Paging anti-trust lawyers: Prison commissary giants prepare to merge

Two of the biggest players in the prison and jail commissary market are planning to merge: The corporate parent of Trinity Services Group will be acquiring Keefe Group.

by Stephen Raher, July 5, 2016

Two of the biggest players in the prison and jail commissary market are planning to merge. In May, H.I.G. Capital (owner of food-service and commissary operator Trinity Services Group) announced that it would be acquiring Keefe Group, one of the largest for-profit operators of prison and jail commissaries. A combination of the two companies would make a formidable player in an industry that is already concentrated among a small number of firms.

Prison and jail commissaries are big business. As explained at the end of this article, we estimate that commissaries throughout the country rake in about $1.6 billion in sales each year. An increasing number of facilities are outsourcing commissary operations to for-profit companies like Keefe and Trinity. But these companies are privately held, and it’s hard to find hard data on their size and profit margins. This article discusses what we currently know about the commissary industry, and why the Keefe/Trinity merger should be a matter of concern to incarcerated people, their family members, and anti-trust regulators.

How many commissaries are outsourced to for-profit companies?

It’s hard to know how prevalent outsourcing is across all commissaries. In 2013, the Association of State Correctional Administrators (ASCA) conducted a survey of prison commissaries. Of the thirty-four state prison systems that responded to the survey, twelve (about one-third) reported some level of commissary privatization. Based on anecdotal evidence, privatization seems to be more common in county jails, which are smaller and thus lack the economies of scale that state prison systems can leverage.

When facilities do outsource commissaries, the contractor’s profits are driven not just by the sheer numbers of people incarcerated at any given time (about 2.3 million people), but also from the fact that, as facilities cut their budgets for food and subsistence, incarcerated people are forced to pay for basic necessities out of their own pockets. For example, when the Ohio prison system outsourced its food service operations, commissary orders increased dramatically, as people bought food to supplement what they were served in the cafeteria. Texas state prisons provide soap free of charge, but people must purchase their own toothpaste. And people incarcerated at the Denver jail have to buy their own underwear (which created some confusion, causing the Keefe-run commissary to short the county on its commission payments, according to an audit).

Notably, Keefe Group is not just a commissary company–it’s a network of six companies that operate various prison-related businesses. In addition to commissary operations, Keefe’s holdings include Inmate Calling Solutions (dba ICSolutions), a communications company that operates in prisons and jails (ICSolutions and H.I.G. filed a notice of the sale with the Federal Communications Commission on June 9, 2016).

What does the proposed merger mean for incarcerated people and their families?

As explained below, a combined Trinity/Keefe commissary company could, based on historical revenue figures, reap annual revenues of $875 million. This amounts to more than half of the total $1.6 billion commissary market. But the $1.6 billion figure includes government-run commissaries, so Trinity/Keefe’s share of the privatized commissary market would be far in excess of 50%. Calculating a precise number is not possible, both because it’s difficult to know what percentage of commissaries are privatized, and because Trinity’s revenue figures include money from non-commissary food-service contracts (Keefe’s numbers, as explained below, are based only on Keefe’s commissary subsidiary).

A review of recent procurement actions by jails looking to outsource their commissary operations suggests that there are three dominant companies in this market: Keefe, Trinity, and Aramark. Because jails often receive a commission (kickback) from commissary operators, the same economic distortions that plague the prison phone industry are also at play in commissaries: the winning bidder isn’t necessarily the company that offers the lowest prices for incarcerated people and their families. Nonetheless, reduced competition will only make things worse. Those facilities that do want to negotiate for fair pricing will have less leverage, and higher prices are a distinct possibility.

In their joint filing with the FCC, Keefe and H.I.G. argue that the acquisition “will serve the public interest by providing additional capital to [ICSolutions], which in turn will enhance its ability to maintain and improve its network and services.” What this self-serving statement fails to address is whether ICSolutions (or any other Keefe Company) actually lacks adequate capital. The answer is probably no. Given the market shares of Trinity and Keefe, the proposed transaction seems to be motivated by a desire to dominate the market–something that antitrust regulators should closely scrutinize.

Explaining the math

Because there is no authoritative data source for prison and jail commissary sales, we used the 2013 ASCA survey as our starting point. In that survey, twenty-eight states reported total annual sales of $517.5 million (the profits in those states totals upwards of $57 million), which equals annual sales of $674 per incarcerated person.1

To estimate commissary sales in the states that did not report figures to ASCA, we multiplied the average per capita figure of $674 by the total prison population of the twenty-two non-reporting states, which yields estimated sales of $348 million.

To estimate the size of the jail commissary market, we calculated the per capita sales figures for seven counties where financial information was publicly available.2 The average per capita revenue for these seven counties is $782. We multiplied that amount by the total national jail population of 646,000, resulting in a total jail market of $505 million.

Finally, we added the Federal Bureau of Prisons’ commissary sales (as reported to ASCA).

Adding up all of the aforementioned categories results in a total commissary revenues of $1.6 billion per year, as follows:

State prison sales reported to ASCA (28 states) $517 million
22 remaining states (estimated) $348 million
Jails (estimated) $505 million
Federal BOP sales reported to ASCA $259 million
TOTAL $1.6 billion

As far as sales for Keefe and Trinity are concerned, both companies are privately held, and therefore financial information is hard to come by. But in a 2015 bid for an Arizona contract, Trinity claimed annual revenues of over $500 million (this comes both from commissary operations and general food-service contracts), and a captive customer base of approximately 475,000 incarcerated people spread throughout 700 facilities in 44 states.

In 2014, Keefe Commissary Network (one of the Keefe Group companies) bid to operate the commissary system for the West Virginia Division of Corrections. The company’s proposal included 2012 financial statements for the commissary subsidiary, reporting total sales of $375 million, with a net profit of $41 million. This equates to a 10.9% profit margin, which is quite robust (as a point of comparison, Wal-Mart’s profit margin is around 3%).

Based on these historical numbers, combined sales for the two companies could top $875 million. That’s equivalent to controlling every commissary in every state prison.


  1. Per capita figures are based on total revenue reported to ASCA, and 2013 prison populations according to U.S. Dept. of Justice, Bureau of Justice Statistics, Prisoners in 2013 (Sept. 2014), tbl. 2.  ↩

  2. The seven counties (and the year for which commissary data is available) are: Mendocino County, CA (2009); Collier and Orange Counties, FL (2014 and 2013, respectively); St. Louis County, MO (2014); Lancaster and Wayne Counties, PA (both 2015); and Webb County, TX (2015).  ↩

Stephen Raher is the General Counsel at the Prison Policy Initiative. (Other articles | Full bio | Contact)

2 responses:

  1. […] Policy Initiative, a nonprofit criminal-justice think thank, estimates that commissary companies earn $1.6 billion per […]

  2. […] Policy Initiative, a nonprofit criminal-justice think thank, estimates that commissary companies earn $1.6 billion per […]

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