disrupting Nigeria election

By The Associated Press | From Page: A11

Official: Al-Shabab siege at Somali hotel ends, 24 dead

By The Associated Press | From Page: A11

Bird flu found in a top Minnesota turkey producing county

By The Associated Press | From Page: A11

Islamic fighters led by al-Qaida in Syria seize major city

By The Associated Press | From Page: A13



Today in History: March 29, 2015

By The Associated Press | From Page: A2

Community Calendar: March 29, 2015

By Susan Hiland | From Page: A2

Pope finds popularity and dissent at 2-year mark

By The Associated Press | From Page: C3

Truth does not change

By The Rev. Art Zacher | From Page: C3, 24 Comments

Horoscopes: March 29, 2015

By Holiday Mathis | From Page: B8

Daughter choses stepdad over father to walk her down the aisle

By Kathy Mitchell and Marcy Sugar | From Page: B8




By The Associated Press | From Page: A10

Second Julie Andrews memoir expected in 2017

By The Associated Press | From Page: A10

Chrissie Hynde memoir coming in September

By The Associated Press | From Page: A10


By Daily Republic Syndicated Content | From Page: B12



Warriors beat Bucks 108-95, clinch top seed in West

By The Associated Press | From Page: B1

Wisconsin heads to Final Four after 85-78 win over Arizona

By The Associated Press | From Page: B1

Burns scores winner in SO to lift Sharks past Flyers, 3-2

By The Associated Press | From Page: B1

Jenest pitches SCC baseball team to shutout of Contra Costa

By Daily Republic staff | From Page: B2

AP sources: Texas fires coach Barnes after 17 years

By The Associated Press | From Page: B2

Kazmir, Quintana both strong; A’s beat White Sox 10-4

By The Associated Press | From Page: B2

Zunino homers twice, but Giants rally to edge Mariners 9-8

By The Associated Press | From Page: B2

Gordon, Earnhardt among the winners and fans of Martinsville

By The Associated Press | From Page: B2

Prince Bishop wins Dubai World Cup, California Chrome 2nd

By The Associated Press | From Page: B2

Serena Williams easily wins opening match at Miami Open

By The Associated Press | From Page: B2

Power leads Penske sweep in qualifying for IndyCar opener

By The Associated Press | From Page: B2

Revolution win first of season, beating Earthquakes 2-1

By The Associated Press | From Page: B2

Jimmy Walker leads hometown Texas Open

By The Associated Press | From Page: B3



A glance at women in leadership roles in business worldwide

By The Associated Press | From Page: B8

For business, more women in charge means bigger profits

By The Associated Press | From Page: B8 | Gallery

US drillers scrambling to thwart OPEC threat

By The Associated Press | From Page: B8 | Gallery

Test trial to use computer servers to heat homes

By The Associated Press | From Page: B14



Betty Mason

By Nancy Green | From Page: A4

Tiffany Lyn (Helzer) Kemp

By Nancy Green | From Page: A4

Richard F. Coleman

By Nancy Green | From Page: A4

James Lee Lewis

By Nancy Green | From Page: A4

Helen Kalis

By Nancy Green | From Page: A4

Carol A. Vose

By Nancy Green | From Page: A4