USO, Kellogg declare cereal war

July 24, 1995|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau of The Sun

WASHINGTON -- It is surely one of the most bizarre battles the military has found itself engaged in. Call it the Froot Loops War.

It is being fought over who should be able to put what on the breakfast tables of the nation's men and women in uniform.

On one side, fighting a rear-guard action, are major cereal manufacturers, like Kellogg. They want to protect their commanding positions on the shelves of the nation's 315 military commissaries, where 1.5 million active duty troops, their families, reservists and retirees shop.

On the other side, staging a surprise attack, is the USO. It has put charity aside while trying to launch its own new line of breakfast crunchies, munchies and other goodies among the corn flakes, Raisin Bran and Rice Krispies.

At stake is big money. In fiscal 1994, commissary sales on military bases totaled nearly $5.5 billion. In the 12 months ending in March, cereal sales were $138 million; cookies brought in $52 million more.

The USO, or United Service Organizations, was founded from six charities during World War II to offer a wide range of support programs to GIs. It is a nonprofit organization with outposts around the world.

The USO normally provides for the well-being of the troops in more diverting ways than through their diets. But when its revenue began to run low, always a problem in peacetime, it decided to get into the grocery business.

The USO's income last year was $20 million, down (in constant dollars) from $35 million in 1991 during the Persian Gulf war, the same amount in 1972 during the Vietnam War, $49 million in 1953 during the Korean War, and $71 million in 1942 during World War II.

To overcome the latest shortfall, the USO has invested $1 million in developing its own packaged products, which are made by Federated Foods of Chicago.

The Defense Commissary Agency, which manages the on-base outlets, has agreed to stock the USO line, called "Always Home."

"They have the right to make presentations and do business like any other company would," said Tim Ford, a spokesman for the commissary agency.

The USO says its products would save military customers between 15 percent and 75 percent of the cost of comparable national brands.

If its products are sold in military commissaries, it stands to gain 2 percent of all sale receipts for its programs, which range from celebrity entertainment to crisis counseling, from orientation courses for troops posted overseas to family support centers.

"Our contention is: Let us compete," said Miguel Monteverde, a spokesman for the USO.

"If our product is no good, the GI consumer and his family will quickly put us out of business. If our product is good, let them buy it and get a little break on the price," he argued.

But when Kellogg and other traditional makers of cereals, cookies and crackers heard of the advancing competition, they called in the big guns: the Grocery Manufacturers of America. Members of that organization produce 85 percent of food and consumer packaged goods sold in the United States, with sales totaling $360 billion.

The manufacturers protested that the USO products were being accepted by the commissary agency without competitive bids. The law, it argued, permitted only "brand name commercial goods," whose value had been established on the open market, to be bought by the commissary without bidding. The "Always Home" brand had never been sold to the public.

"Clearly, the USO doesn't have the brand identification," said Jeff Nedelman, a spokesman for the grocery manufacturers. "In trying to get into this, they are bending the law to the breaking point. If you think about it, there is really no end to the problem of every worthy organization going to the defense commissary and saying: 'We are a charity. We want to sell cookies, candy bars, or whatever, and part of the price to be charged is going to support our programs.' "

In a letter to Fred Pang, assistant secretary of defense for force management, the GMA said: "The [Defense Commissary Agency] and the government are treading in dangerous territory when the procurement process is used to serve charitable causes and when 'winners' and 'losers' are chosen on any basis other than value, quality and service. We strongly believe that the proposed procurement is contrary to law and represents bad public policy."

Anthony Hebron, a spokesman for Kellogg, said: "It isn't a Kellogg Co. issue. It's an industrywide issue."

The manufacturers quickly enlisted Sen. Carl Levin, a Michigan Democrat whose state includes the town of Battle Creek, home of Kellogg. Mr. Levin joined in questioning the legality of the commissary agency's decision to stock the USO line.

The commissary agency's lawyers responded that the "Always Home" products were qualified to be on the shelves and had been excluded from competitive bidding because they were a "brand name commercial item."

The General Accounting Office is reviewing the ruling that the USO products have a lawful place beside the more familiar packages.

The "Always Home" brand was to have made its debut on the commissary shelves this month. But distribution has been delayed pending the GAO's decision on who wins the war.

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