U.S. food retailers are poised to take a hit as the federal government reduces its $78 billion-per-year food stamp program.
Grocery stores and other food retailers have struggled in recent years as consumers battered by high unemployment and shrinking wages switched from upscale products to discounted bulk goods and generic brands.
Food sales, especially at discounters such as Wal-Mart Stores Inc., could be further crimped by the $5 billion, or roughly 6 percent, annual cut in food stamps that took effect Friday.
It “is going to hit those outlets that cater to lower-income consumers — Wal-Mart, dollar stores, grocers also,” said Andrew P. Wolf, an analyst at BB&T Capital Markets. “If you look at it from a macroeconomic point of view, it’s less fiscal stimulus.”
The Supplemental Nutrition Assistance Program has more than doubled in size in the last five years — a sign, some analysts say, of the distress still afflicting low-income Americans more than four years after the official end of the last recession.
Nearly 48 million Americans, or 15 percent of the country, receive an average of $133 a month.
Congress temporarily boosted SNAP in 2009 as part of its economic triage in the aftermath of the 2008 global financial crisis. The increase expired Friday.
Benefit cuts will vary according to household income and other factors. A family of four would lose about $36 a month, according to the Agriculture Department, which administers the program.
The direct hit to the economy is likely to be muted, equating to just 0.0003 percent of gross domestic product, according to Nicholas Colas, chief market strategist at New York brokerage ConvergEx Group.
But damage to consumer confidence could be significant, he said. One in five American households is on food stamps, and many people could be rattled as their benefits are chopped.
Some retailers acknowledged the potential damage to their bottom lines.
“We’re a little concerned about the food stamp cut,” Dennis Eidson, chief executive of Spartan Stores Inc., a Michigan supermarket chin, said in a conference call with analysts last week. “That could be a meaningful event for us.”
Other chains downplayed the effect, saying customers will use their own money to buy groceries. William Simon, chief executive of Wal-Mart U.S., told investors that his company could benefit if cash-strapped consumers look for bargains. Wal-Mart estimates that it gets about 18 percent of all food stamp spending.
“Everybody’s benefit is going to get cut, price will become more important,” Simon said. “And when price is more important, we’re more relevant.”
Analysts, however, doubt that the cut in food stamps would benefit Wal-Mart or other stores. Customers who spend more on food would have to cut back elsewhere, they say.
“I understand why Wal-Mart would want to downplay this,” said Jason Moser, an analyst at the Motley Fool. “That’s their job and they want investors to feel like there aren’t any head winds going into this holiday season. But the fact is there are and this could potentially be another one.”