The next step in an ongoing Defense Department plan to consolidate the commissary and exchange systems is expected to begin in July, a Defense Department spokesman said.

A task force will delve into the financial feasibility of the move and develop organizational and operational plans for “above-the-store” structures of the Defense Commissary Agency, the Army and Air Force Exchange Service, Navy Exchange Service Command, and Marine Corps Exchange. A memorandum establishing the task force is in draft form, said Christopher Sherwood, a DoD spokesman.

The creation of a single consolidated organization offers the greatest potential to achieve the economies and efficiencies necessary for the survivability of the defense resale enterprise and the continued availability of these benefits to our Total Force and their families,” per a copy of the draft memo obtained by Military Times.

Such an organization would have lower overhead and operating expenses, Sherwood said, and would “preserve the many benefits” of the current system, “including spousal employment.”

Some military advocates have questions about the plan, including how much it will cost to consolidate the four entities, and what DoD would do with any boost to its bottom line.

“What’s the expectation about what the exchange profits will fund?” asked Joyce Raezer, executive director of the National Military Family Association. “Will they be taking money from [Morale, Welfare and Recreation programs] to meet the payroll at commissaries? MWR funding is for things the military services are not funding. Are you robbing one service to pay for another?”

Part of the profit from military exchanges goes to fund MWR programs. The draft memo doesn’t outline how that profit would be used under a consolidated system. However, a draft legislative proposal would allow an unspecified amount of those profits to be used to supplement taxpayer funding to operate the commissary.

Raezer also questioned how pricing would work under the new system. The draft legislative proposal for the consolidation states that commissary and exchange stores could be combined or separated physically, but that any “commissary” portion of an exchange store would sell its goods at commissary prices.

“What does that mean?” Raezer asked. “Does that include toilet paper and diapers?”

Out of the $1.3 billion in taxpayer dollars the commissary system gets each year to operate the system, about $800 million is spent on pay and benefits for the commissary workforce.

For years, some in the Pentagon have targeted that $1.3 billion, attempting to reduce the amount of taxpayer dollars going to the benefit and redirect them to other needs of the military, especially during times of budget cuts and sequestration.

Officials have been drafting a legislative proposal because the law would have to be changed in order to consolidate these resale systems. That proposal was not included in the initial House markup of the fiscal 2019 national defense authorization bill.

According to the draft memo, the task force will analyze the business case for consolidating the stores. If that analysis confirms the approach, the task force director will start the consolidation immediately and will perform the duties as the new “defense resale enterprise” interim, single director, until the permanent position is advertised and filled.

Once a memo is signed, and direction to establish a task force is published, Pentagon officials will ask for nominees for the task force from the various resale entities. Under the timeline in the draft memo, a task force that starts work in July would wrap up by late January, sources said.

Background documents note that commissary sales are down by 20 percent between 2012 and 2017, citing a variety of reasons. Changes need to be made, officials contend, to allow the commissary system to adapt more quickly to trends such as online ordering, technology-enabled shopping and curbside pickup.

The “guiding principles” for consolidation listed in the internal DoD document are:

  • Preserve the benefit.
  • Maintain or increase MWR dividends.
  • Maintain savings levels at commissaries and exchanges.
  • Minimize impacts to store operations (for example, no store closures).
  • Maintain “exceptional customer service and satisfaction throughout resale enterprise.”
  • Maintain military service equities, brands and mission responsiveness.
  • Improve the governing structure thorough a single board of directors.

Officials in the office of DoD’s chief management officer have been working on various areas of reform for more than a year, including the community services area, which includes commissaries and exchanges, MWR programs, family support services and the DoD primary and secondary school system.

The Navy Exchange and commissary at Naval Support Activity Annapolis, Md., sat side-by-side for 35 years until a new commissary opened in 2014. (Nancy O'Nell/DeCA)
The Navy Exchange and commissary at Naval Support Activity Annapolis, Md., sat side-by-side for 35 years until a new commissary opened in 2014. (Nancy O'Nell/DeCA)

“The Reform Management Group agreed that these community services are recognized as non-pay benefits or perceived as beneficial to the Department’s mission, recruiting, retention, and readiness, so should not be divested or discontinued,” the draft memo states.

Consolidation of commissaries and exchanges has been the subject of numerous studies in the last several decades. In 2015, the Military Compensation and Retirement Modernization Commission recommended consolidating the commissary and three exchange systems into one entity to be called the Defense Resale Activity. A number of the recommendations within that proposal are similar to DoD’s current direction, such as plans for one executive director to oversee the system, a single board of directors and the consolidation of many back-end and support functions.

In October, 2015, Peter Levine, then-deputy chief management officer of DoD, said he and other officials “believe we can get efficiencies without consolidation.”