A top Pentagon official has quashed the idea of consolidating the military commissary and exchange systems, nearly two years after her predecessor ordered the merger to move forward.
Deputy Secretary of Defense Kathleen Hicks rescinded the previous memorandum and directed DoD “to cease all efforts to consolidate the Defense resale entities” in the April 4 memorandum, obtained by Military Times.
The Defense Commissary Agency, the Army and Air Force Exchange Service, the Navy Exchange Service Command and the Marine Corps Exchange “play a vital role in providing community services for our service members and their families,” Hicks wrote. The commissary is the military benefit for discounted groceries; the exchanges are retail stores that provide tax-free and discounted items. The exchanges also operate other programs, ranging from overseas school lunches to theaters and food outlets, depending on the service branch. Exchanges put part of their profits back into morale, welfare and recreation programs on military bases.
For years, some officials within DoD have taken aim at the cost of the commissary benefit in particular, which receives about $1 billion a year in taxpayer dollars to provide discount groceries to authorized customers in military communities around the world. In the fiscal 2023 budget proposal, DoD asks for $1.2 billion for the operation of the 236 commissaries.
DoD “previously considered consolidating the Defense resale entities; however recent studies have demonstrated that alternative approaches can realize the benefits of consolidation without the risks consolidation would bring to the mission of the Defense resale entities,” Hicks wrote.
Defense officials told Congress in August, 2021 that they were backing away from consolidation after further analysis showed consolidation was not feasible. DoD “no longer supports such a consolidation,” concluded the report to Congress, signed by Virginia Penrod, then-acting undersecretary of defense for personnel and readiness.
DoD began the effort to consolidate the year before the pandemic, following the findings of a task force’s 2018 study that concluded “the benefits of consolidating the defense resale entities far outweigh the costs.” That study, conducted with the help of the Boston Consulting Group, stated the consolidation would save $700 million to $1.3 billion of combined taxpayer and non-appropriated funds over a period of five years.
But questions were raised about the validity of that study. After a Government Accountability Office review, Congress ordered DoD to take another look at the findings.
DoD’s new analysis found the consolidation would actually require an additional $1.5 billion in costs that were understated in the 2018 analysis, according to the August report to Congress. The analysis had a “single-minded fixation” on cutting costs, diverting the focus away from the customer, the report stated. “Successful retailers are currently focused on digitization and the customer.”
The extra costs would have likely been borne by customers, quality of life programs on installations, or both, advocates said.
Long concerned that consolidation could pose a threat to the future of the commissary and exchange benefits, those advocates expressed concern that DoD was moving too quickly toward a merger.
The 2018 analysis and recommendations led to then-Deputy Secretary of Defense David Norquist giving the green light to consolidation in 2019, pending required changes in law that would allow consolidation.
Hicks’ memo rescinding Norquist’s memo outlines requirements for continuing to find additional savings and efficiencies by concentrating future efforts on structured collaboration between the DoD resale entities. Commissary and exchange officials will report on these accomplishments at least twice a year to the Defense Executive Resale Board, particularly in areas such as marketing, buying and information technology.
Early in the pandemic, defense officials designated commissaries as “mission critical,” which meant that the commissaries would stay open regardless of an installation’s health protection condition.
Commissaries were one of the few military quality of life benefits that stayed open on all military bases during the pandemic. Officials put a priority on getting food to overseas stores, where customers may have had few alternatives for getting food.