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Commissary cuts could hurt MWR programs

Apr. 1, 2014 - 03:01PM   |  
Sailors participate in a morale, welfare and recreation (MWR) sponsored dodge ball league in the hangar bay aboard aircraft carrier USS Dwight D. Eisenhower (CVN 69).
Sailors participate in a morale, welfare and recreation (MWR) sponsored dodge ball league in the hangar bay aboard aircraft carrier USS Dwight D. Eisenhower (CVN 69). (MCS Andrew Schneider / Navy)
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Declining exchange sales

Army and Air Force Exchange Service$10.3 billion$9.4 billion-8.2%
Marine Corps Exchange$1 billion$967.5 million-6.8%
Navy Exchange Service Command$2.8 billion$2.68 billion-4.5%
*2013 sales numbers for the exchanges are unaudited.Sources: AAFES, Marine Corps Exchange, Navy Exchange Service Command

Proposed cuts in commissary funding not only would drive shoppers away because their grocery prices would rise, but also could have a “devastating” ripple effect on base morale, welfare and recreation programs, advocates said.

Commissaries, exchanges and MWR programs are inextricably linked, advocates said. So if higher commissary prices drive shoppers away, that could impact customer traffic at base exchanges — which are already seeing a decline in sales. And MWR programs are partly funded by exchange profits.

But defense officials said they considered this impact when drafting their proposal to cut the annual commissary budget by two-thirds over the next three years. The proposal sent to Congress in early March would slash the annual commissary budget by $1 billion by 2017, leaving it with $400 million a year to operate stores.

Overseas stores and those in remote locations would continue to get taxpayer support, but prices inevitably would rise in all stores.

“Structural changes have a ripple effect,” Sen. Lindsey Graham, R-S.C., said at a March 26 hearing of the Senate Armed Services Committee’s personnel panel.

If the commissary becomes a less attractive shopping destination, “eventually people are less likely to shop at the base exchange,” Graham said. “And the [morale, welfare and recreation] account, the quality-of-life issues that are pretty much funded by service members themselves, take a hit.... One thing is connected to the other.”

That is a fundamental concern, acknowledged Frederick Vollrath, assistant secretary of defense for readiness and force management, in testimony before the panel.

“The leaders of the exchange systems told us that if patronage in the commissaries goes down, they would expect patronage in the exchanges to go down,” he said. He also acknowledged that money for MWR activities would not go as far.

One source said about 20 percent to 30 percent of traffic at exchanges on Army and Air Force installations, for example, is directly tied to customers visiting the commissaries. He said a reduction in customer traffic of that size would equal a loss of about $120 million to $180 million a year in MWR dividends.

Jessica Wright, the Pentagon’s acting personnel chief, said officials understand that money the exchanges give to MWR programs may decrease. “But at this point, with our research and what we’re looking at, we believe that we are on firm ground,” she told senators.

Joyce Raezer, executive director of the National Military Family Association, disagreed. “I think it will be devastating to MWR,” she said.

With less money from the exchanges, she said, officials will have to cut MWR services or raise fees to a point where no one will use them, and “then DoD will say, ‘See, I guess you didn’t need them.’ ”

Even apart from the new commissary proposal, the exchanges, and by extension MWR programs, already are seeing signs of trouble.

Sales were down in all the exchange services in 2013 compared to the year before.

In The Exchange, as the Army and Air Force Exchange Service is known, sales were down slightly more than 8 percent in 2013 compared to 2012. Profits were down by about 3 percent and would have been down more if The Exchange hadn’t been in the midst of an aggressive plan to reduce operating costs by about $175 million over the last 21 months.

Among the factors contributing to that sales decline is the evaporation of the large customer base of U.S. troops in Afghanistan, the Army’s drawdown in Europe and shifts in the retail market, said AAFES spokesman Judd Anstey.

Navy Exchange Service Command sales were down by about 4.5 percent. About one-fourth of the decrease — $33 million — was due to its fiscal year being one accounting week shorter than usual. The rest was due to a decline in sales of tobacco and electronics, spokeswoman Kristine Sturkie said.

Marine Corps Exchange sales were down nearly 7 percent, also partly because the fiscal year contained one less week, said spokesman Bryan Driver.

Troop cuts, shifts in training and deployment tempos, sequestration and decreased gas prices also contributed to overall sales decline.

“The changes proposed to the commissary would just exacerbate all of this,” Raezer said.

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