Page 1 GAO-05-470R Defense Infrastructure

United States Government Accountability Office

Washington, D.C. 20548

A

April 26, 2005

The Honorable John Warner 

Chairman

The Honorable Carl Levin

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Duncan Hunter

Chairman

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representatives

Subject: Policy and Criteria Used to Assess Potential Commissary Store 

Closures

As part of its pay and benefits package for service members, the 

Department of Defense (DOD) operates supermarket-type stores called 

commissaries to provide service members and their families with groceries 

and authorized household supplies at the lowest practical price. The 

Defense Commissary Agency (DeCA), DOD’s designated agency for 

managing commissary stores, operates 273 commissary stores in the 

United States and abroad. To ensure efficient operation of the commissary 

stores, all commissary stores are assessed annually to determine whether 

there should be any operational changes or possible store closures. The 

Office of the Under Secretary of Defense (Personnel and Readiness), which 

has oversight responsibility for DeCA operations, can either endorse or 

change the results of the assessments or direct additional actions. In 

August 2003, the Office of the Under Secretary of Defense (Personnel and 

Readiness) proposed that the military services consider the closure of 

14 commissary stores not previously under consideration for closure. 

Subsequently, various members of Congress raised questions about these 

proposed actions, including whether DOD’s policy and criteria for deciding 

whether to close commissary stores adequately considered the impact on 

quality of life of service members and their dependents. Congress, in 

enacting the fiscal year 2005 defense authorization act, included a 

provision mandating that quality of life be a primary consideration in the 

closure decision-making process.
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In response to a mandate in the Ronald W. Reagan National Defense 

Authorization Act for Fiscal Year 2005,1

 we examined DeCA’s policies and 

process for analyzing commissary stores for potential closure. Our 

objectives were to review (1) the policy and criteria used to analyze 

potential commissary store closures, determining whether these policies 

and criteria are consistent with the policies on preserving quality of life for 

the armed forces, and (2) any studies or assessments conducted to close 

commissary stores.

We performed our work at DeCA headquarters located at Fort Lee, Virginia; 

DeCA- East, Virginia Beach, Virginia; the Commissary Operating Board 

(COB); and the Office of the Under Secretary for Defense (Personnel and 

Readiness). To address our objectives, we reviewed regulations, policies, 

and guidance related to the closure of commissary stores. We also 

reviewed a March 2005 policy memo that implements the congressional 

direction contained in the Ronald W. Reagan National Defense 

Authorization Act for Fiscal Year 2005. In addition, we reviewed 

commissary store performance assessments for fiscal years 2001 through 

2004 and discussed data reliability with officials in the Office of the 

Secretary of Defense. Finally, we interviewed officials at DeCA 

headquarters, the COB, and in the Office of the Under Secretary of Defense 

(Personnel and Readiness) regarding how they balance business and 

quality of life factors in making decisions about whether to close 

commissary stores. We determined that the data used were sufficiently 

reliable for the purposes of this review. We conducted our review from 

January through April 2005 in accordance with generally accepted 

government auditing standards.

Summary Based on a recent legislative requirement, the Office of the Secretary of 

Defense issued new policy guidance in March 2005 to reinforce and ensure 

that quality of life will be a primary consideration in all future assessments 

of commissary operations. No assessments have been conducted under the 

revised guidance.

Annual assessments of commissary stores’ performance have been 

conducted in recent years to determine whether operational changes were 

needed or whether potential store closures should be considered. 

1

 Pub. L. No. 108-375, § 597(b) (Oct. 28, 2004).
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Consistent with the criteria in effect at that time, each assessment 

considered both quality of life and business factors. After reviewing DeCA’s 

fiscal year 2002 annual assessment in August 2003, the Office of the 

Principal Deputy Under Secretary of Defense (Personnel and Readiness) 

proposed that DeCA consider closing 14 commissary stores primarily 

because financial goals were not met or because too few active-duty 

personnel were present. This decision was apparently inconsistent with 

DOD policy requiring that quality of life and business factors be considered 

in the aggregate. Significant concerns were expressed by the military 

services and members of Congress over the closure of the 14 stores. DOD 

subsequently decided to keep the 14 stores open, 6 because of their 

improved financial performance and 8 because of quality of life concerns 

and other factors. DeCA headquarters did not recommend any store 

closures in the 2004 assessment process, the results of which are currently 

being reviewed within the Office of the Under Secretary of Defense 

(Personnel and Readiness).

Background Commissary stores are located in 46 states and 14 foreign countries. 

Headquartered at Fort Lee, Virginia, DeCA is DOD’s designated agency for 

managing commissary stores worldwide. As of September 30, 2004, DeCA 

had 273 stores with annual sales of about $5 billion. The COB, which 

consists of representatives from each of the military services, has day-today operational oversight responsibilities for DeCA. The Under Secretary 

of Defense (Personnel and Readiness) exercises overall supervision of the 

commissary store system.

DeCA’s mission is to provide beneficiaries with groceries and authorized 

household supplies at the lowest practical price, charging patrons only for 

the cost of goods plus a 5 percent surcharge. The funds generated by the 

surcharge are used to acquire (including acquisition by lease), construct, 

repair, maintain, and equip the physical infrastructure of commissary 

stores and central product processing facilities. Additionally, the recovered 

cost-of-goods sold is rolled over to purchase replacement inventory. In 

fiscal year 2005, DeCA also received about $1.2 billion in direct 

appropriations from Congress for its annual operating expenses. This 

appropriation pays for employees’ salaries, transportation, some abovestore-level information technology, and other expenses. Any savings in 

stores’ operating costs do not affect the cost of merchandise sold in the 

commissary stores because such savings reduce the need for appropriated 

funds.
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All commissary stores have been subject to annual performance 

assessments to determine whether there should be any operational 

changes or possible store closures. Since fiscal year 2001, DOD’s policy 

required these assessments to consider both quality of life and business 

factors, as seen in table 1.2

Table 1: Selected Assessment Criteria for Commissary Stores 

Source: GAO analysis of DOD data.

The annual assessment process includes the collection of sales and cost 

data for each store. Information is also collected on patron demographics, 

projected mission and force structure changes at the base where the 

commissary store is located, proximity to the nearest commissary and 

alternative commercial stores, and remoteness of the installation. Based on 

these assessments, DeCA headquarters recommends any needed store 

closures, the creation of combined stores, as well as any changes in store 

operations to the COB.3

 The COB can either endorse or change the 

proposed actions, based upon the judgment and needs of the participating 

service representatives. The COB then forwards the recommendations to 

the Principal Deputy Under Secretary of Defense (Personnel and 

Readiness) for final approval. The Principal Deputy Under Secretary of 

2

 Annual commissary assessments are mandated by Armed Services Commissary 

Regulation, DOD 1330.17-R, and the Principal Deputy Under Secretary of Defense 

(Personnel and Readiness) policy memo of June 8, 2004.

Factor Criteria

Quality of life • Presence of an active duty mission and at least 100 active personnel assigned to the installation.

• Capacity of other commissaries in the area to adequately support the customer base within a reasonable 

distance. Reasonable distance and time are defined as 20 miles or 30 minutes travel one way.

• Proximity to alternate civilian shopping.

Business case • Unit cost of operations.

• Historical and projected sales data.

• Fifteen year forecast of the installations’ patron demographics and mission changes.

• Funding needed to sustain efficient and effective operations of an existing commissary.

3

 According to DeCA officials, the general policy is to close a commissary store on an 

installation that is closed as a result of base closure. However, subject to general and 

economic criteria, DOD may authorize a commissary store to remain open or operate as a 

downscaled commissary or allow the exchange service to operate a combined store to serve 

any remaining active-duty or reservist personnel and retirees.
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Defense can either endorse or change the proposed action or recommend 

additional actions.

New Policy Guidance 

Issued

In March 2005, DOD issued new policy, based on congressional direction, 

to ensure that quality of life is a primary factor considered in evaluating 

whether commissary stores should be closed and that the quality of life of 

active-duty service members’ dependents and members of the reserve 

components is also considered. No assessments of commissary stores have 

been conducted under the new policy.

Results of Prior 

Assessments

Prior to the issuance of new policy, DOD’s policy and criteria for assessing 

the potential closure of commissary stores required that both quality of life 

and business factors be considered, which is consistent with DOD’s 

policies to preserve quality of life for service members.4

 The quality of life 

factors consider the number of active duty personnel, remoteness of the 

duty stations, distance to the nearest alternative commissary store, and 

availability of civilian shopping facilities, while the business factors include 

the current and projected sales and cost of operations. DOD’s policy 

required that the criteria should be applied in the aggregate for the 

commissary store program and not in isolation. Thus, a commissary store 

with high operating costs relative to sales, but in a remote location, might 

not be closed because of the negative effect closure would have on activeduty service members’ quality of life.

4

 DOD policy regarding service member quality of life is a result of the goals expressed in 

Department of Defense, A New Social Compact: A Reciprocal Partnership Between the 

Department of Defense, Service Members and Families (July 2002). This social compact 

identifies commissary stores as an important nonpay compensation benefit for service 

members and their families.
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Since 2001, DeCA has recommended the closure of 12 commissary stores. 

Six of these stores were closed because they were on installations that 

closed.5

 Three more stores were closed because of aging facilities, 

declining customer base, declining sales, high unit costs, and close 

proximity to another commissary.6

 However, the COB deferred the 

recommended closure of two additional stores, which remain open 

because of quality of life, and one store because of prior arrangements to 

support a contractor workforce.7

After reviewing DeCA’s fiscal year 2002 annual assessment, which 

recommended the closure of 2 stores (one on an installation that was 

closing and another because there was less than 100 active-duty 

personnel),8

 the Principal Deputy Under Secretary of Defense (Personnel 

and Readiness) recommended that as many as 14 additional commissary 

stores be closed. The operating costs of these 14 stores in fiscal year 2002 

were about $6.5 million, or less than 1 percent of DeCA’s annual 

appropriations. Depending upon improvement in fiscal year 2003, 6 of these 

14 stores were recommended for closure by the Principal Under Secretary 

of Defense because their unit costs were very high compared to DeCA’s 

overall unit cost,9

 as shown in table 2.

5

 According to DeCA officials, these six stores were Presidio of San Francisco, California; 

Winter Harbor, Maine; Roosevelt Roads, Puerto Rico; Bad Aibling, Germany; Bad 

Kreuznach, Germany; and Costanzo, Italy. 

6

 These three stores were Point Mugu, California; New Cumberland, Pennsylvania; and Fort 

Monroe, Virginia.

7

 These three stores were Fort Greeley, Alaska; Mitchel Field, New York; and Sagami Depot, 

Japan.

8

 These 2 are part of the 12 commissary stores noted above.

9

 Unit cost is determined by dividing store operating costs by annual sales.
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Table 2: Unit Cost Comparison for Commissary Stores Recommended for Closure 

Source: GAO analysis of DeCA assessment data.

Service officials stated these six commissary stores had existed primarily 

for quality of life reasons and should not be evaluated strictly on business 

factors such as unit cost. They believed that the Principal Deputy Under 

Secretary of Defense (Personnel and Readiness) failed to consider the 

difficulty that patrons could encounter in getting to the next nearest 

commissary due to terrain, urban congestion, or security concerns. 

Likewise, service officials noted that service members and their 

dependents cannot always find products in alternate overseas civilian 

shopping locations that typically could be purchased in stateside civilian 

shopping locations.

The Principal Deputy Under Secretary of Defense (Personnel and 

Readiness) recommended the remaining eight commissary stores10—7 

overseas and 1 in the United States—for closure because they served fewer 

than 100 active-duty members or there was another commissary store in 

close proximity. Army and Navy officials noted that these commissary 

stores also existed because of other quality of life concerns. For example, 

some of these overseas commissary stores were located in housing areas, 

improving quality of life by providing easy and safe access. Army and Navy 

officials also noted that some families overseas only have one vehicle, 

which is used during the day by the active-duty service member, leaving no 

transportation available for the dependents. In other overseas locations, 

patrons face difficult winter conditions, limited public transportation, and 

dangerous roads, especially in remote mountainous terrain. Likewise, for 

Commissary Fiscal year 2002 unit cost

Yuma Proving Ground, Arizona .51

Lakehurst , New Jersey .40

Dahlgren, Virginia .35

Kelley Barracks, Germany .47

Hario, Japan .42

Pusan, Korea .48

DeCA overall unit cost .21

10 These eight commissary stores were: Dugway Proving Ground, Utah; Idar-Oberstein, 

Germany; Neubrucke, Germany; Panzer Kaserne, Germany; Camp Kure, Japan; Sagami 

Depot, Japan; Sagamihara, Japan; and Chinhae, Korea
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the U.S. commissary, Army officials noted that nearest commissary to 

Dugway Proving Ground is over 100 miles away, and alternative civilian 

shopping is nearly 40 miles away. By May 2004, DOD decided that all 14 

commissary stores could remain open because they were now meeting 

financial goals or were needed to maintain quality of life for service 

members.

DeCA did not recommend any commissary store closures in its 2004 

assessment that is currently being reviewed within the office of the Under 

Secretary of Defense (Personnel and Readiness). However, because of 

existing agreements with the host nations, three overseas commissary 

stores will close in fiscal year 2005, and two other overseas stores will 

consolidate to improve customer service and maximize efficiencies.11

Agency Comments In commenting on a draft of this report, the Deputy Under Secretary of 

Defense (Military Community and Family Policy) concurred with the 

report. The department provided various technical comments which were 

incorporated as appropriate. DOD’s comments are reprinted in the 

enclosure of this report.

We are sending copies of this report to the Secretary of Defense; the Under 

Secretary of Defense (Personnel and Readiness); the Chairman, 

Commissary Operating Board; the Director, Defense Commissary Agency; 

and the Director, Office of Management and Budget. In addition, the report 

will be available at no charge on GAO’s Web site at http://www.gao.gov and 

to others upon request.

11 Camp Howze, Korea, closed November 30, 2004, and Camp Page, Korea, will close March 

31, 2005, in accordance with a United States/Republic of Korea Land Partnership 

Agreement, and Rhein-Main, Germany, will close September 30, 2005 when the United States 

Air Force Europe relocates its military airlift mission. The Naples and Gricignano, Italy, 

commissaries will be consolidated at Gricignano to meet Navy restationing needs. 
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Please contact me at (202) 512-5581 if you or your staff have any questions 

concerning this report. Major contributors to this report were Michael 

Kennedy, Paul Gvoth, Julia Matta, and Renee Brown.

Barry W. Holman

Director, Defense Capabilities

and Management
Page 10 GAO-05-470R Defense Infrastructure

Enclosure I

Comments from the Department of Defense EncolsureI

(350629)
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