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New pricing program, private-label goods part of major commissary overhaul

May 4, 2017 (Photo Credit: Defense Commissary Agency)
Early results from widespread commissary pricing changes have shown little effect on shoppers' savings, a commissary official said, but some items could become more expensive thanks to greater price flexibility -- and the extra cash may not be going where customers expect.

Some price cuts stem from new, cheaper deals with manufacturers. But other price changes come as the Defense Commissary Agency takes advantage of new rules approved by Congress that allow stores to better line up prices with outside-the-gate competition. If an item is well under the regional price average, for instance, that item's price could go up, and the money saved could go toward bringing down another item's cost.

Or, it could go somewhere else. 

“We are generating margin for the first time in DeCA’s history,” said Chris Burns, DeCA's executive director of business transformation, at a recent conference in Richmond, Virginia. Burns uses the term “margin” rather than "profit" because the extra cash will go to reduce the amount of taxpayer dollars used to operate the stores.


Those tax dollars – about $1.3 billion a year – had allowed stores to sell all groceries at cost from the manufacturer/distributor plus a 5 percent surcharge, which is used to build and renovate stores. New rules passed as part of the annual defense authorization act mean customers, for the first time, are helping to pay for the benefit.  

And while the new pricing setup has shown no overall effect on savings under its limited rollout, that only applies to when customers buy the right selection of items, said Brooke Goldberg, director of military family policy and spouse programs for the Military Officers Association of America. Shoppers who may have bought goods because they were far underpriced compared to local vendors could see their savings vanish.  

“We hope Congress will exercise the full extent of its oversight in watching these reforms implemented,” Goldberg said. “This is one of the most valued non-pay benefits that military families have, and it’s not just military families. It’s retirees, and survivors and wounded warriors who all value going to the commissary to receive a savings, and know what they’re getting. 

“Now, [officials] are tossing it all in the air and reshuffling everything, and we don’t know what that’s going to look like.”

A PRICING PRIMER

Two separate pricing changes are in effect. In the first, 10 commissaries adjusted prices on about 1,000 items to better line up prices with area competitors. No product's price can go up by more than 10 percent, per DeCA guidelines, Burns said. 


The second, which rolled out April 1 in all 238 stores, lets officials look at specific categories to see what happens when they raise prices on some national brands, in order to help pay for operating costs. They also have negotiated lower prices from manufacturers on “a couple thousand” items, Burns said, so some costs could go down.

Not all savings will be passed on to customers. If DeCA's cost for an item drops by 10 cents, for instance, it may be sold at commissaries for its initial price, and that dime could go toward reducing the cost of another item in the store, or toward store operations, or both.

Some of those cents may also go somewhere else: Members of industry have expressed concern privately that the contractor hired to design the pricing program, Boston Consulting Group, will benefit from the arrangement. 

Some unofficial reports from members of industry familiar with the program say BCG gets as much as 50 percent to 60 percent of the amount the price is reduced. This arrangement has not been confirmed by commissary officials, who say they can’t release any information on additional fees, awards or incentives paid to BCG until they are determined at a later date, based on actual contract performance.  

Asked if any of the price reduction is going to a third party, Burns said it is not -- that it's going to either reducing prices on that particular item, reductions on other items, or to help fund store operations. It’s not clear whether consulting fees are included in store operations. 

Pressure on distributors and manufacturers to cut prices could mean cuts to special deals, sales or even scholarship donations, multiple sources said. It could also mean fewer brands from manufacturers  -- Duracell batteries, for instance, no longer will be sold in commissaries.
 

STORE BRANDING

As negotiations with brand-name manufacturers continue, the stores expect to roll out their first "private label" product, bottled water, by the end of May. Trash bags are expected in June, and more private-label products, also known as generics, will be rolled out gradually.  
 
The exact price of the private-label products has not yet been determined, said DeCA spokesman Kevin Robinson, who said the new items will "definitely be cheaper than regular national brands.”

While Congress has given DoD permission to implement the variable pricing and private label programs, lawmakers are monitoring the programs and their effects on commissary savings.

“We really believe a certain amount of caution should be exercised in implementing those changes to make sure that if they push patrons away, the changes are reversible,” MOAA's Goldberg said. “It will be a lot harder to get patrons back than it is to push them out the door.”   

Karen Jowers writes about military families, quality of life and consumer issues for Military Times. She can be reached at kjowers@militarytimes.com.

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