A couple of months ago, I was listening to John Hall, CEO of the Defense Commissary Agency, on a Zoom call hosted by the North Carolina Military Business Center. One of the things Hall said then was that the Defense Department wanted to consider the privatization of commissaries in the U.S., and it would be putting out a Request for Information to the grocery industry.
That point has arrived. The Defense Commissary Agency recently put out the RFI. It wants responses back from industry by Oct. 21.
Commissaries are the military’s grocery stores on defense installations. They benefit military families because prices are supposed to be around 23.7% less than groceries outside the bases, like Food Lion. Not on every item, but for a representative sample of groceries.
Privatization would be a big deal for the military, if it happens, and a big deal in North Carolina, because we have the fourth-largest footprint of active-duty personnel among the states, with more than 95,000 service members. A lot of family members get their groceries from commissaries. And so do military retirees and many veterans with service-connected disabilities.
In North Carolina, there are six commissaries, including two at Fort Bragg — Fort Bragg North and Fort Bragg South – one at Camp Lejeune, one at Marine Corps Air Station Cherry Point, one at Marine Corps Air Station New River and one at Seymour Johnson Air Force Base.
The Defense Commissary Agency has annual sales of $4.8 billion and employs around 13,000 people at 235 commissaries in 45 states and 13 countries. The RFI talks about the potential privatization of its 178 commissary locations across the United States. Commissary shopping privileges are available to 8.35 million households worldwide, and 1.8 million households shop at least monthly.
“The purpose of this RFI is to determine whether commercial grocery operators and investment firms are both interested in and capable of assuming commissary operations while preserving the critical military benefit of a 23.7% average savings for authorized patrons.” The agency is also seeking a one-time infrastructure investment of $2.4 billion to address an existing unfunded facilities maintenance backlog (approximately $500 million per year for up to five years) and an annual maintenance cost of approximately $250 million.
The solicitation tells potential respondents: “Assume no government subsidy. However, if a government subsidy is required to meet the required savings criteria, please provide a general estimate of what would be needed.” The agency received around $1.5 billion for operations expenses in FY 24.
This RFI was a topic of discussion last week at the NC Military Business Center’s Opps Talk. NCMBC staff member Trent Ensley, an Army vet with extensive government contracting experience, noted that this RFI resulted from an April memo from the deputy Secretary of War, which directed that all functions that are not inherently governmental — for example, retail sales and recreation — should be prioritized for privatization.
“So DeCA has issued this RFI as a step to be in compliance with this organizational review to see, you know, can we gather some data? Are people interested in running the commissary? Are people interested in investing in the backlog of maintenance? Is this possible? What are some of the pluses? What are some of the minuses? Can this be done,” says Ensley. “As I talked about earlier, there are financial considerations with this. Can commercial grocery operators achieve or provide the 23.7% savings without any government appropriations to subsidize that savings for the patrons?”
Scott Dorney, the NCMBC executive director and an Army veteran, noted the privatization of commissaries has been a topic of discussion since the 1970s. “So clearly, this comes up regularly. Congress doesn’t like subsidizing grocery stores, you know, the commissary. But on the other hand, they really like the benefit that it supplies to our military personnel and retirees.”
Who will respond?
The question is whether DeCA will get much response and, if so, what these responses might look like? Walmart has around 4,600 stores in the U.S., many of them with groceries, making it the largest supermarket chain.
One possibility is that a big chain — again, like Walmart — might suggest just shutting down the commissaries on the bases and issuing military families and vets special cards entitling them to the 23.7% discount on their purchases at, say, the Walmart groceries.
This would get around the problem of how to spend a couple of billion dollars to bring commissary infrastructure up to where DeCA says it should be. There are a dozen or so Walmart stores in Fayetteville and the surrounding counties, for example.
This solution might work better in some places than others. Military bases are in some out-of-the-way places. The commissary located on Minot Air Force Base, North Dakota, is a half hour from the Walmart in Minot. There is a Coast Guard commissary on Kodiak Island in Alaska. There’s a whole story around it.
“The question is,” said Dorney, “do they have to operate the current stores, which, as you said, would mean incurring all that maintenance backlog, or do they just give people some means of accomplishing getting the savings without having to take over the stores?”
Ensley said the RFI “does open up the door a little bit to say if someone has another alternative where they could provide commissary grocery operations without using existing commissary locations.”
On the Zoom call in August, Hall seemed to doubt much would come of this RFI.
“Commercial grocery chains, profit margins about a percent and a half or so . . . [My] view on that is no one can do what we do. I’m confident that we’re going to stay in place,” Hall said.
However, these kinds of things are unpredictable. Sure, the grocery industry may look at a widely dispersed, 178-store chain and decide it isn’t worth it. Or some respondent, like Walmart, may decide that with its vastly greater scale, it can provide the military discount and still make money. So a respondent may say that, in Fayetteville and most other markets, we will use our Walmart stores. And in places like Minot and the Kodiak Archipelago, we’ll keep running the commissary.
A version of this Dan Barkin column was published in the N.C. Military Report, published online on Wednesdays. To subscribe, click here.