In fiscal year 2015, DeCA  received $1.3 billion in appropriations. DeCA’s Board of Directors annually recommends the  patron savings rate that is to be the price differential commissary patrons  are to obtain by shopping in commissaries rather than at commercial  grocery stores. According to DeCA officials,  the pilot would help DeCA to more accurately compare the cost of  shopping at commissaries with commercial grocery stores. DeCA officials stated that the agency plans to assess and  revise the savings methodology, which may include addressing some  limitations such as weighted average calculations. By contrast, pricing at commercial grocery stores is sensitive to the cost  of business operations, competition in their specific market, and the need  to generate a profit. DeCA Tracks Products Sold but Does Not Manage Products in a Manner Consistent with Practices Generally Employed in Commercial Grocery Stores

DeCA tracks the sale of products at all commissaries but does not assess  the contribution of the sale of each product to a given store’s total sales in  determining which products to sell. According to DeCA officials, because commissaries are focused on  providing a benefit rather than on maximizing profitability or sales like  commercial grocery stores, commissaries do not have clear goals or  objectives related to customer demand. For example, commissaries do  not always adjust products that commissaries carry based on customer  demand. DeCA officials said that they would like to be more efficient and improve  product management based on store sales and customer demand, but  DeCA does not have a plan with time frames and could not provide  additional information about how it would achieve this goal. Without  conducting a cost-benefit analysis to guide decisions about using in- house or contractor staff for stocking and custodial services at its  commissaries, DeCA is not positioned to determine whether it is using its  resources efficiently and effectively and is reducing operational costs. DeCA Lacks Reasonable Assurance That It Is Using the Most Cost-Effective Product Distribution System

DeCA has not conducted a cost-benefit analysis to fully understand the  costs associated with different product distribution options across all  commissaries and to use in selecting the most cost-effective option  available for each commissary. First, DeCA states it is achieving  its desired 30 percent savings rate for commissary patrons; however,  DeCA’s methodology for calculating this rate has certain limitations. In particular, DeCA has not focused  on improving the management of products based on consumer demand  and consequently may be missing potential opportunities to improve  sales, leverage efficiencies, and achieve savings in commissary  operations. For example, DeCA uses service contracts for  stocking at most commissaries, even though in-house stocking has been  shown to be less costly. Recommendations for Executive Action

To provide greater assurance that defense commissaries are achieving  the desired savings rate for patrons, we recommend that the Secretary of  Defense direct the Chief Executive Officer of DeCA, as DeCA revises its  methodology for calculating the savings rate, to address the limitations  that we identified, including those related to seasonal differences in  prices, the sampling methodology for overseas commissaries, geographic  differentiation, and the calculation of the weighted average. To improve operational efficiencies and reduce costs related to product  management and services that support commissary operations, we  recommend that the Secretary of Defense direct the Chief Executive  Officer of DeCA to take the following two actions:
Develop a plan with objectives, goals, and time frames on how it will  improve efficiency in product management, such as offering products  based on store sales or customer demand. Therefore, we  continue to believe that our recommendation is valid and that DOD should  use a data-driven approach and conduct a cost-benefit analysis to fully  understand the costs associated with stocking and custodial services  contracts and its different distribution options. Appendix I: Scope and Methodology

To address both objectives of this report, we conducted site visits to a  nongeneralizable sample of 12 commissaries to identify information on  commissary operations at the local level. To evaluate the extent to which the Department of Defense (DOD) has  assurance it is maintaining the savings rate for patrons that represents  the nonpay cash benefit, we reviewed DeCA’s current savings  methodology that calculates the savings rate that patrons realize by using  commissaries instead of private retailers from fiscal years 2010 through  2015, the latter being the most recent available fiscal year for which data  were available at the time of our review. To identify differences in business practices between commissary  operations and commercial grocery store practices, we reviewed (1)  DOD’s pricing method, (2) management of products, and (3) cost-benefit  analyses of service contracts and transportation distribution costs.
Why GAO Did This Study

DOD operates 238 commissaries worldwide to provide groceries and household goods at reduced prices as a benefit to military personnel, retirees, and their dependents. Since 2010, Congress appropriated an average $1.4 billion annually to help fund commissary operations.
Senate Report 114-49 included a provision for GAO to review aspects of commissary operations. This report (1) determines the extent to which DOD has assurance it is maintaining its desired savings rate for patrons and (2) identifies differences in business practices between commissary operations and commercial grocery store practices. GAO analyzed data on savings, sales, and costs. GAO also reviewed leading practices relevant for commissary operations; assessed the costs for service contracts and product distribution options; and conducted site visits to a nongeneralizable sample of 12 commissaries based on, among other things, location and sales.

What GAO Found

The Department of Defense (DOD) lacks reasonable assurance that it is maintaining its desired savings rate for commissary patrons. The Defense Commissary Agency (DeCA), which manages the commissaries, has a methodology for calculating the annual savings rate that patrons realize by shopping at commissaries rather than commercial grocery stores. In fiscal year 2015, the most recent data available at the time of our review, DeCA's Board of Directors approved a desired average savings rate of 30 percent based on savings calculated for prior years using the methodology. However, GAO found weaknesses in this methodology. For example, the methodology does not use a random sample of overseas commissaries or account for seasonal and geographic variations in item prices. Because of these weaknesses, DOD's methodology can potentially result in an inaccurate calculation of the actual savings rate that commissary patrons experience. DeCA officials stated that the agency plans to revise the savings methodology to address the limitations GAO identified. Because this effort is underway, it is too early to know whether the revisions will address the limitations GAO identified.
Differences exist between certain business processes used at the commissaries and those of commercial grocery stores.
First, DeCA tracks the sale of products at all commissaries but does not assess the contribution of the sale of each product to a given store's total sales in determining which products to sell. According to DeCA officials, because commissaries are focused on providing a benefit rather than on maximizing profits like commercial grocery stores, commissaries do not always adjust products they carry based on customer demand. DeCA officials said that they would like to be more efficient, but have not developed a plan with achievable objectives, goals, and time frames regarding how to improve product management based on sales and customer demand. Without improving the management of products based on sales and customer demand as is done in commercial grocery stores, DeCA may be missing opportunities to increase sales, leverage efficiencies, and achieve savings in commissary operations. Second, DeCA has not conducted cost-benefit analyses for costs associated with (1) the use of stocking and custodial service contracts as compared with the use of in-house staff and (2) product distribution options across all commissaries. For example, DeCA uses services contracts at most commissaries, totaling about $137 million in fiscal year 2015, even though our analysis suggests that using in-house personnel for stocking may be more cost effective. Commercial grocery stores are generally sensitive to the cost of business operations, competition in their market, and the need to generate a profit. In addition, different product distribution options could result in significant savings impacting the price a commissary patron pays for a product. According to DeCA officials, DOD does not require cost-benefit analyses to compare alternative options for service contracts or for the distribution of products to commissaries. However, without conducting such analyses to guide its decision making on these business processes, DeCA is not positioned to determine whether it is using its resources most efficiently.

What GAO Recommends

GAO is making three recommendations, including that DOD address limitations identified in its savings rate methodology; develop a plan with objectives, goals, and time frames to improve efficiency in product management; and conduct comprehensive cost-benefit analyses for service contracts and distribution options. DOD concurred with GAO's first two recommendations and partially concurred with the third recommendation. GAO continues to believe the cost-benefit analysis recommendation is valid.