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'DeCA' label products might cost commissaries in long run

Jun. 17, 2014 - 12:30PM   |  
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A growing chorus of top military officials insists that allowing private label products — also called store brands or generics — to be sold in commissaries not only could save customers money now, but also could ease the pain in the future if the stores are forced to raise prices.

But that perspective overlooks one not-so-small detail: The Defense Commissary Agency has in fact carried many forms of generics — knockoffs of national brands — for years.

The current push seems to envision having the commissary system specifically create its own unique “DeCA” brands. But some experts say that at a time when Pentagon officials are looking to slash the agency’s budget by two-thirds, creating DeCA-brand products would require more funding to support the infrastructure to develop and manage the program and its associated costs.

What’s more, some of the the knockoff items DeCA already carries, ranging from over-the-counter drugs to some foods and paper products, are already cheaper than the generic brands found in discount retail stores — as well as in the military exchanges’ Exchange Select generic product line.

Loosening up restrictions on commissaries could help them become more efficient, said Sergeant Major of the Army Raymond Chandler, giving as an example the restriction on selling generic products. Generics, he said, “is an an example of ways that I think as we move forward the Defense Commissary Agency might say that they can find some savings,” in a Feb. 26 testimony before the House Appropriations’ subcommittee on military construction and veterans affairs.

“I think that there’s some substantial savings that we could [put] right back in our people’s pockets that would easily offset at least a portion of any subsidy [reduction],” said Navy Adm. James Winnefeld, vice chairman of the joint chiefs of staff, who suggested commissaries should offer “generics” when he testified May 6 before the Senate Armed Services Committee. He noted he’d found cheaper prices on ibuprofen than the name brand at the commissary when he looked at private label brands at the exchange and at discount retailers.

The Senate Armed Services Committee has a provision in its version of the 2015 defense authorization bill that would allow commissaries to sell generic items without using competitive procurement procedures. Currently, commissaries can’t sell any products that are not also sold in civilian stores, which is the main barrier to creating a “DeCA” brand.

Meeting customers' needs

Even as that discussion swirls, the commissary agency is focused on reviewing its program of low-cost alternatives to determine whether it meets customers’ needs, and whether another private label or complementary program is really warranted, Joseph Jeu, DeCA director, said at a May conference.

“The main message is not so much ‘private label,’” Jeu said. “The key is to make sure we have more ... low-cost items.”

DeCA stocks about 1,400 “best value” items across its commissaries — typically a “control label” brand or a name-brand product that the agency has determined is the best value. A control label is essentially a product that fills the same role as a private label or store brand for grocers who can’t afford their own store brand program.

Some retail experts question whether most commissary consumers are aware of that initiative.

“The question should be, with this great savings, why didn’t the consumer know?” said Joe Olding, president of Webco General Partnership, a military food broker company representing manufacturers of items sold across the stores.

Olding said the law needs to be changed to allow DeCA to announce prices online and elsewhere — advertise, in other words — so customers are aware of lower-cost alternatives.

Olding’s analysis, using industry data to which he has access, reflects DeCA’s current private label savings in a number of items. For example, its private label brand of ibuprofen, called Good Sense, saved shoppers 40 percent on average over grocers’ private label ibuprofen. The average price of DeCA’s Good Sense 100 count, 200-milligram tablet ibuprofen was $2.39. The average U.S. grocers’ private label brands cost was $4.

Joyce Raezer, executive director of the National Military Family Association, questioned how adding a DeCA store brand would save the agency money.

“What’s the DeCA infrastructure that would be required to get the brand on the shelves?” Raezer said.

Increased costs

Olding said those costs would include packaging, quality control, advertising and marketing, and distribution — and even shelf stocking costs.

DeCA itself would have to stock those products, a function currently handled by manufacturers and distributors of their own brands, not commissary employees.

One potential alternative would be to have DeCA carry the military exchanges’ Exchange Select store brands, if Congress removes restrictions related to store brands.

The Army and Air Force Exchange Service “fully supports a cooperative approach to private labels regarding the commissary,” AAFES spokesman Judd Anstey said.

The exchanges sell 670 items under their Exchange Select private label/store brand, mainly health and beauty items and household cleaning supplies, said Jennifer Little, AAFES divisional merchandise manager. Compared to national brand equivalents, customers save 20 percent to 50 percent, she said.

“If you think of the national brand and bringing it to market, it’s already developed,” Little said. “All the quality testing and packaging is already done by the brand manager at the manufacturer.”

With store brands, “there’s no manufacturer to advertise it for you. You own it as a retailer. You own it from cradle to grave.”

Information about specific costs to operate the Exchange Select private label program were not available. Exchange buyers coordinate the products, but they also manage their whole category, which includes national brands.

One source noted that if DeCA is forced to operate with less taxpayer funding and thus must raise prices, store brands might become an attractive option because the markups are higher on those than on national brands, which would create more revenue for DeCA.

Currently, the $1.4 billion taxpayer subsidy allows commissaries to sell at cost to the customer, plus a 5 percent surcharge at the cash register to pay for construction and renovation of stores.

So far, Congress has resisted the $200 million reduction in funding for commissaries for fiscal year 2015, as the Defense Department requested. The House, in its version of the 2015 Defense Authorization bill, allowed a $100 million decrease in funding; the Senate allowed no decrease. The bills will have to be reconciled. And neither the House nor the Senate has given DoD authorization to raise prices in commissaries, which would be the first step in its quest to reduce funding by $1 billion over three years.

“The bottom line is, this is about keeping money in the pockets of service members,” Master Chief Petty Officer of the Navy Michael Stevens said in an interview June 11. The commissary system itself may not save money by adding private labels, he said, but if — down the road — subsidies are reduced and commissaries are forced to mark up prices, the store brand might bring a cheaper alternative. The cost is not passed along to the consumer in the same way it would be for national brands, he said.

“I think DoD should look at every possible way to reduce the cost of operating commissaries, using a holistic approach that prevents us from passing costs on to the consumer. I believe that’s the approach that’s being taken,” Stevens said.

Stevens said he has talked to sailors around the fleet, and of all the budget issues currently under discussion, “our sailors and their families always bring up commissaries. They are very concerned. I’ve talked to leadership, and they’re aware,” he said.

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