A few years ago I found myself standing inside a Coast Guard Exchange in Elizabeth City, North Carolina, waiting for a friend to buy a bottle of rum. Exchange is the name for the base stores (think Target but with Uniforms) that sell goods to service members and their families. Everything from computers to boots. And because products there, are sold tax-free, and mostly at a discount, the stores are considered a perk, and a privilege. The right to shop there is something to be used, but not abused. Alcohol at the exchange was cheap. And so my friend’s mother had asked her to pick up a bottle for an upcoming party. Why not?
During the plane ride back to New York I became curious. The country was still in a tangle over health care and at the same time we were deep in debt. So when I got home I sent an email to my friend in Elizabeth City. Do the exchanges, I asked, also sell cigarettes at a discount? “Yes,” she wrote back, “and the irony is rich.”
The Department of Defense (DOD) requires tobacco products to be sold on military bases for no less than 5 percent below the lowest local price. While the Coast Guard is overseen by the Department of Homeland Security, it says it also follows DOD 1330.09, the pricing rule which sets the 5 percent tobacco discount.
But as Keith Haddock, director of the Institute for Biobehavioral Health Research at the National Development and Research Institutes, tipped me off, some base stores were not adhering to the restriction and tobacco was being sold for much less then was legal. Using Marlboro Reds as a pricing benchmark, I called base stores. How much for a pack? How much for a carton? About ten months and 600 phone calls later to base and civilian stores around the country I found out the researcher’s info had been right.
Click on the image above to explore an interactive map of U.S. military bases that violate the military’s tobacco pricing law. And listen to the Marketplace story.
Tobacco is a big seller. Army and Air Force bases around the country sell hundreds of millions of dollars of the stuff every year. But profits from all Army and Air Force Exchange Stores (AFES) go to what’s called MWR, or Morale Recreation and Welfare. It pays for services like outdoor recreation and classes in automotive skills even child development centers. It’s an interesting link to think about when you see shoppers at the Fort Hamilton store in Brooklyn push shopping carts full of more clinking glass bottles of alcohol than I’d ever seen shoppers anywhere buy. Shoppers at base stores also get discounts on alcohol. Depending on the state, they get between 5 percent and 10 percent off local prices.
During my visit, albeit a short one, the smokers at Fort Hamilton are buying cartons, not packs. And even though my contact at AAFEs tells me prices are on their way up, they’re still getting a whopper of a discount – anywhere up to 40 percent off prices outside the base gates.
But for the military to sell tobacco at all is a big change from decades ago when cigarettes were given out free in rations. Timothy Sterlachini, a Marine who fought in the battle of Nasiriyah in Iraq tells me everyone in the military, even those not on the front lines have it pretty crummy.
“Even if you’re a cook, you’re trained as a rifleman. And if the s*** hits the fan, just because you’re sitting back stirring beans, you’re gonna be called up to the front lines and you better remember how that rifle operates.” Sterlachini tells me he thinks tobacco should still be free for service members, but only in combat.
But the military charges for tobacco so I asked Matthew Farrelly a researcher at RTI about the impact of price. He told me the effect of pricing on tobacco is well established. As the military raises its prices, consumption will go down. But less than the price increases. Farrelly says the Army and Air Force would make more money if they raised their prices.
But even if they raise their prices and the stores make a larger profit, I can’t help wondering, what’s the real bottom line?
For more coverage from this investigation, listen to the Marketplace radio story and explore the interactive map. You can also follow this story on my blog, FivePercentRule.org.
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