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i 

98–890 2016

[H.A.S.C. No. 114–81] 

VIEWS ON COMMISSARY REFORM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MILITARY PERSONNEL 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

JANUARY 13, 2016 
(II) 

SUBCOMMITTEE ON MILITARY PERSONNEL 

JOSEPH J. HECK, Nevada, Chairman 

WALTER B. JONES, North Carolina 

JOHN KLINE, Minnesota 

MIKE COFFMAN, Colorado 

THOMAS MACARTHUR, New Jersey, Vice 

Chair 

ELISE M. STEFANIK, New York 

PAUL COOK, California 

STEPHEN KNIGHT, California 

SUSAN A. DAVIS, California 

ROBERT A. BRADY, Pennsylvania 

NIKI TSONGAS, Massachusetts 

JACKIE SPEIER, California 

TIMOTHY J. WALZ, Minnesota 

BETO O’ROURKE, Texas 

DAVE GIACHETTI, Professional Staff Member 

CRAIG GREENE, Professional Staff Member 

COLIN BOSSE, Clerk 
(III) 

C O N T E N T S 

Page 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Davis, Hon. Susan A., a Representative from California, Ranking Member, 

Subcommittee on Military Personnel ................................................................. 1 

Heck, Hon. Joseph J., a Representative from Nevada, Chairman, Subcommittee on Military Personnel .................................................................................... 1 

WITNESSES 

Goldberg, Brooke, Deputy Director for Government Relations, Military Officers Association of America ................................................................................. 8 

Gordy, Thomas T., President, Armed Forces Marketing Council ........................ 4 

Huck, Eileen, Government Relations Deputy Director, National Military Family Association ....................................................................................................... 6 

Nixon, Patrick B., President, American Logistics Association ............................. 2 

APPENDIX 

PREPARED STATEMENTS: 

Goldberg, Brooke .............................................................................................. 95 

Gordy, Thomas T. ............................................................................................. 62 

Heck, Hon. Joseph J. ........................................................................................ 27 

Huck, Eileen ...................................................................................................... 84 

Nixon, Patrick B. .............................................................................................. 28 

DOCUMENTS SUBMITTED FOR THE RECORD: 

Testimony of American Federation of Government Employees .................... 109 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Jones ........................................................................................................... 117 

(1) 

VIEWS ON COMMISSARY REFORM 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, SUBCOMMITTEE ON MILITARY PERSONNEL, Washington, DC, Wednesday, January 13, 2016. 

The subcommittee met, pursuant to call, at 10:30 a.m., in room 

2118, Rayburn House Office Building, Hon. Joseph J. Heck (chairman of the subcommittee) presiding. 

OPENING STATEMENT OF HON. JOSEPH J. HECK, A REPRESENTATIVE FROM NEVADA, CHAIRMAN, SUBCOMMITTEE ON 

MILITARY PERSONNEL 

Dr. HECK. Well, good morning. I want to welcome everyone today 

to today’s Military Personnel Subcommittee’s hearing on commissary reform. We are here today to hear from military service organizations and the grocery retail industry on the value of the commissary system to beneficiaries and the effects of any possible 

changes to the commissary’s business model. As we are all well 

aware, commissary benefits are a valued part of our current and 

retired service member’s compensation package and contribute to 

their and their family’s overall quality of life. 

The Military Personnel Subcommittee is taking every opportunity to thoroughly review and discuss the way forward on any 

commissary reform, and is committed to retaining the commissary 

benefit while improving the business practices of the commissary 

system and at the same time reducing its dependence on appropriated funds. 

Our purpose today is to gain an understanding from the panel 

on their views of the possible effects to the beneficiaries or to the 

business practices of our industry partners of any changes to the 

commissary system business model. 

Before I introduce my panel, I would like to offer Congresswoman Davis an opportunity to make any opening remarks. 

[The prepared statement of Dr. Heck can be found in the Appendix on page 27.] 

STATEMENT OF HON. SUSAN A. DAVIS, A REPRESENTATIVE 

FROM CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON 

MILITARY PERSONNEL 

Mrs. DAVIS. Thank you very much, Mr. Chairman. And thank 

you to all of our witnesses. Good to see all of you here today. Our 

panel represents beneficiaries as well as retail industry partners 

that work with the commissary system. 

I think we can all agree that what is paramount in this discussion is that the commissary benefit must be maintained. How that 
2 

happens, though, and what the system will look like is what we are 

here to discuss. Change is never easy, we know, but in today’s fiscal environment, it is required. This committee certainly has met 

several times since the release of the Boston Consulting Group 

[BCG] report, and we have heard from the BCG, as well as the Department of Defense [DOD], on ways to sustain the commissary 

benefit even when we know and we hear that many feel that the 

commissary system is just not sustainable as it is currently today. 

I was pleased to hear from DOD leadership that they concur with 

the report. Regardless of how much reform is done to create a more 

efficient business model, keeping the savings that are realized 

today for patrons is critical. 

As we wait to see what the Department will submit to Congress 

for this year’s NDAA [National Defense Authorization Act], I would 

encourage all of us, all of you to work with the DOD and help us 

reform a system that will endure into the future. 

I look forward to hearing from our witnesses as we work to responsibly and efficiently protect the commissary benefit for our 

service members and families. 

Thank you, Mr. Chairman. 

Dr. HECK. Thank you, Mrs. Davis. 

I now ask unanimous consent that the following testimony be entered into the record from the American Federation of Government 

Employees. Without objection, so ordered. 

[The information referred to can be found in the Appendix on 

page 109.] 

Dr. HECK. I also want to let our panel know that votes are scheduled some time between 11:15 and 11:30. We will push to 11:30 

until the clock actually runs to zero on the vote. My goal is to get 

the hearing completed so we don’t have to hold you here while we 

go vote. 

We are joined again today by an outstanding panel. We will give 

each witness the opportunity to make opening comments and each 

member an opportunity to question the witnesses. I respectfully 

ask the witnesses to summarize to the greatest extent possible the 

high points of their written testimony in no more than 5 minutes. 

Your complete written statements will be entered into the hearing 

record. As a reminder, the lights in front of you will turn yellow 

when you have one minute remaining and red when your time has 

concluded. 

We are joined today by Mr. Patrick Nixon, President of the 

American Logistics Association; Mr. Tom Gordy, President of the 

Armed Forces Marketing Council; Ms. Eileen Huck, Government 

Relations Deputy Director for the National Military Family Association; and Ms. Brooke Goldberg, Deputy Director for Government 

Relations, Military Officers Association of America. 

With that, Mr. Nixon, you are recognized for 5 minutes. 

STATEMENT OF PATRICK B. NIXON, PRESIDENT, AMERICAN 

LOGISTICS ASSOCIATION 

Mr. NIXON. Thank you, Mr. Chairman, distinguished ranking 

member, Mrs. Davis, committee members, and staff. It is an honor 

once again to appear before you representing the member compa-
3 

nies of the American Logistics Association and to provide views on 

commissary reform. 

Mr. Chairman, we are always open to new go-to-market strategies, however, we need to play the cards that we actually have 

been dealt. Until the new FYDP [Future Years Defense Program] 

is approved, we are facing a $1 billion reduction in commissary 

funding in 2017. The GAO [Government Accountability Office] review on privatization is supposed to be completed February 1st. We 

don’t know what that is going to say. Until DOD submits its report 

requested by the 2016 NDAA on key topics to include a new twist, 

budget neutrality, we do not know the way ahead. But Mr. Chairman, with these negative headwinds, it is not a time to put one’s 

head in the sand, and we are not the association of no. We are, in 

fact, bolstered by positive indicators. 

First, Mr. Chairman, you and Chairman Thornberry have consistently said that the funding levels for defense should be driven 

by strategy, and not the other way around. As a subset of national 

defense, this translates directly for resale programs as well. This 

committee has affirmed its belief in the value of the resale benefit 

and its commitment to preserving it. It is the next iteration of this 

evolution taking concepts to practice where we face the most peril. 

Mr. Chairman, on the DOD side, there is a new sheriff in town. 

Peter Levine as the Deputy Chief Management Officer has presented a more tempered view of the way ahead. He has also stated 

the strategy needs to drive the budget. We also understand that 

DOD feels the need to conduct a series of pilots to sort out an alternative universe for military resale. This is where we say, proceed 

with extreme caution. 

Mr. Chairman, I have been in this business for a long time and 

I have concluded that there are three pillars of influence that must 

be measured in any strategic discussion moving a resale program 

forward: patron confidence, supplier confidence, and retailer confidence. 

Patron confidence in the current business model is rock solid. In 

the commissary, it is goods at cost with a surcharge. It is the ultimate company store. The patron invests in the system through the 

surcharge, they build their own stores. It is a brand name business. 

Items only make it in the system if they have a demonstrated retail presence in the private sector, they only remain in the system 

if they have a demonstrated customer preference. Its strength is 

predictability. In a pilot that proposes to change product pricing, 

whether by store or region, can you improve on the current level 

of predictability? If you introduced a private label program that requires a retailer to price, position, and promote a product line with 

artificial customer preference in order to make a profit, can you improve on the current level of predictability? What are you going to 

tell the patron? This is their store. This is the model they trust. 

Supplier confidence is equally important. Brand name goods at 

cost create a one-of-a-kind business environment. It is the ultimate 

supply and demand ecology. Patron preference drives what is on 

the shelf and what stays on the shelf. There are no hidden retail 

activities like sliding fees, promotional skimming, or advertising 

pools. Under audited price warranties, the military retailer gets the 

best pricing from the manufacturer. Manufacturers contribute al-
4 

most $500 million in costs to offset annually the system through 

promotional trade spending, stocking, display building, inventory 

management, and special military events. The introduction of a different pricing model and private label changes the game. What will 

be the reduction in support from industry if you change the model? 

What will be the cost to the retailer to develop, position, price, and 

promote a private label introduction, once again, with artificial patron preference built in? You will be removing proven name brand 

value items to position private label items to make a profit. What 

will be the impact on supplier confidence as these pilots proceed? 

Finally, there is retailer confidence. First, the exchanges are 

probably saying, why am I here in this discussion? This is a commissary issue. The fact is the carefully constructed economic ecology and the military resale system is forever interlocked. During 

the last government shutdown when commissaries were closed, exchanges dropped sales 30 percent. Exchanges are extremely interested in proposed commissary pilots. What if they fail? What will 

be the impact of patron confidence on their traffic and sales? 

On the commissary side, this is uncharted territory. They have 

done an exceptional job at administering the cherished military 

benefit, but becoming a retailer is different. They have weathered 

a government shutdown, employee furloughs, and now they await 

a privatization study, a budget neutral discussion, and the outlook 

of a non-appropriated fund workforce. Reminds me of the saying, 

the beatings will continue until morale improves. 

When it is all said and done, these discussions will be critical for 

preserving this important benefit or moving forward. I commit the 

resources and expertise of the American Logistics Association to 

make this move forward successful. 

Thank you for this opportunity to participate, and I look forward 

to our discussions, Mr. Chairman. 

[The prepared statement of Mr. Nixon can be found in the Appendix on page 28.] 

Dr. HECK. Thank you, Mr. Nixon. 

Mr. Gordy. 

STATEMENT OF THOMAS T. GORDY, PRESIDENT, ARMED 

FORCES MARKETING COUNCIL 

Mr. GORDY. Chairman Heck, Ranking Member Davis, and distinguished members of the Personnel Subcommittee, thank you for 

your commitment to our warriors and their families, who continue 

to tirelessly serve and sacrifice in defense of our Nation. And thank 

you for the opportunity to share views on behalf of the Armed 

Forces Marketing Council regarding efforts to reform the commissary benefit. 

As you are aware, to date there are no specific reforms that have 

been publicly proposed by the DOD since the NDAA was passed 

and signed into law last month, but from that law, we are very 

grateful for the committee’s work to establish benchmarks for any 

potential reform efforts, which include ensuring high levels of customer satisfaction, the provision of high-quality products, and the 

sustainment of discount savings. 

As we begin our discussion today, we believe it is helpful to remember that it was Congress who established this benefit as a 
5 

non-pay compensation benefit for military personnel. The model 

that Congress forged is one that is as brilliant as it is simple: offering products at cost plus 6 percent to provide military families a 

non-pay compensation benefit. 

While no specific formal proposals have been offered to the committee over the course of the past 2 years, suggestions have been 

offered for commissary reform by both the Military Compensation 

and Retirement Modernization Committee and the Boston Consulting Group that would alter the model. The suggestions call for 

a more complex operational model through untested and underanalyzed pricing schemes and adjustments to product assortment, 

which will require growth in both personnel and operational costs. 

Since it is highly unlikely that appropriations will be increased 

to cover these costs, the revenue will have to be generated, and it 

can only come from one source, and that is the military family. 

The suggestions that have been offered are based on assumptions 

that product and pricing schemes are manageable and would still 

offer a benefit to military families, but even the suggestions have 

a caveat that they need to be further analyzed. We agree. And we 

also believe that full spectrum analysis should be conducted on all 

efforts that would change DeCA’s [Defense Commissary Agency’s] 

fundamental mission and seek to generate revenue from military 

families. 

We also believe that accountability for the commissary benefit 

should remain with Congress. We hope that if the reform test pilots 

begin to fail to meet established benchmarks, and if the DOD fails 

to act in an expeditious manner to protect the benefit, that Congress will step in to do so. 

We appreciate the committee’s approach that permanent changes 

to title 10 will be based on concepts that are proven to be beneficial 

and efficacious to the long-term viability of the commissary benefit. 

Since commissaries are only one part of the military quality-of-life 

ecosystem on military bases, which also include the military exchanges and MWR [Moral, Welfare, and Recreation] programs, and 

that there is an interdependent relationship between these three 

organizations, we agree with Congress that any effort to reform 

commissaries should weigh the impacts on exchanges and MWR. 

While the budgetary pressures of ongoing deficits and the sequester have forced DOD to make painful cuts to numerous programs, 

we recognize that resale is not immune to the pursuit of efficiencies. We have always held that efficiencies can be achieved 

within the commissary system, and should occur as long as they do 

not result in higher prices and diminished benefits for military 

families. 

We agree with DOD’s Deputy Chief Management Officer, Peter 

Levine, that efficiencies should drive the budget, and are encouraged by this new approach within DOD. 

As we consider commissary reform, it is important to remember 

the words of Lee Scott, the former CEO [chief executive officer] and 

current board member of Walmart, who said, rule number one of 

retailing is don’t aggravate your customer. Unfortunately, some 

have learned this truth the hard way. Two examples include 

Walmart’s clean store policy and JC Penny’s attempt to offer everyday low prices to its customers, both of which resulted in signifi-
6 

cant sales declines and the firing of senior leaders. They listened 

to their consultants and even their customer surveys, but the 

changes ended up aggravating customers, who either purchased 

less and/or shopped elsewhere. Therefore, we approach reform efforts cautiously due to these recent real world examples which 

demonstrate how sensitive the retail marketplace is to change. 

As BCG discovered, even a 5 percent increase in prices in the 

commissary would result in 26 percent decrease in traffic. In other 

words, to generate $143 million in revenue would cost DeCA $1.3 

billion in lost sales. That should serve as caution to anyone interested in commissary reform that efforts should be fully analyzed 

and evaluated and carefully implemented. Thus, reform efforts 

should be a game of inches, proceeding slowly and only implementing concepts that can be easily reversed if negative effects 

begin to occur. 

Chairman Heck, I look forward to your questions in discussing 

specific suggestions for reform with you and the committee. I yield 

back. 

[The prepared statement of Mr. Gordy can be found in the Appendix on page 62.] 

Dr. HECK. Thank you. 

Ms. Huck. 

STATEMENT OF EILEEN HUCK, GOVERNMENT RELATIONS 

DEPUTY DIRECTOR, NATIONAL MILITARY FAMILY ASSOCIATION 

Ms. HUCK. Chairman Heck, Ranking Member Davis, and members of the subcommittee, thank you for the opportunity to present 

testimony on the military resale system and its value to military 

families. 

Military families tell us that the commissary is one of their most 

valued benefits. While we understand and appreciate the need for 

efficiency and fiscal restraint, we caution against making changes 

to commissary funding levels or operations that put at risk a benefit many families rely upon. 

When discussing the commissary benefit, it is important first to 

understand what that benefit really is. Our association has argued 

that the commissary benefit is not just the existence of a brick-andmortar grocery store on an installation; rather, the benefit is the 

savings that service members and families see when they shop at 

the commissary. Those savings are a vital non-pay benefit relied on 

by many military families, especially junior service members and 

those families in remote or high-cost locations. Any proposal to 

alter the commissary operating structure or reduce its funding 

level must, in our view, also preserve the savings. Those savings 

are not insignificant. 

The Defense Commissary Agency, or DeCA, reports that families 

who regularly shop at the commissary save 30 percent over civilian 

grocery stores. We recognize that individual families’ level of savings will vary based on their location and shopping habits. However, DeCA’s mandate to sell groceries at cost plus 6 percent provides all military families with the assurance that they will be able 

to put food on the table at a reasonable cost regardless of where 

they are stationed. 
7 

The unique challenges of military life increase the importance of 

the commissary benefit. Due largely to frequent military-ordered 

moves, military spouse unemployment rates are far higher than 

their civilian counterparts. For this reason, many military families 

must get by on a single income. Many junior families actually qualify for nutrition assistance through the Women, Infants, and Children, or WIC, program. Commissary savings allow those families to 

stretch their food dollars and help ensure that even the most junior 

service members can feed their families. 

We hear often from military families who tell us how much they 

value the commissary benefit. When we posted an article on our 

Web site about recent proposals to cut commissary funding, dozens 

of military families wrote back to share their experiences with the 

commissary. One military spouse wrote, ‘‘We are a family of six 

and have been in the military for 17 years. The commissary is 

something we have relied on at every duty station we have been. 

We are currently stationed in Alaska and use the commissary and 

the exchange on a weekly basis. With the prices in Alaska being 

higher than what we are used to, the comfort of the commissary 

made it easier to make sure I have all I need to feed my family.’’ 

Several recent proposals regarding the commissary include plans 

to reduce the appropriation and use revenues generated by commissary sales to operate the resale system. We ask you to consider, 

if such a plan is adopted, what would happen if revenues were to 

decrease. This concern is not unfounded. Last year the Department 

commissioned the RAND Corporation to study what would be the 

effects of increased commissary prices. Not surprisingly, RAND 

found that if prices increased, fewer military families would choose 

to shop at the commissary, leading to a reduction in commissary 

revenue. We fear that faced with lower revenues, DeCA would be 

forced to reduce operating hours, lay off employees, and ultimately 

close stores in order to cut operating costs. 

We are gratified that the DOD has expressed a commitment to 

preserving commissary savings in its recent factsheet on the resale 

system. However, much depends on how DOD defines what it calls 

the tangible and intangible elements of the benefit, and what 

metrics it uses to ensure its goals are met. 

We ask Congress to require transparency from the Department 

as it develops plans to optimize the resale system. Military families 

deserve the assurance that any changes to the military resale system prioritize their well-being. 

In closing, we note that maximizing revenue has never been a 

priority for the commissary, nor should it be. The mission of the 

commissary is to provide military families with a vital non-pay 

benefit, the savings they realize by shopping there. In our view, 

DeCA has fulfilled this essential mission effectively and well. Before making any changes to the commissary’s operations, we ask 

that you first consider the impact on military families, who rely on 

commissary savings to help ensure they are ready and able to support their service member. 

Thank you very much for the opportunity. 

[The prepared statement of Ms. Huck can be found in the Appendix on page 84.] 

Dr. HECK. Thank you. 
8 

Ms. Goldberg. 

STATEMENT OF BROOKE GOLDBERG, DEPUTY DIRECTOR FOR 

GOVERNMENT RELATIONS, MILITARY OFFICERS ASSOCIATION OF AMERICA 

Ms. GOLDBERG. Chairman Heck, Ranking Member Davis, and 

distinguished members of the subcommittee, thank you for holding 

this hearing on commissary reform. 

Your defense of this landmark benefit that has supported military personnel and their families for generations is critical to its 

continued existence today. 

I am pleased to be here to represent more than 390,000 MOAA 

[Military Officers Association of America] members and as an Air 

Force spouse of 13 years. I am a regular patron of the commissary 

and have depended on it during 11 years of my husband’s Active 

service, including 10 deployments for OIF [Operation Iraqi Freedom], and now that he is a reservist. 

Repeatedly, advocates come to the Hill to protect this benefit and 

it has remained protected because of your efforts and support. That 

support exists because it has intrinsic and real value, and provides 

a consistent and dependable benefit that would be costly to replace. 

Our service members, retirees, wounded warriors, widows, and 

families know no matter how big or small the town, how far it is 

from family or familiar surroundings, the commissary will be there. 

It provides the consistent products, savings, and community they 

have come to know and rely on from the first day they stepped 

through the gate. 

The amount of money appropriated for the commissary costs taxpayers the equivalent of a 2 percent pay raise to the entire military, but the monetary value to the E–5 with 8 years of service and 

a family of four is equivalent to a 9 percent pay raise. That amount 

is higher for the most junior enlisted. Imagine the value it has to 

an 82-year-old widow on a fixed income, or the wounded warrior 

and family trying to get back on their feet and find a new normal. 

In times of austerity, we should not be looking to cut a benefit 

that the currently serving, wounded, widows, and retirees so greatly rely upon and earned access to when we can’t afford to replace 

it with something equally good or better. 

We are gratified that the Department of Defense has heard the 

call from patrons and recognized that the savings is the benefit, 

and higher prices or surcharges will hurt them or make them stop 

shopping at the commissary altogether. 

DOD says it is focused on maintaining the patron benefit. We 

hope this includes using DeCA’s current market basket calculation 

methods for savings. It is important to not reinvent what patron 

benefit is. If DOD uses new metrics to determine a current savings 

levels that will be used as metric going forward, we will not be 

measuring apples to apples. DeCA currently compares thousands of 

items in its market basket study against private grocers, and calculates an average savings of 30 percent. When Boston Consulting 

Group measured just 50 items in their market basket, it found a 

much lower savings level. 

We believe changing the market basket study could result in a 

reduced benefit by excluding comparison of items commonly pur-
9 

chased by patrons in calculating the savings measured. Therefore, 

maintaining consistency with previous calculations is imperative to 

maintaining the benefit that patrons know and rely on. 

DeCA has been repeatedly asked to find efficiencies in providing 

this benefit, and they have done so. However, at some point, we 

think they will be forced to find them where it will be unpalatable 

to patrons either through price increases, changes in service, or 

changes in quality. 

The cut to the second destination transportation subsidy in Asia 

last year recently demonstrated the potential costs passed on to patrons, with a bag of romaine lettuce costing more than $10 in 

Guam. Those stationed overseas at the pleasure of their government should not be stuck with the bill for shipping resources to 

their location. 

Proposals to merge the commissary and the exchanges are common. Most have not occurred, because it is difficult when businesses use different backroom logistics, different business goals, 

and operating restrictions. We simply don’t know what we don’t 

know. How will this affect product quality, savings, and customer 

satisfaction levels? If for the worse, how will that affect foot traffic 

for the exchange, affecting MWR dividends, affecting patron trust, 

access, and sustainment of support and quality-of-life programs? 

How will this impact the employment and earning power of approximately 10,000 military-affiliated employees, including more 

than 4,000 military spouses? 

Maintaining the benefit at levels patrons can depend on, provide 

quality products, customer satisfaction and savings, with accessible 

hours and service should be the priority, and we thank this committee for outlining those benchmarks in the National Defense Authorization Act. We think those benchmarks are the best metric, 

which all new proposals should be evaluated against. 

Thank you for this opportunity to share the views of MOAA and 

its members. I am happy to answer any of your questions, and I 

yield the rest of my time. 

[The prepared statement of Ms. Goldberg can be found in the Appendix on page 95.] 

Dr. HECK. Great. Thank you all very much for your testimony 

and for all of you staying within the 5-minute timeframe. I think 

it is the first for this panel. 

I will ask Ms. Huck and Ms. Goldberg first. The committee has 

heard from DOD that military families desire the option of purchasing a private label product from their commissaries, and the 

studies done by BCG recommended that commissaries should offer 

private label products. Since private label products are uniformly 

offered in retail grocery outlets, do you believe that military patrons should be afforded the same choice as outside the gate, and 

why or why not? 

Ms. HUCK. Mr. Chairman, our concern is that DeCA does not 

have the expertise to develop a private label product, and we are 

concerned about what the extra expenses and logistical responsibilities would be incurred if DeCA were to be required to provide a 

private label product. 

Right now the commissary sells name brand items that patrons 

are familiar with and they have the assurance that those items are 
10 

of high quality and low cost. We are concerned that asking DeCA 

to develop a private label product would not give patrons that same 

assurance of quality. 

Dr. HECK. Okay. Ms. Goldberg. 

Ms. GOLDBERG. I think that Eileen covered all of the things that 

I also would cover. 

Dr. HECK. Great. Thank you. 

I will ask Mr. Nixon and Mr. Gordy. I understand that you both, 

both organizations have concerns and disagreements with some of 

the BCG findings. If you could list your top one or two concerns 

with a particular finding, please do so. 

Mr. NIXON. Quickly, Mr. Chairman, I would characterize the results from the BCG report as kind of the good, the bad, and the 

ugly. Their pricing survey was certainly very limited when you consider that the Defense Commissary Agency does a full comparison 

item by item, UPC [Universal Product Code], weighted by volume, 

regionalized, they do local surveys on meat and produce to calculate the 30 percent savings. So it was kind of disingenuous to go 

out and take a small sample and come back and say here is more 

what the savings range is. 

The other thing is they really kind of almost talked with disdain 

about the nonretail aspects of the Defense Commissary Agency, 

that, you know, they have these anomalies of vendor stocking and 

contracted-out functions within the store. The fact is that is the 

way Congress constructed the system, that is the way DOD conducted it, and it has a lot of difference anomalies to it that are 

built-in inefficiencies because it is a Federal agency. They, you 

know, they have inherently nongovernmental function surveys. 

They went through the A–76 process, outsourced a lot of their functions, shelf stocking, receiving, storage and handling, custodial. A 

lot of those are awarded at a premium under Javits-Wagner-O’Day, 

so it costs more to operate in the environment. 

So in a retail operation, you would never operate a store that 

way. I think the BCG kind of missed that, that they are doing what 

they are doing because that is how they were set up to operate. 

There are more efficient ways to do it if you want to make them 

a retailer, but you need to make them a retailer first. 

Dr. HECK. Mr. Gordy. 

Mr. GORDY. I would say the top two items of concern for us related to the BCG report would be the private label products and 

variable pricing. 

First of all, the private label product, the main concern there is 

currently you have name brand products being put into the stores, 

and for those products to get into that store, as Mr. Nixon said in 

his opening testimony, there is about $500 million of industry support that goes to ensure that those products are stocked. Well, first 

of all, that they are ordered, that they are stocked, that they are 

marketed, that they are promoted. These are activities that take 

place in every commissary every single day that is funded by industry. 

To institute a private label product is going to have two effects: 

number one, DeCA is now going to have to—what makes private 

label successful in the civilian marketplace is the amount of actual 

marketing that goes into getting the patron to buy those products. 
11 

So DeCA is now going to have to add to their cost and add to their 

staffing people who have to go out and market these products. 

Then they are also going to have somebody stock those products. 

And then they will have someone go in there and then they will 

have to do the promotions and the other—the displays and things 

like that to get the patrons to buy them. 

Well, if DeCA is now going to take on those functions within the 

store, which is currently being provided by industry today, and 

these products are going to compete with the national brands, the 

national brand manufacturers are going to say, if DeCA is now 

going to provide this in-store support, which we are currently providing today, which we don’t provide to any other retailer, then we 

are no longer going to provide it for DeCA. 

So that is a conversation that has not taken place. No one has 

asked the manufacturers what will change. If you look at the BCG 

report, they list all the people that they consulted. They did not 

consult the industry, who are the third leg of the three-legged stool 

of delivery of this benefit. So they are missing a major piece of the 

pie here. 

And in order to make variable pricing work within the commissary, they are going to have to institute variable pricing, which 

allows DeCA now to raise prices on products. This becomes a slippery slope. Today DOD can say, we are going to keep our hands 

tightly held on this and we are only going to do what—generate 

enough revenue just to help offset a little bit of cost. We don’t know 

what will happen 5 to 10 years from now with the future leaders 

within DOD. 

Dr. HECK. Thank you. Thanks very much. 

Mrs. Davis. 

Mrs. DAVIS. Thank you, Mr. Chairman. And perhaps I can continue with this conversation a little bit about the labeling, because 

I do remember in sitting here, you know, as a consumer when we 

had this discussion with BCG, we know that, you know, we all 

adopt, if you will, certain companies now and have some faith in 

their label. So you know, it seemed like, well, okay, you know, I 

think our military families, and you would subscribe to this, certainly have faith in the commissary. I mean, they have great faith 

in the commissary. They would transfer that in some ways. 

But on the other hand, I hear exactly what you are saying. And 

I was struck that, Ms. Huck, you were saying that they don’t have 

the expertise. It is not that they don’t have the wherewithal to 

have the expertise, but the system hasn’t been set up that way, 

and so there is really a gap there. 

I think what I am wondering is how if you were tasked with trying to develop a process, and because it would be over time, to test 

this on a number of ways in which you were consulted and you 

were part of that, how would you do that? What do you think that 

we should be listening out for if, in fact, people say, you know, let’s 

give it a try? 

Mr. NIXON. I would say the first thing is a business system. This 

pricing model requires a sophisticated business system to manage 

price elasticity between the brand name and private labels and 

things that patrons are used to seeing out in the private sector. 

That system is currently being deployed at the Defense Com-
12 

missary Agency. The first model that would give them the capability to even begin to look at this capability will be probably in the 

third quarter of this year. 

So they will just begin to have the capability then. They will 

have to start testing it. As with any system deployment, if it is delayed, then that capability is delayed. That is the first thing, because you can’t do this on a pencil and paper. And so they need 

the system. They will have that in place. 

Mrs. DAVIS. Have you all been consulted about developing that 

system? 

Mr. NIXON. This is a system that they procured through the government process. It is a commercial off-the-shelf. I don’t have any 

qualms about the system. And it is replacing a lot of antiquated 

systems they had down there when I was down there, so they finally got around to replacing those. And then the expertise, it is 

not just the system, it is the expertise to manage in that environment. And they don’t have it. And it is not their fault—— 

Mrs. DAVIS. Right. 

Mr. NIXON [continuing]. They just weren’t constructed to manage 

in that environment. So those are capabilities. 

But, my concern is they are going to bring in—you know, we are 

going to figure out, well, how do we do variable pricing and private 

label? They don’t know. They’ll bring a consultant in that says, 

well, here is how you raise prices, and here is my bill and make 

sure you raise them high enough to pay it. You know, that it is 

kind of the path we are going on right now. It will take a while 

for them to develop that capability. 

Mrs. DAVIS. Thank you. 

Mr. GORDY. Absolutely. You know, even if you take a look at the 

Boston Consulting Group’s report, they lay out that DeCA is going 

to have to first bring in a manager, and then they are going to 

have to bring in analysts to manage—the way that they characterize it is you need one analyst for every two categories, and there 

are numerous categories within the commissary. So how many of 

these analysts are going to be required to be able to do this? 

Then you have to manage the savings. The way the savings, according to their survey, they went outside the gate at some commissaries, particular ones, and they measured the price of goods 

around each base that they tested. Well, you can’t do that at every 

single base. How much time and effort is that going to take to 

maintain that level of savings comparatively to outside the gate at 

each base? 

So some of the challenge of price rationalization, particularly trying to raise prices in certain parts of the country and then lower 

it in other parts of the country, that is going to take a lot of work 

to be able to pull off. 

Mrs. DAVIS. Yeah. I appreciate that, Mr. Gordy. Thank you. 

I am just wondering just in terms of the delivery and to families 

and, you know, the decisions that people make, of course, every 

day, and sometimes it takes a period of time for people to, like, 

transfer their loyalty, what is it about that delivery to families that 

you think especially needs attention? 

Ms. GOLDBERG. I think there are a few things—— 
13 

Mrs. DAVIS. Given that maybe all—some of these—you know, so 

many of these very important contingencies and issues would be 

worked out. 

Ms. GOLDBERG. Are you asking specifically about private label 

and variable pricing? I think that any time you mess with the savings level, any time that families perceive that there is a threat to 

the savings that they receive when they go in the door, and an alteration to the delivery of the system, that you risk their loyalty. 

They really rely on knowing exactly what they are getting when 

they walk through that door, whether that door is at Stuttgart or 

in Guam or near Seattle or at Fort Sill. They rely on that consistency. 

And so when you change things, you risk them leaving and not 

coming back, which then affects a whole lot of other systems that 

we rely on to support our military families. 

Mrs. DAVIS. Okay. I think my time is up, Ms. Huck. Maybe we 

will follow up later. Thank you. 

Dr. HECK. Mr. Walz. 

Mr. WALZ. Thank you, Chairman, for holding this. And thank 

each of you for being here and your testimony of what you do. I 

think about it, with all the stress of military life, grocery shopping 

should not be one of them. And thanks to all of you, it hasn’t been, 

and I think that is very important to keep in mind. 

I think you started to hit on that, Ms. Goldberg is hitting on it, 

of all the things involved in it, that there is a strong psychological 

benefit here, and I think we need to again, I don’t say that justify 

wastefulness where we can find efficiencies; I say it because it is 

a reality of military life. So I appreciate that. And I think it is 

probably because of the due diligence of the chairman and the 

ranking member of thinking about this. 

And I don’t know if this means anything or not, but since I have 

been on this committee, I have had more opportunity to look for 

cost savings in the commissary than the F–35, and that is somewhat—it is a little chip on my shoulder about that. If we are looking for cost savings, there is other places, but I do think it is right 

to look at these things and ask. And I think you are asking all the 

right questions with—— 

Ms. Goldberg, how would you—and I know maybe you can’t 

quantify it. How high would you say, because I am thinking about 

this, how do we explain to the civilian sector how important the 

commissary is? How high do your members place the commissary 

benefit? 

Ms. GOLDBERG. I don’t have a specific numerical answer for you, 

but consistently when MOAA has surveyed its members, and other 

advocacy groups as well, there have been lots of studies on this, 

service members and their families, retirees rank the commissary 

very high, one of their most favorite benefits, along with health 

care. It is critical. 

Mr. WALZ. I find myself talking to civilian people not quite understanding what our obsession is with the grocery store, but it is 

real, and especially—and I ask you this: are we getting into the 

wrong territory here if we separate CONUS [contiguous United 

States] with OCONUS [outside the continental United States] on 

the benefit of it, because I think that psychological effect is even 
14 

stronger overseas? And I am asking, is there things we can do here 

because of the availability of private sector, or is that the wrong 

way to go about it? 

Ms. GOLDBERG. I agree that the need for commissaries OCONUS 

is very, very obvious. And there are a lot of questions about 

CONUS, but the reliance on commissaries stateside is still very, 

very important. Families rely on it. It is not just a grocery store. 

It is a place where military families meet up, whether they are in 

a high density area or a very remote area. 

Here in the DC area, military families are spread out all over the 

National Capital Region, but the commissary is one place where 

they have in common. 

And the price matching, or the price—not the price matching, but 

the price savings on goods is really, really critical. I have tons of 

grocery shopping choices. When I moved here, I will tell you, I was 

shocked when a package of bacon cost $8 at my local private grocery store, but I went to the commissary, and it was roughly the 

same price it had been at the commissary that I went to in Florida. 

That mattered. 

Mr. WALZ. Yeah it does matter. And I think all of you are hitting 

on something. Again, it is not stuck in that not afraid of change 

type of issue, but I still am not sure, and I think each of you hit 

on this, the unintended consequences of a change like this have not 

been studied, and I think there is a willingness to put it into a 

ledger sheet and a business model and say this is how it is going 

to turn out, and I worry about that, because, again, as I said, of 

all those stresses of military life, consistency on certain things is 

absolutely critical for those families. 

And I would come back to that hit on the employment piece and 

maybe—I am not sure if this is the right group to talk to on this, 

the MWR funds and all that, this piece gets left out of that too, and 

as a senior enlisted soldier, how critical that is on where that—that 

is going to have be made up somewhere, and I am really not interested in watching our soldier’s family do bake sales to fund, you 

know, ski rentals or whatever it might be. So I do think—and I ask 

my colleagues to take that into consideration, maybe asking the industry folks to do a little bit better about that. With those BCG 

recommendations, how does it affect your business model? I mean, 

can you summarize? What is going to change, the top line things 

that will change? 

Mr. NIXON. Obviously the first thing that I mentioned earlier and 

Mr. Gordy did as well is the level of industry support. Around $500 

million industry puts in annually to offset the cost of operations. 

A lot of it has a historical perspective from the standpoint of vendor stocking, but a lot of it is—you know, the difference in this 

model is all promotional dollars go to the shelf. You know, there 

aren’t any fees skimmed off that are in the retail environment, slotting fees and other pools that money go into. 

So a manufacturer has a certainty when they put a promotion together, that price goes into the shelf. It is the ultimate supply and 

demand economy. They are going head to head with their other 

brand name counterparts with competition on the shelf, and the 

patron decides what items stay and what items go. 
15 

When you start changing the model onto the private sector side, 

there is manipulation in what is on the shelf. The private label 

items are price-positioned and promoted by a retailer, because it is 

a house brand. And it is artificial patron preference, because they 

position them next to the brand name, whether they have any sale 

or not, because that is what they want to sell, because that is 

where they make their money. 

Mr. WALZ. Don’t you think it is interesting the first thing you 

come to, and it is very obvious in this industry, these are the 

things you hit on directly as the major influence, and yet that industry wasn’t consulted as part of the discussion. Doesn’t that 

seem like a glaring hole? I know you mentioned it, but I am fascinated, because I kind of anticipated this was going to be your answer. The biggest thing that is going to change, that part wasn’t 

taken in. 

Mr. NIXON. Yes, sir. 

Mr. WALZ. All right. I yield back. 

Dr. HECK. Thank you. 

Ms. Stefanik. 

Ms. STEFANIK. Thank you, Mr. Chairman. And thank you to the 

witnesses for your testimony today. 

I want to address my first question to Ms. Huck and Ms. Goldberg to further delve into the impact on military families. So I represent Fort Drum, where the military resale benefit is such an important fabric of the military community. 

You, Ms. Goldberg, talked about, very articulately, that the goal 

should not be maximizing revenue; the benefit are the savings for 

our military families. What are the secondary and tertiary effects 

that weren’t included in the BCG report or weren’t included in the 

panel today of the impact of this proposed reorganization? 

Ms. GOLDBERG. Thank you for your question. We talked about it 

a little bit in our statement for the record, along with my testimony. The interlocking mechanism of the commissary and the exchange is a very fine-tuned, harmonic relationship. The commissary brings foot traffic to the exchange. The exchange is another 

gathering place for people that operates with a profit margin that 

provides dividends to Morale, Welfare, and Recreation activities on 

the installation, and those could fund a variety of programs, and 

it is really critical to providing extra support and quality-of-life programs to military families. 

When you start to take that apart and they lose faith in the commissary benefit, they might not go to the exchange. That reduces 

the dividends. That reduces the programs. All of a sudden military 

families may feel that there really aren’t support programs for 

them anymore or that those programs are not important or valued 

by the Department of Defense or their community. And that really 

is a morale, I mean, it is detrimental to morale and readiness, and 

that is not a place, I think, that we want to go. 

Ms. STEFANIK. Ms. Huck. 

Ms. HUCK. I would add that the system is very interdependent 

in the sense that the large commissaries with a lot of volume help 

support economies of scale that support commissaries overseas and 

in remote locations here in the United States. And so our concern 

is that any change to the system that makes families less likely to 
16 

use the commissaries in these locations, such as here in the National Capital Region, will lead to less revenue available to support 

those commissaries in locations where families not only rely on the 

savings, but rely on the physical aspect of the store on the installation. 

There are many locations even here in the United States and certainly overseas where families have few shopping options and certainly few affordable shopping options, and so we are very concerned about how any change to the commissary system will affect 

those families who are in locations where the physical presence of 

the store is critical to their well-being. 

Ms. STEFANIK. Thank you. I also wanted to just note that I think 

one of the most significant statements that has been made from the 

panel is what Ms. Goldberg said, that these savings account for a 

2 percent to a 9 percent pay raise for our military families. That 

is significant in these challenging economic times. 

I want to turn to Mr. Gordy and Mr. Nixon. BCG, obviously one 

of their proposals was a private label. And Ms. Huck pointed out 

the fact that DeCA does not have the experience, the expertise, let 

alone the logistics capabilities. Can you elaborate on that and the 

challenges that would provide and the logistical issues that we 

would have to overcome to make that transition? 

Mr. NIXON. Yes, ma’am. First of all, just to kind of set the playing field. DeCA did not introduce private label not because it didn’t 

want to. Prior to last year’s change in the law, there was a brand 

name exception to the Competition and Contracting Act, and so if 

you bought brand name products directly from a manufacturer, you 

didn’t have to compete each order, but it developed into the signature of the commissary system is, was brand name and those brand 

names were found everywhere in the world that you went. 

Private label is a company developed and supported brand. And 

we talked about they don’t have the expertise to develop their own 

private label. DeCA is not big enough to develop a private label. 

They just—you know, it wouldn’t be cost-effective, they wouldn’t be 

able to manage the quality. So they will buy someone else’s private 

label and put it in the store, but as a house brand, then they must 

price it, they must promote it, they must position it. And it is artificial positioning. 

You know, the day it is put in the store, it doesn’t have customer 

preference. They are going to give it artificial customer preference, 

because they want to sell it because they are making money on it. 

And that is primarily what private label does in the private sector. 

So, yes, you can get from here to there. It is eyes wide open. 

Make sure we understand what is going on when we move into this 

environment and what actually is taking place is they are putting 

a brand in with artificial preference to mark it up to make money. 

Ms. STEFANIK. Thank you. My time has expired. 

Dr. HECK. Mr. O’Rourke. 

Mr. O’ROURKE. Thank you, Mr. Chairman. This is my fourth or 

fifth hearing or briefing or roundtable on this issue in addition to 

the excellent briefing and background work that my staff has done, 

and I feel like I am just beginning to scratch the surface of an issue 

that is far more complex than it appeared at the outset. 
17 

And, for example, Ms. Goldberg, I have really been looking at the 

numbers and those things that we can measure, but you brought 

up a really important point: there is a social dynamic to this, there 

is a quality-of-life aspect that is perhaps immeasurable. You talked 

about military families having a secure, consistent place where 

they can meet and be with each other and share something that 

is unique to service, and I think that is important and something 

that needs to factor into our decisions and calculations. 

But I would like, with the 4 minutes that remain, for each of you 

to take a minute—I am probably never going to achieve the depth 

that you have on this subject. Mr. Gordy, you mentioned that as 

we move forward, we should look at this as a game of inches. Mr. 

Nixon, you talked about ensuring that we measure this appropriately as we pilot things. Ms. Huck, you talked about apples to 

oranges. Can you just take a minute and tell me and the committee 

what we should be measuring going forward? What are the key 

measures or metrics, understanding we won’t get all the qualityof-life aspects, that will tell us whether the changes that are coming forward are working or not? 

And, Mr. Gordy, it looks like you are ready. We will start with 

you. 

Mr. GORDY. Sure. You know, what is really interesting about this 

is why we are here, it has all been driven by the budget, and so 

much of what is in DeCA’s budget are things that DeCA will never 

be able to make more efficient, because it is money that they give 

to other programs within the Department of Defense, such as onbase support, which they can’t control how efficient those things 

are or whether or not those costs get reduced. 

I think if we are going to change the model from what we have 

today from having national name brand products at cost plus 6 percent—1 percent for spoilage, 5 percent for surcharge—if we are 

going to abandon that model to move to a more complex model, we 

need to make sure that we have covered every area and understand every potential cost and every potential risk that might be 

faced as we move forward. 

Not say that these things shouldn’t be tested, but they should be 

tested in small bits, and making sure that if these things start to 

fail, that we pull back. So that would be my—— 

Mr. O’ROURKE. Let me ask Mr. Nixon, is—the Walmart golden 

rule of don’t aggravate the customer seems to be very important. 

Would that be the primary metric, customer satisfaction, in the 

commissaries? 

Mr. NIXON. Absolutely. One of the benchmarks I said was customer confidence, and clearly customer confidence is very high in 

the system right now because it is predictable. Everyone knows it 

is goods at cost, everyone knows what the surcharge goes for. When 

you start tweaking that and people no longer know exactly what 

is going where, what has been marked up, and why are these new 

products in that don’t have demonstrated customer preference, why 

are they showing up, you start changing customer confidence, you 

start changing the predictability of the system. 

And I think that is the benchmark of the system right now, it 

is predictability and the fact that its savings are audited—it is the 

patron satisfaction is done independently, and it is a valued store, 
18 

and it is viewed as their store, and we have to keep that in mind. 

This is that—the Defense Commissary Agency is managing their 

store. 

Mr. O’ROURKE. And for Ms. Huck and Ms. Goldberg, I have 

about a minute left, does customer satisfaction get to some of the 

issues you raised, Ms. Goldberg, that might reflect military families’ understanding of the value of those commissaries, if we are 

measuring that? 

And, Ms. Huck, if there is time remaining, what are the applesto-apples comparison we want to look at? 

Ms. GOLDBERG. I don’t know that I would rate savings, quality, 

or customer satisfaction against each other. I think they are all 

equally critical and they play an important role, and this committee really hit the nail on the head in setting those as benchmarks for measuring how this benefit is treated going forward, 

knowing that a decrease in any single one of those areas could really start dissecting the entire system and making it fall apart. 

Ms. HUCK. I would add that we are very focused on transparency 

when it comes to making any changes to the commissary system. 

Right now, as Mr. Gordy and Mr. Nixon have pointed out, the system as it is structured is very clear. Families understand essentially how items are priced. 

Any changes to that that are not clear to families, I think, is 

going to really inspire a lack of confidence in the system and the 

quality in the store that right now they rely upon. So we are asking for transparency in any changes that DOD makes moving forward. 

Mr. O’ROURKE. Thank you. Thank you for your answers. 

Mr. Chairman, I yield back. 

Dr. HECK. Mr. MacArthur. 

Mr. MACARTHUR. Thank you, Mr. Chairman. 

Thank you for being here. You have all very ably represented 

your members, and I was struck by one thing that each of you said. 

Mr. Nixon, that we need to avoid this trap that the beatings will 

continue until morale improves; Mr. Gordy, that we should avoid 

aggravating our customers; Ms. Goldberg, that this is the single 

highest valued benefit that members identify; and, Ms. Huck, that 

those overseas at the pleasure of their government should not foot 

the bill. And I think for me, those are all pretty important measures of how we should approach this. 

I would associate myself with some of Mr. Walz’s comments, not 

the F–35 comment, but grocery shopping should not become stressful when we have got a lot of other issues that our military families 

have to deal with. 

And before I pose a question, there are three things I think we 

should remember. One, we have had these four or five hearings 

now, and we are talking about how many hundredths of 1 percent 

of the military budget we can save, and I think we have to keep 

that perspective. We are talking about a lot of dollars, but relatively a very, very small percentage of our defense budget. 

And, two, that the benefit to our service members goes beyond 

just the commissary benefit. Ms. Goldberg, you have mentioned— 

and I got your quotes backwards, actually, but you recognized that 

as I said it. But there are other benefits that come from this com-
19 

missary benefit than just financial, and there are other benefits to 

the U.S. economy. It benefits our service members, it also benefits 

U.S. suppliers, it benefits the U.S. economy, and any changes have 

downstream effects. 

And, thirdly, we are about to consider meaningful changes to the 

healthcare system of our service members. And there is a compounding effect, I think, when we do too many things at one time, 

and so I think we need to be very cautious. 

And that leads me to this question I would ask each of you. What 

improvements would you advocate to the system, the commissary 

system, that would not hurt morale, that would not cause aggravation, that would not be seen as a decline in benefits, and that 

wouldn’t ruin the downstream benefits that you have described? In 

other words, what changes do you see that cause no harm to this 

system? 

Mr. NIXON. Well, yes, sir. That is an excellent question. And I 

would say that—and I think because many of the things that are 

in the back office environment fall into the too-hard-to-do box initially, they focused on the front end of something that is a little 

easier to do, and so I think that is where the focus is. I think there 

are so many things that can be done on the back end. 

You know, these are all business environments that order computers, supplies, store supplies, consulting contracts, major systems 

award, these are all business systems that manage inventory and 

throughput and front-end systems. I would probably look at—short 

of making DeCA a non-appropriated fund activity, is there an opportunity to loosen some of the procurement regulations on them 

to let them operate a little more in the quasi-government environment to let them participate with the other business operations, 

and—— 

Mr. MACARTHUR. I am going to stop you there. I get the point, 

and it is a good one. 

Mr. Gordy. 

Mr. GORDY. I would just have to echo what he was saying, Mr. 

Nixon was saying. I mean, if you take a look at the exchanges, 

the—particularly AP’s just went through a restructuring, they were 

looking at about having a $50 million dividend. They went through 

a restructuring. Their dividend is now back in the—or remained in 

the $200 million level, or close to that. So there are things that can 

be done inhouse that have no impact. It is just about running it 

more efficiently. So—— 

Mr. MACARTHUR. And, Ms. Huck, we have got just about 45 seconds more. 

Ms. HUCK. I would answer what we would ask you not to do, 

which is make changes that affect the shopping experience for the 

military family and the service members who shop there. There are 

certainly efficiencies that can occur at the—above the store level 

that might make the system run more efficiently, and we would 

certainly be open to that, but anything that affects the shopping 

experience of the military family or service member, we think the 

value—the quality of the shopping experience itself and the access 

in terms of operating hours is an important part of the benefit. 

Mr. MACARTHUR. And Ms. Goldberg. 
20 

Ms. GOLDBERG. I concur with the previous statements, that the 

changes should be relatively invisible to the patron, unless they are 

improvements. 

Mr. MACARTHUR. All right. Thank you all. 

I yield back. 

Dr. HECK. Mr. Coffman. 

Mr. COFFMAN. Thank you, Mr. Chairman. 

Well, I have somewhat of a different view. First of all, let me just 

say thank you all for supporting our military families. I have 21 

years combined military service, Active Duty, enlisted, United 

States Army, infantry officer of the United States Marine Corps, 

five overseas deployments. 

I support these reforms. And I think that they are not going to 

compromise the benefit for our families. But they are threatening 

for the people who run the system, and I understand that, and 

change is always difficult. And so if you—in your opposition, I really strongly suggest and would love to hear more about your ideas 

to make this system more efficient. We have got to challenge government everywhere. We have got to challenge government to be 

more—you know, to be able to deliver services more efficiently, and 

no area of government ought to be immune from that, and so that 

is my concern. And I challenge you all to do that. 

Mr. Chairman, I yield back. 

Dr. HECK. Thank you. 

You know, I understand that there certainly is the monetary savings is critically important, and I think the points that have been 

brought up about making sure we have the correct market basket 

and the correct analysis is critically important. As you mentioned, 

Ms. Goldberg, DeCA talks about a 30 percent savings, the BCG 

group with their modified basket had it somewhere around 20 percent or a little bit less. 

Needless to say, there is a break point at which if there is not 

enough savings, people are going to walk. So for the sake of argument, let’s say we want to maintain—we set a benchmark that the 

market basket savings has to be 30 percent. If variable pricing allows that 30 percent savings to be maintained over what is available outside the gate, whether you are shopping in a high-priced 

area or a lower priced area in the economy, as long as the service 

member and their family is getting that 30 percent savings over 

what is available outside the gate, what would be the downside to 

the pilot program of trying variable pricing? Ms. Goldberg. 

Ms. GOLDBERG. I would defer to the business mechanics of that 

to the colleagues at the other end of the table, but as long as the 

savings is maintained and when the customer walks in the door, 

they receive that same consistent benefit, whether that commissary 

is in a remote location or overseas or in a high-density area, I don’t 

see a downside as long as we can maintain that savings and not 

have the fallout of lost employees and other issues that could affect 

other military members. 

Dr. HECK. Ms. Huck. 

Ms. HUCK. Mr. Chairman, I would say that Brooke actually made 

the point in her statement earlier that she had the confidence 

when she moved here to a high-cost area that the cost of her groceries would be the same here as it was when she lived in Florida. 
21 

And that is our concern when we talk about variable pricing and 

setting the savings level based on what is available outside the 

gate versus a national standard, you run the risk that families in 

high-cost areas are actually going to ultimately be paying more, because the 30 percent of the cost in the DC area is a different value 

than 30 percent when you are talking about a lower cost area. 

So part of, I think, what makes the commissary so appealing 

right now to families is that reassurance that wherever they go, 

the prices are going to be consistent, and we would be concerned 

about anything that might potentially take that assurance away 

from families. 

Dr. HECK. And so I would ask, is that a reasonable expectation 

that if you are living in San Francisco, you are going to pay the 

same amount for a grocery that you might be purchasing if you live 

in Tupelo, Mississippi? I mean, just for the sake, you know—again, 

the idea is that the level of savings should be based upon maintaining the foot traffic in the commissary, which means there has to 

be a savings over what that person would spend if they go outside 

the gate. 

Ms. HUCK. Our concern would be that the pay, leaving housing 

allowance out of the equation, your pay is the same whether you 

are in Tupelo, Mississippi, or in San Diego. And so we don’t want 

to see families who are in high-cost areas put at a disadvantage. 

Dr. HECK. Okay. Mr. Gordy. 

Mr. GORDY. Mr. Chairman, the way, you know, I look at the 

price rationalization is, again, you are going to have winners and 

losers, and in the areas where there is going to be the loser, people 

that, for instance, here in the Northern Virginia area, people in the 

San Diego area, people in Pearl Harbor, they are going to see the 

cost of the products go up. 

Now, most of us have a grocery budget, right? If the prices go 

up in the commissary doesn’t mean our budget goes up; it means 

we still spend the same amount of money on groceries whether, you 

know, if something is 5 percent higher or whether it is 5 percent 

lower. That budget is the budget. 

For the families in these higher cost areas, they are going to end 

up having to—they are going to end up buying less, and that is 

part of the challenge, in these areas, where BCG said even a 5 percent price increase will result in a 26 percent reduction in traffic. 

So we have to measure, if we are going to increase the price 1 percent, 2 percent, 3 percent, what is going to be the adverse impact. 

And then when they also talk about rationalizing prices across 

categories. Now, I will tell you, I came and dropped my testimony 

off on Monday. I was on my way home. I said, oh, I am near Fort 

Myer, let me pop into the commissary. I called my wife, what do 

we need? She said stock up on meat. And they are talking about 

raising prices on meat. My wife knows, if there wasn’t a good deal 

on meat, she wouldn’t tell me to stop at the commissary and do 

that, but that is what a lot of military families do, they stock up 

at the commissaries. 

And if the prices go up in these high-cost areas and it doesn’t 

make sense to drive, for me it is 27 miles to the nearest commissary from my house, and my wife and I—every 2 months we go 

to a commissary and we stock up. We bought a freezer for that pur-
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pose. If the prices go up, it doesn’t make it worth the trip anymore. 

And so that is the challenge that many military families are going 

to have to—that is the question that they are going to have to ask 

themselves, is it now worth the trip. 

Dr. HECK. My time has expired. 

Mrs. Davis, any other questions? 

Mrs. DAVIS. Oh, thank you, Mr. Chairman. And I know that the 

votes have started. 

The one thing I would just want to add to this discussion, I 

think, and I was telling the—actually, I think San Diego is cheaper 

than here, at least when I go to the grocery store, but fresh fruits 

and vegetables, I mean, that is what we really want our families 

to access, and to use farm products from local areas. And I know 

when you are overseas certainly—I guess in Japan, I don’t know 

that I had a lot of fresh fruits and vegetables, but I am just trying 

to make sure that we throw that into the discussion and that we 

ask some appropriate questions about that too so that our families 

really know that that is important. 

And I don’t know that there would be anything different around 

there. It is not a labeling issue. It is not something where, you 

know, families have said, that is something that we are willing to 

consider, again, given the right kind of studies that are done to 

look at that issue, but I certainly want to be sure that we don’t, 

you know, eliminate all the issues around fresh fruits and vegetables and the farm-to-table issues that are very important throughout the country and certainly very important to our military families. Thank you. 

Dr. HECK. Well, since they have called votes, I want to thank our 

panel for taking the time to be here with us this morning and for 

your excellent testimony. Please, you know, stay in touch with the 

members of the subcommittee as we move forward. I want to assure everyone that our goal is to find efficiencies, create a benefit 

that is sustainable and valued by our service members. And we are 

all awaiting the GAO report and DOD’s recommendations, and I 

am sure there will be another hearing once those come out. So, 

again, thank you all very much. 

This meeting is adjourned. 

[Whereupon, at 11:33 a.m., the subcommittee was adjourned.] 
A P P E N D I X 

JANUARY 13, 2016 

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DOCUMENTS SUBMITTED FOR THE RECORD 

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QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

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QUESTIONS SUBMITTED BY MR. JONES 

Mr. JONES. Military compensation continues to receive considerable scrutiny. 

What are the major concerns identified by your constituents over commissary reforms? 

Mr. NIXON. While DOD has said that they don’t want to reduce the commissary 

benefit, the principle concern is that management savings initiatives will prove illusory and cuts will have to be absorbed by the patrons in the form of higher prices 

or reduced quality. For example, the fiscal year 2017 budget proposal reduced commissary funding by $221 million. Were Congress to accept this reduction, we are 

concerned that reform and efficiency initiatives will fall short and leave the patron 

holding the bag. Second, there continues to be active talk of privatization of the 

stores. Our concern here is that it will be either tested or mandated system-wide. 

Privatization carries major risks for patrons and the Government. If it fails, you 

won’t be able to reconstruct the system. We are also concerned about predictability 

for patrons. Commissary patrons are accustomed to high levels of savings and high 

quality. The efforts by the DOD to institute more generic brands and experiment 

with price variations either by region or commodity may weaken the patrons’ confidence in the benefit. And, success or impact of these pilot programs needs to be 

measured against a solid verified baseline and quickly reversed if there is a negative 

impact on the benefit. As patrons lose confidence, they will migrate. The system will 

lose economies of scale and that will result in price spirals and sacrifices in quality. 

Elaboration on these concerns and other concerns with these reforms are presented 

in out prepared testimony. 

Mr. JONES. What measurements should be imposed to determine if commissary 

reforms are beneficial or harmful to the commissary benefit? 

Mr. NIXON. We need to ensure that solid, understandable and sensible metrics are 

put in place that gauge the impact to patrons. The commissary agency already has 

in place a solid, time-tested method of measuring savings to patrons and other benefits to the Government from commissary programs. This should be verified and used 

as the baseline to which alternative pricing models are measured. There needs to 

be careful analysis against this baseline before any pricing variation pilots are implemented. As any pilot programs are implemented, the impact needs to be measured against this baseline. 

Mr. JONES. Recognizing that there continue to be supporters of the privatization 

commissaries and zeroing out the appropriated funding, how would you propose to 

reduce the appropriated cost of commissaries? 

Mr. NIXON. Commissary appropriations already have dropped 40 percent or $600 

million per year in real terms from when the Defense Commissary Agency was 

founded in 1991. 180 of the 420 stores that existed in 1991 have closed. Much of 

this is attributable to base closures in the U.S. and overseas. However a great deal 

of the decrease has been through efficiencies in operation. For example, in 1996, 

DeCA outsourced their distribution to the private sector that decreased operating 

costs and returned nearly $500 million to the stock funds of the DOD. In our prepared statement, we lay out the miniscule fraction of personnel costs and the overall 

defense budget that commissaries use and the high return that the DOD and the 

taxpayer realize from this investment. All of these facts have been outlined in several reports including a report commissioned by DOD to the Rand Corporation. The 

DOD and the Armed Services Committees of the House and Senate have stated that 

there should be no decrease in the level of savings that patrons realize by shopping 

at the stores. Because commissary costs have been cut so drastically over the years, 

it is difficult to see where costs can be cut without impacting the benefits to the 

patrons. DOD commissioned another study to look at reducing costs. The Boston 

Consulting Group identified several areas where they thought costs could be reduced. We have reviewed this report in detail. There are some efficiencies to be 

gained but major efficiencies outlined in the report require major changes to the system that have been enacted or implemented over many years. Each of the efficiencies in the report need to be closely examined and carefully implemented. 

Changes to purchasing and supply chain practices need to be carefully implemented 

considering the real world impact on existing relationships between manufacturers, 
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brokers and distributors and the disruption of promotions, deals and discounts that 

have grown up over the years. We certainly don’t want to implement a program that 

results in gains in one area but corresponding losses on another side of the supply 

chain. Another major element of the BCG report is savings in employee salaries by 

making them nonappropriated fund employees. While there possibly could be some 

savings here, it will impact the existing pay and benefits of thousands of workers. 

The BCG report suggests new pricing models for patrons and introduction of private 

label in addition to the value brands that are already available in commissaries. 

Here, there need to be sold metrics to measure the impact to patrons before entering 

into any new arrangement. DOD is required to submit a report by March 1 on areas 

where they can gain efficiencies, using the BCG report and other sources. We look 

forward to reviewing this report and providing our views on areas where industry 

and the DOD can work cooperatively together with the dual goals of making the 

system as efficient as possible and not reducing the benefits to patrons. 

Mr. JONES. Military compensation continues to receive considerable scrutiny. 

What are the major concerns identified by your constituents over commissary reforms? 

Mr. GORDY. The primary concern for commissary reform is adverse impact any reforms may have on the benefit provided through the commissaries, particularly if 

prices are increased. Secondarily, if the benefit is diminished, we are concerned 

about the impact on traffic in the commissaries and, subsequently, in the exchanges. 

Protecting the military resale ecosystem and the benefits they provide directly to 

the patron as well as indirectly through Morale, Welfare and Recreation programs 

is foundational. 

The Armed Forces Marketing Council is very grateful to the Committee for establishing benchmarks for reform that would protect the benefit by maintaining consistent levels of savings. 

We are also concerned about the introduction of private label products in the commissary, which would shift DeCA from an elegant, yet simple model of offering national brands at cost to a more complex and costly model of introducing private label 

products sold at a mark-up. Increased costs will come from the management and 

oversight personnel that will have to be employed to manage the program, as well 

as the shipping, stocking, and marketing of the products. We believe that this effort 

has been oversold as a means of reducing DeCA’s appropriation and that a true, 

full-spectrum analysis has yet to be conducted to understand not only the direct 

costs of implementing such a program, but the indirect costs that will come as a 

result of industry partners reducing the in-store service and marketing and advertising support, which is not currently provided to other retailers. 

Mr. JONES. What measurements should be imposed to determine if commissary 

reforms are beneficial or harmful to the commissary benefit? 

Mr. GORDY. We believe that protecting the savings and model are key. Efficiencies 

can be achieved in DeCA without affecting the benefit. 

Measurements should include what Congress has already established as benchmarks: 

1—Provision of high quality products. 

2—Maintain high-levels of customer satisfaction. 

3—Sustainment of discount savings. 

Even while these three benchmarks may be achieved while instituting reforms, 

it does not necessarily mean that patrons will continue to shop. Monitoring patron 

behavior in response to reforms is also important. If the reforms are discouraging 

patrons from shopping, then consideration for a quick reversal of the reform should 

be made. 

Mr. JONES. Recognizing that there continue to be supporters of the privatization 

commissaries and zeroing out the appropriated funding, how would you propose to 

reduce the appropriated cost of commissaries? 

Mr. GORDY. The AFMC does not believe the commissary benefit can be delivered 

without appropriated support. However, we do believe that reductions in the appropriation can be made through more efficient management of DeCA. 

We believe there needs to be a rebalancing of the workforce between store-level 

and above-store-level staff. A review of above store-level staffing should be conducted to determine if requirements can be met with fewer staff. 

We also cautiously support NAFing DeCA’s workforce in order to balance pay in 

the commissary system with the civilian marketplace. This would mean some salaries would be reduced, while there would be some salaries that would be increased 

in order to attract top quality talent. While this may incur increased cost in the 

near term to establish new employee management systems (ie, retirement, 

healthcare, etc), over time it will deliver savings and more efficient and effective 

workforce. 
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We believe as DeCA fully implements its Enterprise Business System (EBS), 

which will replace its decades-old, antiquated system, less man-power and less contracted support will be required to input, manage and maintain its enterprise system. It will make working with DeCA more efficient for industry and result in less 

manually-entered data. Savings will be captured as the EBS comes on line in the 

near term and as additional elements of the system are deployed in the long term. 

Mr. JONES. Military compensation continues to receive considerable scrutiny. 

What are the major concerns identified by your constituents over commissary reforms? 

Ms. HUCK. In our view, and in the view of many military families, the savings 

that shoppers receive when shopping at the commissary is an important non-pay 

benefit. Commissary savings can be seen as part of the total military compensation 

package. Thus, any reform measure that would reduce the value of the savings is 

essentially a cut to military compensation. While these savings are important to all 

beneficiaries, they are especially critical to families living overseas or in remote or 

high cost locations, where there may be few affordable shopping options. Military 

families understand that the military resale system is complex and the various elements are interdependent. Changes to one aspect of the system may have unintended and unwanted influence on other areas. For example, the economies of scale 

generated by sales at high volume commissaries allow groceries to be sold at low 

cost across the system. Changes to the way high volume commissaries operate may 

threaten the economies of scale, leading to higher prices in those areas where shoppers are most dependent on the commissary. It must also be noted that in recent 

years military families have seen pay raises below the Employment Cost Index 

(ECI), caps to their Basic Allowance for Housing (BAH), and increased pharmacy 

co-pays. While each of these is insignificant on its own, taken together they represent a measurable loss in military families’ purchasing power. Families are aware 

of these cuts, which makes them even more anxious about prospective reductions 

in commissary savings. 

Mr. JONES. What measurements should be imposed to determine if commissary 

reforms are beneficial or harmful to the commissary benefit? 

Ms. HUCK. The first and most important metric that should be used when analyzing any proposed reform to the commissary system is the impact it will have on 

savings. The current practice of selling goods at cost plus five percent gives families 

the assurance that they will be able to feed their families affordably wherever they 

happen to be stationed. Any change to the system must be measured against the 

level of savings currently available to families who shop at the commissary. The recent study by the RAND Corporation demonstrated that if prices increase military 

families will be less likely to shop at the commissary. Thus, we would recommend 

that any change to commissary operations be followed by an analysis of sales volume across the system. A drop in sales and/or the number of families using the commissary would indicate that the reform was harmful to the commissary benefit. 

Mr. JONES. Recognizing that there continue to be supporters of the privatization 

commissaries and zeroing out the appropriated funding, how would you propose to 

reduce the appropriated cost of commissaries? 

Ms. HUCK. We understand that reducing the commissary appropriation is a goal 

of many in the Department. In this era of fiscal restraint, it is reasonable to ask 

whether it is possible to reduce commissary funding without compromising the quality and value of the benefit and if so, how this might be accomplished. Our position 

has always been that any funding cuts should not be visible at the store level or 

affect military families’ shopping experience. Military families worry that funding 

cuts will result in reduced operating hours or store closures. We urge Congress to 

oppose any reduction to the appropriation that would be apparent at the store level. 

Making it harder for military families to shop at the commissary is effectively a cut 

to the benefit and will paradoxically result in lower revenues as well. It may be possible to reduce the commissary appropriation by identifying changes to back-end operations that could lead to greater efficiency and lower cost. For example, as the 

Military Compensation and Retirement Modernization Commission (MCRMC) suggested, opportunities may exist to improve efficiency by consolidating certain operations with the military Exchanges. We would suggest exploring whether combining 

the organizations’ headquarters, shipping, warehousing or other logistical operations 

would lead to significant savings without compromising the value of the benefit to 

service members and families. However, our Association does not have the expertise 

to make more specific cost-cutting suggestions. Organizations such as the American 

Logistics Association and the Armed Forces Marketing Council might be better 

placed to offer specific cost-cutting recommendations. While it may be possible to 

find efficiencies and reduce costs, it is the view of our Association that the commissary system as currently constructed effectively delivers a valuable benefit to 
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military families around the world. In our view, the commissary appropriation is 

money well spent as it helps ensure that even the most junior service members are 

able to feed their families. We caution against any change to the system that would 

threaten this essential benefit, which again is part of the total military compensation package. 

Mr. JONES. Military compensation continues to receive considerable scrutiny. 

What are the major concerns identified by your constituents over commissary reforms? 

Ms. GOLDBERG. Military families and other commissary patrons continue to be 

concerned that any reform will include degradation in the quality of products sold 

at the commissary, a reduction in access to the commissary (i.e., reduction in store 

hours) or an increase in prices. All of these are undesirable to patrons for obvious 

reasons. A decrease in patronage at the commissary will result in a similar decrease 

in traffic at Exchanges, which in turn means reduced funding for Morale Welfare 

and Recreation programs. Over the past years, Service budgets have significantly 

reduced funding to MWR programs, to include closures of specific MWR activities. 

Reducing the funding stream from Exchanges will further compound the budget 

challenges faced by the respective departments. This decrease in support programs 

could adversely affect morale, recruitment and retention. 

Mr. JONES. What measurements should be imposed to determine if commissary 

reforms are beneficial or harmful to the commissary benefit? 

Ms. GOLDBERG. We absolutely agree that the benchmarks set for reform in the 

FY16NDAA of maintaining product quality, savings and customer satisfaction at 

current levels (or better) are imperative. A comprehensive customer survey and refined market-basket comparison would contribute to a quantifiable assessment of 

commissary reforms and efficiency initiatives. In the end, any reform should be very 

carefully scrutinized and tested in those areas to determine if those benefit areas 

will be adversely affected. 

Mr. JONES. Recognizing that there continue to be supporters of the privatization 

commissaries and zeroing out the appropriated funding, how would you propose to 

reduce the appropriated cost of commissaries? 

Ms. GOLDBERG. We believe that supporters of privatization do not have a full understanding of the complexities involved. DOD leaders have acknowledged privatization while maintaining the benefit at current levels is not possible. When the benefit 

at the commissary is reduced, there is a trickle-down effect at the Exchange, and 

then a reduction in MWR dividends for support at the installation. DeCA may be 

able to find new ways to save operating costs, and we believe they are in the best 

position to do so. Any changes should not impact the product quality, savings, or 

customer satisfaction. Commissary access contributes to a very board consumer base 

. . . active duty, family members and retirees—so any negative outcome of this reform will have a cascading effect well beyond the ‘‘currently serving’’ military population. Congress must be prepared to defend this benefit and appropriations at levels that preserve savings, quality, and customer satisfaction. Military families have 

seen reductions or stagnation in benefits across the board. This benefit (along with 

healthcare) is seen as a landmark benefit of military service. It has been linked to 

improved morale and we believe its erosion will be viewed as one more broken 

promise. 

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