Shrinking Food Stamp Benefits Challenge Retailers

  • Pandemic-related emergency funding from supplemental nutrition assistance programs, formerly known as food stamps, ended in most states this month.
  • For retailers such as Kroger, Walmart and Dollar General, the SNAP dollar drop will put pressure on discretionary selling.
  • On average, lower tax rebates are added this year, leaving fewer dollars for shoppers to spread.

Workers carry bananas inside a Walmart Supercenter in North Bergen, New Jersey.

Eduardo Munoz Alvarez | AP

Budgets are getting tighter for some shoppers who are already struggling to cover their grocery bills.

Pandemic-related emergency funding from supplemental nutrition assistance programs, formerly known as food stamps, ended in most states this month, leaving many low-income households to spend less on food.

More than 41 million Americans receive funding for food through federal programs. These households will spend at least $95 less per month on groceries. But for many households, the decline will be even more acute as government support scales with household size and income.

For grocers like Kroger, big box stores like Walmart, and discounters like Dollar General, a falling SNAP dollar adds to an already long list of concerns for the year ahead. Discretionary product sales, a weakening part of retailers’ businesses, could come under pressure. This is because it is an important category for retailers and tends to bring higher profits.

Big companies such as Best Buy, Macy’s and Target are cautious about their outlook this year, with shoppers regardless of income spending more on essentials like housing and food. He said he was cautious about spending on things like

Food, in particular, has emerged as one of the hardest-hit inflation categories, up 10.2% year-on-year as of February, according to the US Bureau of Labor Statistics.

“We still have to feed the same number of consumers, but we have to make choices,” said Karen Short, retail analyst at Credit Suisse.

“So what you’re doing is definitely having to cut back on discretion,” she said.

Some people can’t even buy basic items with stretch. It’s still too early to fully understand the full impact of the reduction in SNAP benefits, said Trisha Cunningham, her CEO of the Texas Food Bank, in Dallas. Food in her pantry is starting to get more and more first-time guests. This non-profit organization supports pantry shelving serving 13 counties.

Demand for meals has skyrocketed, even from pandemic levels, she said. The nonprofit was serving about 7 million meals a month before the pandemic, but now she’s serving 11 to 12 million meals a month.

“We knew these [extra SNAP funds] “But we didn’t know there was an inflationary impact that we had to deal with,” she said.

So far, retail sales have proven resilient in the first two months of the year, but consumers are battling inflation and following a stimulus spending boom early in the pandemic. increase. Retail spending in February increased by 17.6% year-on-year, according to the Department of Commerce.

Some of these sales are due to higher prices. Annual inflation was 6% as of February, according to the Labor Department’s tracking of the consumer price index, which measures a wide mix of goods and services. The index is also rising from restaurant and bar spending, which has recovered from the early days of the pandemic and started to become more competitive with money spent on goods.

But retailers themselves are pointing to cracks in consumer health, with rising credit card balances, higher sales of lower-priced private label brands, and shopper response to discounts and promotions. pointing out the rise.

Some retailers also mentioned reduced SNAP funding in their earnings calls.

Kroger CEO Rodney McMullen called it a “meaningful headwind for the balance of the year.”

“I expect everyone to work together to either continue or find additional funding,” he said in the company’s earnings call to investors earlier this month. “But as you know, there are a lot of people whose budgets are being squeezed because of inflation.”

According to Credit Suisse’s Short, for low-income households, pressure on food costs is on top of rising costs of almost everything else, whether it’s paying your electric bill or filling up your gas tank.

“I don’t think I can say what the tailwinds will be for consumers,” she said. “In my view, there is not a single tailwind.”

Emergency allocations of SNAP benefits have previously ended in 18 states, allowing us to anticipate the impact of reduced funding nationwide. In a Credit Suisse research note, Short found that his SNAP spending dropped an average of 28%. Across several retailers from the date the additional funding closed.

Some grocers and large retailers may feel the impact more than others. According to Credit Suisse’s analysis, Grocery Outlet has the highest exposure to his SNAP, with an estimated 13% of sales in 2021 coming from the program. Estimates based on bank company filings put BJ’s Wholesale at about 9%, Dollar General at about 9%, Dollar Tree at about 7%, Walmart’s U.S. operations at about 5.5%, and Kroger at about 5%. and continues. government data.

Retailers that attract higher-income customer bases, such as Target and Costco, should feel less impacted, Short said. A decline in the SNAP dollar could cause shoppers to move from one retailer to another as major players look to gain market share and drive down prices, she said.

Another factor could make the start of the retailer’s fiscal year, which usually begins in late January or early February, more difficult. Refunds this year are on the decline.

According to IRS data for the week of March 10, the average payout was $2,972, down 11% from the average payout of $3,352 at the same time last year’s filing season. That’s because the IRS continues to process millions of American tax returns ahead of its mid-April deadline.

Dollar General Chief Financial Officer John Garratt said on this month’s earnings call that discounters are monitoring how shoppers respond to reduced emergency SNAP benefits and reduced tax refunds.

He said he didn’t see any change in store sales patterns when emergency SNAP funding ended earlier in some states, but added that “customers are now elsewhere.”

A sales tax refund could act as an infusion of cash for retailers, with some people seeking big-ticket items such as brand-name sneakers and sleek new TVs, says market research firm NPD. Group Chief Industry Advisor Marshall Cohen said. .

But this year, even if people get their regular refunds, they may use them to pay bills or reduce debt, he said.

One bright spot for retailers is that the cost of living will increase by 8.7% in Social Security payments. Since January, recipients have received an average of $140 more per month.

But Cohen said the influx of cash is putting pressure on younger consumers, especially those aged 18 to 24 who are just starting work and facing milestone costs such as leasing contracts and buying a car. may not be sufficient to offset the

“Everything costs so much to spend so much early in your consumer career,” he said.

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