Army Benefits - Army Times

Tobacco prices may jump 5 percent in military stores

Defense officials are discussing a proposal to raise tobacco prices in military stores by 5 percent — eliminating, in effect, any on-base discount for tobacco products.

Tobacco prices in military stores can be up to 5 percent less than the most competitive commercial price in the local community. In addition to tobacco products sold in their own stores, the military exchange services also provide tobacco products to commissaries, where they are sold at exchange prices, which have generally a higher markup than commissary goods.

Before defense officials started increasing tobacco prices in 1996, discounts were up to 76 percent below commercial retail prices in commissaries and up to 51 percent in exchanges.

Since 1996, dollar sales of tobacco products in commissaries have dropped by 75 percent, which officials say reflects not only the price increases but also a strong emphasis by the military on tobacco cessation.

Since 1996, when $464.8 million in tobacco products were sold in commissaries, sales have been on a continual slide, to $121.5 million last year. The current guideline setting the discount at no more than 5 percent below local commercial prices was put in place in 2000.

At a Feb. 25 hearing of the House Armed Services military personnel subcommittee, Rep. Susan Davis, D-Calif., who chairs the panel, said defense health officials have raised the idea of ending the 5 percent discount.

In addition to the potential health benefits, Davis said a Pentagon study concluded such a move would boost gross profits in the military resale community by $3.3 million per year and increase the dividends that the exchange services return to the services’ morale, welfare and recreation programs by $1 million per year.

A congressional staff member said the Defense Department has not yet made a formal proposal, but is working on a plan.

Pentagon spokesman Army Lt. Col. Les Melnyk said no information is available about whether there is a proposal. He noted that Arthur Myers, acting deputy undersecretary of defense for military community and family policy, is scheduled to testify before Congress March 12, and the tobacco pricing policy is under that office’s jurisdiction.

“Of course, DoD recognizes that the use of tobacco is harmful to health,” Melnyk said.

The projected increase in gross profits and dividend payments was questioned by Jed Becker, chairman of the Armed Forces Marketing Council, a nonprofit trade group representing businesses that supply military resale activities.

“I assume that math was done with the assumption that consumption would be maintained at an existing level,” Becker told the subcommittee. “My experience questions that.”

Becker said in a later interview that the numbers Davis was given are misleading because price increases on tobacco would reduce patronage in on-base stores, dampening overall sales and ultimately reducing exchange dividends to MWR programs.

“Unit volume will not be maintained if the price advantage goes away, and there will be a negative impact on overall sales, which is the big multiplier when one calculates the impact,” he said. “Demand is sensitive to pricing. If they don’t offer savings, military families won’t shop on base.”

It’s also a concern for military family advocates. “Having been a lifelong commissary patron, I’ve seen the shelf space decrease from an entire aisle to a very closed area with limited access for folks who want to buy tobacco products,” said Kathy Moakler, director of government relations for the National Military Family Association.

“I think they’re placing the right emphasis on health, but I don’t believe we can open that door to noncompetitive pricing on selected items,” she said.

Defense Commissary Agency spokesman Kevin Robinson acknowledged that the variety of commissary tobacco products has declined significantly over the past decade.

Sales are concentrated in Army and Air Force commissaries. Traditionally, few Marine Corps and Navy commissaries have sold tobacco products; most tobacco sales in those services are in their exchange stores.