The Obama administration has joined the growing chorus of critics of a Senate proposal that takes steps to privatize commissaries.
"The administration has concerns with commissary privatization and the willingness of private sector entities to participate in such a project," said Tuesday's statement from the Office of Management and Budget.
A proposal included in the Senate Armed Services Committee's draft version of the 2016 defense authorization bill would require the Defense Department to develop a plan due by next March 1 to privatize the Defense Commissary Agency, wholly or in part, and assess the potential costs and benefits of such a move. DoD would have to test its privatization plan in at least five commissaries chosen from the commissary agency's largest U.S. markets.
The bill is before the full Senate on Wednesday, and Sen. Jim Inhofe, R-Okla., is expected to introduce an amendment to reverse the privatization plan.
Administration officials noted there is also an "independent study" underway to determine whether privatization is feasible, "and we should wait for those results prior to making any policy changes," according to the statement outlining the administration's views on a number of provisions in the Senate version of the 2016 defense authorization bill.
They did encourage Congress to allow DoD to pursue another pilot it has requested — using a contractor to operate commissary produce departments — to order, receive, service and manage the departments in more than two U.S. regions.
Administration officials applauded the Senate committee's provision that allows the commissary agency to raise prices in order to cover the cost of shipping commissary products overseas, which officials have said will probably increase prices worldwide in commissaries by about 2 percent. Commissary customers worldwide will share the cost of shipping the goods overseas.
But administration officials made no mention of the Senate committee's specific provision that would raise prices in all commissaries to cover the cost of operating expenses — one of the legislative changes that DoD had requested.
Meanwhile, two organizations wrote to leaders of the Senate defense committee, expressing their opposition to the provisions that would raise prices and would set in motion the process of privatizing the stores.
"These committee actions set in motion price increases and would severely damage a benefit long cherished by millions of beneficiaries who rely on commissaries to stretch their household budgets by providing a 30 percent discount on their groceries," wrote The Coalition to Save our Military Shopping Benefits, in a letter Monday.
They also expressed opposition to privatizing commissaries. "Privatizing commissaries to outside profit-making grocery chains places military families' relied-upon savings at the whim of private industry and squanders billions of dollars worth of commissary stores that military families have paid for out of their own pockets." The 5 percent surcharge at the cash register is used to fund construction and maintenance of stores.
The National Military and Veterans Alliance expressed similar concerns in a letter Tuesday.
"We urge Congress not to allow radical and irreversible changes to these critical benefits without studying the facts and assessing a broad range of direct and indirect consequences," they wrote.
Privatizing commissaries and raising product prices in stores, as the Senate Armed Services Committee has proposed, would undercut the traditional value of the commissary benefit for customers, business experts say.
"This is a conflict of interest that's not easily overcome — preserving the benefit versus increasing prices," said one military resale source who spoke on condition of anonymity.
"We've never taken a position on commissary privatization like we did with family housing. The economic need was never there," said Paul Taibl, vice president for policy at the nonprofit Business Executives for National Security.
BENS advocated for the privatization of family housing starting in the 1990s because the condition of the housing had fallen into such disrepair. Without privatization, the Defense Department wouldn't have been able to fix its dilapidated housing.
In contrast, Taibl said, "Our sense is the commissary benefit is generally held in high regard by service members. There are many other areas of the DoD infrastructure to look at before you go after the commissary benefit."
BENS has supported a "shared services" concept for commissaries and exchanges, which the group discussed with the Military Compensation and Retirement Modernization Commission that has recommended a number of changes in pay and benefits programs.
The commission looked specifically at the issue of privatizing commissaries, but made no recommendation.
"Since the commission recommends maintaining the current commissary benefit, privatization was not found to be a viable recommendation," said Bob Daigle, executive director of the commission.
"The commission's analysis indicated that this is probably not a feasible business model for private grocers," he said. "Unless subsidized by the government, grocery prices would have to rise to cover operating costs, which would reduce or eliminate the financial benefit to service members."
Daigle said the commission discussed privatization with many groups, including commissary representatives, former commissary employees, vendors, brokers and other DoD personnel. Discussions were also held with private-sector groups exploring the feasibility of privatization.
"However, these groups had not yet determined how current policies would need to be modified to accommodate privatized grocery stores or how operating a grocery store on a military installation would affect operating costs or profitability," he said.
The commission ultimately recommended consolidating commissaries and exchanges into one defense retail organization, which would allow "convenience items" to be sold at a profit in commissaries, while food and other essential items would continue to be sold at cost. Defense officials are still reviewing that recommendation.
Another review required by Congress is ongoing, with results due by Sept. 1. It's a broad-based study of a variety of aspects of commissary and exchange issues, including the effects of allowing "variable pricing" in commissaries — marking up the prices in order to pay for operating expenses and to reduce or eliminate taxpayer dollars used to support the system.
Among other things, the study is looking at consolidating all or part of the commissary system with the exchange systems.
No other retailer in America sells goods solely at the price prescribed by manufacturers, as commissaries do, noted Jed Becker, president and CEO of EURPAC Service Inc., a Connecticut-based distribution and marketing services company that does significant business with the military stores.
"The manufacturers themselves are competing in direct battle for the military purchase," Becker said. "It's elegantly simple, and elegantly forceful in delivering the best price. Manufacturers know every dollar they spend to reduce the price is going to encourage the consumer to buy the product."
As for privatization, Becker said someone first must determine what "success" will look like under that model, keeping in mind that commissaries in overseas and remote areas are likely to be needed in the long term, but are more expensive to operate — and less attractive to private companies.
Whatever company might choose to run the commissary system would continue to be owned by its shareholders, Becker noted, which would create "constant pressure to reduce the military benefit, for the benefit of shareholders" under a privatization model.
He suggested that defense officials and Congress address a very basic question before pushing ahead with privatization: Does the commissary and exchange benefit "cost more than it's worth?"
"How easy it is for those distant from the day to day operations of commissaries and exchanges to underestimate the effectiveness of the work they do. How easy it is for those who don't see them in operation every day to underestimate their competencies."