Military Exchanges

Pursuant to a congressional request, GAO reviewed the Army and Air Force transfer of their wholesale and retail alcoholic beverage operations to the Army and Air Force Exchange Service, focusing on: (1) whether the Exchange performed an appropriate economic analysis to justify its delivery, storage, and distribution of distilled spirits; (2) the reliability of the Exchange's estimated per-case freight and handling costs; (3) whether the transfer produced increased revenues as expected; and (4) how the transfer affected shelf prices of distilled spirits.

GAO found that the: (1) Exchange did not conduct an economic analysis to determine whether storing and delivering distilled spirits through its distribution network was cost-effective and efficient; (2) Exchange based its $2.15 per-case estimate for handling and freight on an economic analysis for a specific vendor, making the estimate unreliable for evaluating other vendors' distribution offers; (3) Exchange's fiscal year (FY) 1989 net revenues were $334,800 lower than the FY 1988 income of $58,962,300; and (4) average shelf prices for distilled spirits decreased slightly since the Exchange Service began operating package stores.