Were store brands used to dampen commissary savings targets?
Defense Commissary Agency (DeCA) officials say they correctly calculated the “baseline” shopper savings that Congress insisted be verified and preserved as commissaries are transformed into more business-like grocery operations.
DeCA contends it determined savings by region using price comparison techniques that reflect more accurately than in the past the way commissary patrons actually shop for groceries on base and at local retail outlets.
Advocates for patrons are skeptical. They suggest DeCA’s approach isn’t what Congress portrayed last year when it directed that existing discounts be accurately measured and protected. DeCA, critics contend, appears to have taken steps to dampen savings targets so they are easier to meet as it strives to cut operating costs. Paring DeCA’s annual appropriation of $1.3 billion, after all, is indisputably the primary purpose behind transformation of base grocery stores.
The most troublesome step to explain is why DeCA used discounted private-label products sold by retailers as a significant element in revising savings calculations, at a time when DeCA only sells brand-name items. That decision alone, DeCA said, could have lowered baseline savings by up to two percentage points.
DeCA officials last month gave conflicting reports on whether it weighted the baseline results at all, or at least sufficiently, to neutralize the impact of comparing retail private-label prices to brand-name products in commissaries.
For decades, up until this year, DeCA claimed commissaries saved patrons, on average, more than 30 percent compared with prices at commercial outlets. As defense budgets tightened, the Obama administration, backed by the Joint Chiefs, urged Congress to allow deep cuts to DeCA’s appropriation so the money saved could be diverted to more pressing readiness needs.
Two years ago, a study from Boston Consulting Group, which now has several contracts in support of commissary transformation, estimated that actual shopper savings were closer to 17 percent, which might be preserved even as DeCA became more efficient through the adoption of commercial retail practices.
Last year Congress authorized DeCA to phase out its tradition of selling only brand products and of pricing them always at cost plus a surcharge. Instead, DeCA will embrace variable pricing, reduce brand-name product selections and introduce its own private-label goods, like commercial grocers do, to offer lower prices on the shelves, expand profit margins and cut the annual taxpayer subsidy.
Congress stressed, however, that DeCA must first calculate existing patron savings, by region, and then protect the savings during transformation so that shoppers see no diminution in the value of their benefit.
In late January DeCA unveiled its baseline savings calculations: 23.7 percent globally, 20.2 percent stateside, and, for stateside regions, baselines range from 18.1 percent across South Central states to 32.6 percent for Alaska and Hawaii.
Given that most of the regional baselines, plus global and stateside averages, came in far below the “more than 30 percent” average savings long touted, agency officials said they got swamped with calls for a more detailed explanation.
DeCA said its revised method for calculating savings relied far more heavily than in the past on price comparisons with Walmart Supercenters. It also used in its calculations local price comparisons done manually for a smaller selection of popular products, roughly 1,400, and applied those results to lessen reliance on nationwide price comparisons across all DeCA-stocked products.
But the step DeCA took that raised the most eyebrows was calculating regional savings in part by comparing prices on commissary brand-name products to outside private-label prices. In February, Christopher Burns, DeCA’s executive director of transformation, struggled through half of an hourlong roundtable discussion with trade press reporters to explain why including private-label prices at retail outlets didn’t distort commissary baseline savings. He didn’t succeed.
Burns noted that Congress wanted a more “granular approach to calculating savings” rather than rely exclusively on Nielsen nationwide price data to compare items sold in commissaries with average retail prices. So DeCA opted to conduct smaller “manual” or clipboard comparisons of more popular commissary items with prices for like products sold by at least two local retailers, often including a Walmart Supercenter and their discounted private-label goods.
Burns was asked why both those steps shouldn’t be perceived as an effective way to dampen perceived commissary savings. He said DeCA had weighted its savings computations in a way that presumed commissaries also sold private-label products, even though the first of commissary labeled goods haven’t been produced or priced yet and won’t be available for sale before May this year.
Making private-label price comparisons was important, he explained, because patrons buy these products at retail and it’s critical to capture the choices they make at retail to more accurately calculate commissary savings.
“It may not be brand” but it’s what they want, Burns said. “So that’s why we moved forward in putting those private labels in. We weren’t trying to artificially lower that baseline savings; it is what it is. And again, on our end, we also factored in a weighting factor … for private label on our side as well.”
Later, in a statement, DeCA said “as our shoppers’ behavior evolves, our measurement criteria should as well. Since shoppers buy both branded and store brand, or private label, products at a range of retailers, including superstores, the most accurate way to capture how much our patrons save … is to compare commissary prices for a product to commercial prices for that same product, including both branded and store brand options.”
DeCA added that “including store brand products in the savings calculation, in addition to brand named products, provides a more realistic assessment of patron savings in the area where a commissary patron shops.”
Brooke Goldberg, director of military family policy for Military Officers Association of America, said savings calculations for commissary shoppers need to be “fixed and transparent” to be credible as store operations are transformed.
“The inclusion of private label in the benchmark does not reflect the patron shopping experience at the commissary today, and basing a savings calculation on a projected behavior allows for a larger margin of error,” Brooke said.
Eileen Huck, government relations deputy director for National Military Family Association, said the change in commissary shopper savings is hard to understand.
“It made sense to me that in the past they excluded private label items from the price comparison since DeCA didn’t carry a private label. It would seem more logical to wait to include generics in the price comparison once DeCA’s own private label is introduced, so you aren’t comparing apples and oranges.”
Whatever method DeCA uses to calculate savings and set prices must “be consistent and transparent to families,” Huck said. “I’m not sure the new methodology meets either of those two goals.”