United States General Accounting Office

GAO Report to Congressional Committees

December 1996 DEFENSE

MANAGEMENT

Estimating Impact of

Changes to

Commissary Access

Policy

G O A

years

1921 - 1996

GAO/NSIAD-97-45

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-272685 

December 20, 1996

The Honorable C.W. Bill Young

Chairman

The Honorable John P. Murtha

Ranking Minority Member

Subcommittee on National Security

Committee on Appropriations

House of Representatives

Conference Report 104-261 directed us to review proposals to change the

Department of Defense (DOD) policy that limits military reservists’ access

to commissary stores. Commissaries are stores that sell groceries and

household supplies to members of the military, retirees, and their

dependents. The Defense Commissary Agency (DeCA) manages and

operates all service commissaries located worldwide and has received an

average of about $1 billion in federal government support annually over

the past 5 years. DOD has proposed allowing reservists unlimited access to

commissaries three times in the recent past. DOD officials view this policy

change as a low or no cost way to increase military service benefits.

Specifically, this report discusses

• the evolution of the policy on military reservists’ access to the

commissaries and proposals to change that policy,

• the sources of DeCA’s funding, and

• the information needed to analyze the impact on appropriated funds of

granting military reservists unlimited access to the commissary system.

Background Military commissaries have existed for many years and provide a nonpay

benefit to U.S. military personnel. They sell tax-free food and household

items at cost1

 plus a 5-percent surcharge.

DeCA is responsible for operating DOD’s worldwide commissary system. It

was established in October 1991 to consolidate the four separate

commissary systems then operated by the military services.

Headquartered at Fort Lee, Virginia, DeCA is organized into 7 regions and

employs about 18,000 people. It operates a system of 309 stores—209 in

1

The cost of commissary resale items basically equals the acquisition cost from the suppliers that

includes the cost of transportation to the place of receipt by the government within the continental

United States, Alaska, and Hawaii. Cost does not include (1) transportation costs for shipment

overseas or (2) any costs to operate the commissary system, e.g., labor, utilities, equipment, supplies,

real property maintenance, and nonpersonnel general and administrative costs.

Page 1 GAO/NSIAD-97-45 Defense Management
B-272685 

the continental United States and 100 overseas. According to DeCA, it is the

ninth largest food retailer in the United States and has total annual sales of

approximately $5 billion with U.S. stores generating about 75 percent of

the sales.

The eligible commissary customer base totals over 11 million people

consisting of about 3.8 million active duty personnel and their family

members; about 2.3 million Selected Reservists2

 and their spouses and

children; and almost 4.9 million retired military personnel, which includes

their spouses and children. In addition, the customer base includes a

number of “Gray Area” retirees,3

 some members of the Individual Ready

Reserve (IRR),4

 Medal of Honor recipients, veterans with a 100-percent

disability, and civil servants (including diplomats) and their dependents

overseas. The active duty community has unlimited access privileges to

the commissaries as do the other members of the customer base.

Reservists, on the other hand, are (1) authorized 12 visits per year if they

have earned a minimum number of points creditable for retirement and

(2) access during any period of active duty service. According to DeCA,

military retirees account for almost half of its customer patronage. DeCA

employees in the continental United States are not authorized to shop in

commissaries.

Results in Brief Commissary access for military reservists before 1986 was limited to a

maximum of 14 days and was authorized only during periods of active

duty training. Since 1990, reservists have been authorized to earn 12 visits

a year to the commissary system in addition to access during any period of

active duty service. DOD has submitted three proposals since 1990 to grant

reservists unlimited access; however, none have been adopted by

Congress because of concerns about the impact such a change might have

on the level of appropriated funds and the concerns expressed by civilian

grocery providers about the impact on their businesses.

The commissary system is funded primarily from an annual appropriation

that has averaged about $1 billion for fiscal years 1992 through 1996. The

other funding source is the 5-percent surcharge that is added to each sale

2

Selected Reservists participate in periodic unit training and usually participate in a 2-week active duty

training period during each year.

3

These are retired reservists who are eligible for retired pay at age 60 but have not yet reached that

age.

4

These reservists do not routinely participate in periodic unit drills and would be activated

individually, not as part of a unit, during a time of crisis.

Page 2 GAO/NSIAD-97-45 Defense Management
B-272685 

in all commissary stores. This source has provided an average of about

$315 million over the same period. Appropriated funds are used primarily

to cover the labor costs of the commissary system and the transportation

of U.S. goods to overseas stores.

While DOD has proposed legislation to grant reservists unlimited

commissary access, it has not developed estimates of the potential

financial impacts of such a policy change. Further, while DOD could obtain

the data necessary to develop such estimates, it has not collected or

compiled such data. Potentially, any increase in the commissary customer

base, such as granting unlimited access to reservists, could increase the

sales and overall workload of the commissary system and increase

personnel costs. Higher personnel costs could, in turn, increase the level

of appropriated funds needed for commissary operations or, at least, cause

funding levels to be higher than they would otherwise be.

DOD’s fiscal year 1996 and 1997 proposals called for variations of a 1-year

field test to identify the effects of increased access for reservists on

commissary operations. Field tests would give specific individuals

unlimited commissary access for 1 year to develop impact studies. The

difficulty with such a test is that it runs the risk of appearing to withdraw a

benefit following the test’s conclusion.

We believe that a methodologically sound study, using data that could be

developed by DOD and DeCA, could provide reliable estimates of the

financial impact of granting reservists unlimited commissary access. Key

elements of such a study would be to (1) establish baseline data by

determining the current level of reservist patronage of the commissary

system, (2) correlate commissary locations in the United States with

reservist population concentrations to identify locations with the potential

to experience increased patronage, and (3) estimate the effects of

increased commissary sales/workloads on operating costs (primarily

personnel) and the level of appropriated fund support needed.

Evolution of

Commissary Access

Policy for Reservists

Prior to 1986, Selected Reservists were allowed commissary privileges

only during periods of active duty—normally 14 days during each

year—but not during weekend drills. In 1986, Selected Reservists were

authorized to use the commissary once for each day of active duty training

up to a maximum of 14 times. These commissary visits could be used

anytime during the 1-year period following the completion date of active

duty training.

Page 3 GAO/NSIAD-97-45 Defense Management
B-272685 

The current reservist access policy was established in 1990. That year,

legislation set access for all members of the Ready Reserve—Selected

Reservists and certain members of the IRR—who earn at least 50

retirement points per year the right to a minimum of 12 commissary visits

per year. “Gray Area” retirees were also authorized 12 visits each calendar

year. Reservists entitled to commissary access are issued a special card

that is punched each time a purchase is made at a commissary.

Since 1993, DOD has proposed changing commissary policy three times to

allow reservists unlimited access; however, neither DOD nor DeCA have

performed any studies to examine or analyze the potential financial impact

of these suggested policy changes. None of the proposals were adopted by

Congress. The first was submitted for fiscal year 1994 and would have

granted reservists, including “Gray Area” retirees, the same unlimited

access as active duty personnel. For fiscal year 1996, DOD proposed that

“Gray Area” retirees be granted permanent, unlimited commissary access

and that the other reservists be provided unlimited access for a 1-year test

period. For fiscal year 1997, DOD proposed a 1-year test of unlimited

benefits for all reservists (including dependents) at one or more areas in

the United States. No plans have been developed to conduct the field tests

proposed in fiscal years 1996 and 1997.

Opinions Regarding

Reservists’ Unlimited

Access to Commissaries

Officials in DOD and DeCA and representatives of industry and military

associations hold varying opinions concerning unlimited commissary

access for reservists; however, none of the organizations or offices we

visited had performed any analysis or conducted any studies to support

their particular views.

DOD officials who are responsible for personnel and reserve affairs

proposed the initiative and believed that the effects on appropriated

funding levels would be minor or nonexistent. They stated that the

proposed policy change was the “right thing to do,” and would not likely

affect private sector grocers adversely. On the other hand, an official in the

DOD Comptroller’s office expressed reservations about the policy change

because it could potentially lead to the hiring of additional personnel,

thereby increasing the need for appropriated funding. DeCA officials stated

that they did not know what the financial impact would be and that the

agency would carry out any policy established by DOD and Congress.

Representatives of the Reserve Officers’ Association and the Military

Coalition strongly support unlimited commissary access for reservists on

Page 4 GAO/NSIAD-97-45 Defense Management
B-272685 

the basis that this change would take away what they perceive as a

“second class citizen” stigma for reservists when compared to the active

military. These groups also said that the proposed change would not

greatly affect private sector supermarkets.

Representatives from the Food Marketing Institute, a food industry

association and lobby group, told us that their organization did not

support the proposed change, had lobbied strongly against it, and believed

the food industry would lose customers and sales if reservists were given

unlimited commissary access.

The Congressional Budget Office is conducting an overall review of DOD’s

resale operations, which include the exchange systems; commissaries; and

morale, welfare and recreation activities. An initial report is expected in

late 1996 or early 1997. This work is being performed for the House

Committees on Budget and Government Reform and Oversight. Broad

objectives include examining overall costs, identifying any hidden costs,

and determining the worth or value of these activities to their patrons.

Commissary Funding

Sources

Commissary funding is obtained from two primary sources—an annual

appropriation and a surcharge added to each sale. For fiscal years 1992 to

1996, DeCA’s total obligations have averaged about $1.31 billion annually,

about $1 billion (over 70 percent) in appropriated funds and $315 million

from the surcharge. Because appropriated funds pay for DeCA’s personnel

costs, there is a valid concern that the need for appropriated funds would

increase if the customer base expanded and sales increased. Appendix II

presents additional data on commissary funding.

Appropriated Funds The largest funding source is the annual congressional appropriation. DeCA

has received an average of about $1 billion annually for the 5 years of its

existence. Appropriated funds are used primarily to cover two operating

expenses: (1) labor costs (civilian employee salaries and personnel

contracts) and (2) the transportation of U.S. goods to overseas stores.

Appropriated fund support in 1996 totaled almost $879 million. Of this

total, $595 million went toward labor costs, $149 million for

transportation, and $135 million for nonpersonnel administrative and other

expenses.

Page 5 GAO/NSIAD-97-45 Defense Management
B-272685 

Surcharge Collections Military commissaries are nonprofit organizations that sell merchandise at

cost plus a 5-percent surcharge. The surcharge is placed into the revolving

Surcharge Collections Fund from which DeCA has obligated, on average,

about $315 million annually. The surcharge is used to pay for (1) facilities,

maintenance, and operating supplies, such as paper bags and packaging

materials; (2) construction of new commissaries and the renovation of

older stores; and (3) some equipment, including data processing items.

Information Needed

to Assess the Impact

of Policy Change

The actual financial impact, if any, of allowing reservists unlimited access

would depend on the extent of additional commissary sales and increased

costs generated as a result of programmatic changes DeCA might make to

accommodate any increase in sales. These changes, such as additional

hiring and store expansion or renovation, could take some time to occur

and to have a measurable impact on operations.

DOD proposed in fiscal year 1996 that a nationwide field test be conducted

for a 1-year period to evaluate the impact of unlimited access by reservists.

In fiscal year 1997, DOD suggested another test at one or more areas in the

United States. Both suggestions would require temporarily granting access

to commissaries to all reservists or, at least, those in a certain area or

areas. The primary concern with testing unlimited accessibility is that

withdrawal of the benefit later could have a negative impact on morale

and on the perception of the benefits of military service.

We believe DOD and DeCA could develop reliable estimates of the potential

impact of this policy change using a study and data analysis approach and

that such an approach would be more appropriate than a field test. Key

elements of such a study are discussed in the following sections.

Estimating Current

Commissary Patronage

The first step in analyzing the impact of opening the commissaries to

reservists is to determine how many personnel in each category (e.g.,

“Gray Area” retirees, Selected Reservists, IRR, active duty, etc.) use the

commissaries. This information could be developed by DeCA using

recognized survey techniques. While DOD has conducted two surveys

involving reservists in the past several years, neither has provided

adequate or sufficient information regarding reservist usage.

• A 1992 DOD Reserve Components Survey was done to gain insight into the

utilization of and satisfaction with military facilities by reserve officers,

enlisted personnel, and their spouses. It did not attempt to estimate the

Page 6 GAO/NSIAD-97-45 Defense Management
B-272685 

overall commissary patronage level attributable to reservists or project

their usage to the system as a whole. This survey disclosed that 39 percent

of reservists reported that they used the commissary system; however,

61 percent said they did not. Sixty eight percent of all reservists surveyed

cited distance from the commissary as a factor that limited their usage of

the system while the policy restricting reservists’ access to commissaries

was reported by 25 percent.

• A 1994 Commissary Patron Demographic Survey developed information to

describe certain aspects of the typical commissary customer and

estimated that reservists represented about 5 percent of commissary

patronage. However, according to DeCA officials as well as our analysis, the

survey results were not projectable to a systemwide perspective because

of flaws in methodology. Specifically, (1) the distribution of commissaries

selected for the survey was based on the distribution of the general

population—not the population distribution of reservists in the United

States—and (2) the survey was conducted during a holiday period that did

not represent normal operations.

Commissary Locations,

Reservist Populations, and

Increased Usage

To identify locations where increased patronage is most likely, DeCA needs

to analyze the locations of commissaries in relation to concentrations of

reservists and the distances to individual stores. Reservists are located

throughout the United States, but, only 209 stores were available within

the continental United States in 1996. This means that many reservists are

not located close to a store and, therefore, may not be able to use the

system on a regular basis. Analyzing demographic data that reflects the

location of reservists in relation to available commissary stores and

baseline estimates of existing patronage levels in the overall system should

identify those geographic areas where increased sales are likely or

possible. The distribution of stores is shown in table 1.

Page 7 GAO/NSIAD-97-45 Defense Management
B-272685 

Table 1: Commissary Store and State

Distribution Summary Stores per state Number of states Total stores

0 6 0

1 13 13

2 11 22

3 2 6

4 8 32

5 4 20

6 2 12

7 or more 8 108

Total 54 213

Note: State and store totals include the District of Columbia as well as three locations outside the

continental United States—Puerto Rico, Guam, and the U.S. Virgin Islands.

Stores likely to experience sales increases could be identified by analyzing

the demographic data and determining the baseline estimates of existing

patronage levels. Potential sales increases could be estimated by several

approaches or a combination thereof. For example, (1) reservists could be

surveyed by interview at commissary stores determined to be most likely

to experience increased patronage, (2) reservists could be surveyed on a

nationwide basis to gain insight into any anticipated changes in buying

patterns and commissary usage, and (3) commissary store managers could

be interviewed for their views and estimates of potential increases (if their

estimates were thought to be reliable). The costs and reliability of the

results would vary under each approach; therefore, a judgment weighing

the tradeoffs would be necessary to determine the specific approach to

use.

Estimate of the Effect of

Sales Increase on Funding

Levels

DOD and DeCA need to develop a detailed understanding of how increased

sales would affect store costs, in particular labor costs, and commissary

store workloads (sales levels, customer volumes, store hours, etc.). Such

an understanding is important to the process of projecting the level of

increase that would likely trigger actions affecting appropriated funding

levels—additional personnel hours, overtime, and additional hiring.

A major supermarket chain operating in the Washington, D.C., area uses a

methodology that involves the comparison of historical store sales and

payroll hours to estimate and project the effect of increased sales on

personnel and other costs at new stores or at existing stores with changing

demographics. For example, comparing the personnel and other costs of a

Page 8 GAO/NSIAD-97-45 Defense Management
B-272685 

store with annual sales of $20 million to one with 10-percent higher sales,

that is, one with sales of $22 million, provides valuable and reliable

indications of the additional number of personnel hours needed to support

a 10-percent increase at a store with historical sales of $20 million.

Such a methodology could be applied to the commissary system to

develop a range of estimates of the impact on personnel and other costs

generated from various percentages of projected increased patronage and

sales from reservists, that is, 5, 10, 15, 20, etc. The increased personnel

costs, if any, calculated at store and regional levels for each projected

sales increase would roughly equal the potential impact range on the level

of appropriated fund support resulting from granting reservists unlimited

commissary access.

Recommendation We recommend that the Secretary of Defense ensure that any future

legislative proposal to expand commissary access for military reservists be

supported by a methodologically sound analysis that estimates the

potential impact on appropriated fund support for the commissary system.

Agency Comments DOD concurred with our recommendation and stated that DeCA and the

Office of the Assistant Secretary of Defense (Reserve Affairs) will jointly

develop a survey targeted to ascertain the impact expansion of

commissary access to military reservists will have on the commissary

system. According to DOD, the results of the survey and subsequent

analysis will be used to determine the feasibility of future legislative

proposals to expand commissary access to military reservists. Where

appropriate, we have incorporated DOD’s comments and other points of

clarification throughout the report.

Appendix I explains our scope and methodology. Appendix II shows

charts depicting budget and obligation information for DeCA since it was

established. Appendix III contains a reproduction of DOD’s comments. The

major contributors to this report are listed in appendix IV.

We are sending copies of this report to interested congressional

committees and Members of Congress; the Secretary of Defense; the

Director, DeCA; and the Director, Office of Management and Budget. We

will also make copies available to others on request.

Page 9 GAO/NSIAD-97-45 Defense Management
B-272685 

Please contact me at (202) 512-8412 if you or your staff have any questions

concerning this report.

David R. Warren, Director

Defense Management Issues

Page 10 GAO/NSIAD-97-45 Defense Management
Page 11 GAO/NSIAD-97-45 Defense Management
Contents

Letter 1

Appendix I 

Scope and

Methodology

14

Appendix II 

DeCA Sales, Budget,

and Obligation

Information

15

Appendix III 

Comments From the

Department of

Defense

19

Appendix IV 

Major Contributors to

This Report

20

Table Table 1: Commissary Store and State Distribution Summary 8

Figures Figure II.1: Number of Continental U. S. Stores and Sales Data,

Fiscal Years 1986-95

15

Figure II.2: Average Annual Appropriated Fund and Surcharge

Obligations, Fiscal Years 1992-96

16

Figure II.3: Average Annual Surcharge Obligations, Fiscal Years

1992-96

17

Figure II.4: DeCA Appropriations, Fiscal Years 1992-96 18

Abbreviations

DeCA Defense Commissary Agency

DOD Department of Defense

IRR Individual Ready Reserve

Page 12 GAO/NSIAD-97-45 Defense Management
Page 13 GAO/NSIAD-97-45 Defense Management
Appendix I 

Scope and Methodology

Our study of the Department of Defense (DOD) policy regarding access to

the commissary system by military reservists and proposed changes to

allow unlimited access was conducted primarily at offices in the Office of

the Secretary of Defense in the Pentagon and at Defense Commissary

Agency (DeCA) headquarters at Fort Lee, Virginia.

We interviewed DeCA officials and reviewed and analyzed financial data for

headquarters, regions, and commissaries within those regions to obtain

information regarding DeCA’s budget and funding sources and the

application of funds from each source. We did not verify the accuracy of

the data provided by these officials. At Fort Lee, Virginia, we toured the

commissary store and interviewed the manager to obtain information on

commissary prices, sales, and operations.

We interviewed DOD officials in the offices of the Assistant Secretary of

Defense (Reserve Affairs), the Assistant Secretary of Defense (Force

Management and Personnel), and the DOD Comptroller’s Office to gain

information on the rationale for granting reservists unlimited commissary

access and their views on the issue. We were also briefed by

representatives of the Reserve Officers’ Association, the Military Coalition,

and the Food Marketing Institute. In addition, we contacted a local grocery

chain to discuss its methods to evaluate and project sales increases on

their operations and costs.

We conducted our review from April 1996 to December 1996 in

accordance with generally accepted government auditing standards.

Page 14 GAO/NSIAD-97-45 Defense Management
Appendix II 

DeCA Sales, Budget, and Obligation

Information

Figure II.1: Number of Continental U. S. Stores and Sales Data, Fiscal Years 1986-95

0

50

100

150

200

250

300

Number

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

230 231 235 236 242 247 241 240 224 212

Constant and then-year sales

Dollars in millions

0

1,000

2,000

3,000

4,000

5,000

1985 $

Then-Yr

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

3,542 3,623 3,510 3,647 3,672 3,872 3,899 3,716 3,484 3,325

3,864 4,003 4,041 4,322 4,560 4,752 4,807 4,671 4,400 4,326

Source: DeCA.

Page 15 GAO/NSIAD-97-45 Defense Management
Appendix II 

DeCA Sales, Budget, and Obligation

Information

Figure II.2: Average Annual

Appropriated Fund and Surcharge

Obligations, Fiscal Years 1992-96 Dollars in millions Surcharge fund $315

APF (Overseas)

APF (United States)

$420

$580

Note: APF—appropriated funds.

Source: DeCA.

Page 16 GAO/NSIAD-97-45 Defense Management
Appendix II 

DeCA Sales, Budget, and Obligation

Information

Figure II.3: Average Annual Surcharge

Obligations, Fiscal Years 1992-96 Operations

Equipment

ADP

Construction

$149

$25

$41

$100

Dollars in millions

Note: ADP—automated data processing.

Source: DeCA.

Page 17 GAO/NSIAD-97-45 Defense Management
Appendix II 

DeCA Sales, Budget, and Obligation

Information

Figure II.4: DeCA Appropriations,

Fiscal Years 1992-96

1992 1993 1994 1995 1996

0

200

400

600

800

1,000

1,200

1,400

980.1

1,107.2 1,090.7

940.1

878.7

Fiscal Year

Dollars in millions

Continental U.S. Overseas

Source: DeCA.

Page 18 GAO/NSIAD-97-45 Defense Management
Appendix III 

Comments From the Department of Defense

Page 19 GAO/NSIAD-97-45 Defense Management
Appendix IV 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Brad Hathaway, Associate Director

Foy Wicker, Assistant Director

Jennifer Thomas, Evaluator-in-Charge

Office of General

Counsel

Raymond J. Wyrsch

Economic Analysis

Group

Charles W. Perdue

(709194) Page 20 GAO/NSIAD-97-45 Defense Management
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