Cuts to food stamp benefits challenge retailers

A worker carries bananas at the Walmart SuperCenter in North Bergen, New Jersey.

Eduardo Munoz Alvarez | AP

For some shoppers who are already struggling to cover their grocery bills, the budget is getting smaller.

Pandemic-related emergency funding under the Supplemental Food Assistance Program, formerly known as Food Stamps, is ending in most states this month, leaving many low-income families with less money for food.

over 41 million Americans receive funding for food under the federal program. For these households, grocery spending will be at least $95 less per month. However, for many families, the fall will be even steeper as government aid increases to match household size and income.

For grocers like krogerbig players like walmart and discounters such as Common dollar, falling SNAP dollars adds to an already long list of worries about the coming year. This is likely to put pressure on a weakening part of retailers’ business: discretionary product sales, which are important categories for retailers because they tend to generate higher margins.

Major companies including Best Buy, Macy And Targetshared cautious forecasts for the year, saying income-based shoppers have become more cautious about spending on items like clothing or consumer electronics as they pay more for essentials like housing and food.

In particular, according to the US Bureau of Labor Statistics, food has become one of the categories most affected by inflation, increasing by 10.2% year on year as of February.

“You still have to feed the same number of mouths, but you have to make choices,” said Karen Short, a retail analyst at Credit Suisse.

“So what you’re doing is that you definitely have to cut back on discretionary power,” she said.

The tension has made it impossible for some to afford even basic items. It’s still too early to see the full impact of cut SNAP benefits, North Texas Food Bank CEO Trisha Cunningham said, but food pantries in the Dallas-Fort Worth area have begun to welcome more new guests. The non-profit organization helps store shelves in pantries that serve 13 counties.

Demand for food has skyrocketed, even from pandemic levels, she said. Before the pandemic, this non-profit organization provided about 7 million meals per month and now provides 11 to 12 million meals per month.

“We knew these [extra SNAP funds] were leaving and they were about to close,” she said. “But what we didn’t know was that we would have to deal with inflation on top of that.”

Change in market share

So far, retail sales have been resilient in the first two months of the year, even as consumers battle inflation and follow stimulus spending in the early years of the pandemic. On an annualized basis, Retail spending rose 17.6% in February, according to the Commerce Department.

Some of these high sales are due to higher prices. The annual inflation rate stands at 6% as of February, according to the Labor Department’s tracking of the Consumer Price Index, which measures a wide range of goods and services. This index also increased with spending on restaurants and bars, which recovered from the previous period of the pandemic and began to compete more with money spent on goods.

However, retailers themselves are pointing to consumer health concerns, noting rising credit card balances, increased sales of low-cost private label brands, and increased customer response to discounts and promotions.

Some retailers have also mentioned SNAP funding cuts in their income statements.

Kroger CEO Rodney McMullen called it “a significant headwind to the balance of the year.”

“We hope that everyone will work together to continue or find additional money,” he said during an investor call earlier this month. “But, as you know, because of inflation, there are a lot of people whose budget is struggling.”

Credit Suisse’s Short said that for low-income families, the cuts in food costs are superimposed on climbing costs for almost everything else, whether it’s paying the electricity bill or filling up the gas tank.

“I don’t think I can tell you what a consumer tailwind is,” she said. “In my opinion, there is simply not a single tailwind.”

Emergency SNAP benefits have previously been discontinued in 18 states, which could preempt the effect of funding cuts across the country. In a research note to Credit Suisse, Short found an average 28% reduction in SNAP spending. at multiple retailers from the end date of additional funding.

Some grocers and large retailers may have felt the impact more than others. According to Credit Suisse analysis, Grocery store has the largest impact on SNAP, with an estimated 13% of its sales in 2021 coming from the program. This is followed by blowjob wholesale about 9% Common dollar about 9% dollar tree about 7%, Walmart’s US business is 5.5%, and Kroger is about 5%, according to bank estimates based on company documents and government data.

Retailers attracting a higher income customer base such as Target and Costcoshould feel a comparatively smaller effect, Short said. Shrinking SNAP dollars could move shoppers from one retailer to another as the big players look to grab market share and cut prices, she said.

Less dollars to go

Another factor could make the start of retailers’ fiscal year, which usually starts in late January or early February, more bumpy: tax refunds are trending lower this year.

The average refund was $2,972. 11% below the average payment of $3,352. as of the same point in last year’s filing season, according to IRS data as of the week of March 10. However, this average payout may change over time as the IRS continues to process millions of US returns through mid-March. April term.

Dollar Chief Financial Officer John Garratt said in an earnings call this month that the discounter is monitoring how its customers respond to the removal of emergency SNAP benefits and reduced tax refunds.

He said stores didn’t see a change in sales mix when some states previously ran out of SNAP emergency funds, but added that “the customer is now elsewhere.”

Tax refunds can serve as a cash injection for retailers as some people buy high-value items like a pair of branded sneakers or a sleek new TV, said Marshal Cohen, chief industry adviser at The NPD Group, a market research firm. .

However, this year, even if people get their regular refund, they can use it to pay bills or reduce debt, he said.

One highlight for retailers could be an 8.7% increase in the cost of living in Social Security payments. Since January, recipients have received an average of $140 more per month.

However, according to Cohen, the cash flow may not be enough to offset the pressure on younger consumers, especially those aged 18 to 24 who have just taken a job and are facing intermediate costs such as signing a lease or buying a car. .

“Everything costs them much more because of the large expenses at the beginning of their consumer career,” he said.

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