Shrinking food stamp benefits for families mean yet another challenge for retailers
The budget is becoming more restrictive for some shoppers who already have difficulty paying their grocery bills.
The Supplemental Nutrition Assistance Program, formerly known as food stamps, is ending pandemic-related emergency funding this month in the majority of states, leaving many low-income families with less money to spend on food.
The government program provides cash for food to more than 41 million People. For those households, the monthly savings on food will be at least $95. Nevertheless, since government support ramps up to take into account home size and income, the decrease will be substantially greater for many families.
The decrease in SNAP funds adds to an already extensive list of concerns for retailers like Kroger, big-box stores like Walmart, and discounters like Dollar General about the next year. Sales of discretionary goods, which are essential categories for retailers since they frequently provide larger profits, are expected to be put under pressure. This weakening area of the retail industry.
Large corporations like Best Buy, Macy’s, and Target have released cautious sales forecasts for the year, claiming that consumers of all income levels have grown more frugal with their spending on goods like apparel and consumer electronics while they pay more for basics like housing and food.
According to the U.S. Bureau of Labor Statistics, one of the categories with the highest annual inflation rates is food, which was up 10.2% as of February.
The same number of mouths need to be fed, but decisions need to be made, according to Karen Short, a retail analyst with Credit Suisse. So you’re having to reduce your discretionary spending, she remarked.
For other people, it has become hard to buy even necessities. According to Trisha Cunningham, CEO of the North Texas Food Bank, it’s still too early to fully assess the effects of the lower SNAP payments, but food pantries in the Dallas-Fort Worth region are starting to observe an increase in first-time visitors. The group assists food banks by restocking their shelves.
Even from epidemic levels, she claimed, the demand for meals has skyrocketed. Before the epidemic, the NGO provided around 7 million meals per month; currently, it delivers between 11 and 12 million. We were aware that these [additional SNAP monies] would expire and be sunsetted, she added. But, we were unaware that we would also have to cope with the effects of inflation.
Shifting market share
Retail sales have so far shown resilience in the first two months of the year, despite customers dealing with inflation and coming off a stimulus-fueled spending spree in the early years of the era. The Commerce Department reports that retail sales increased 17.6% in February compared to the same month last year.
Higher pricing has contributed to some of those greater sales. According to the Labor Department’s tracking of the consumer price index, which gauges a wide range of goods and services, the annual inflation rate was 6% as of February. Restaurant and bar spending, which has recovered from earlier in the epidemic and started to compete more with money spent on commodities, has also helped to boost that index.
Nonetheless, merchants have acknowledged flaws in consumer health, pointing to increased credit card balances, an increase in sales of private label items with cheaper prices, and consumers’ heightened sensitivity to discounts and promotions.
In addition, some stores addressed the SNAP funding reduction on earnings calls. A major headwind for the remainder of the year,” according to Rodney McMullen, CEO of Kroger.
At the beginning of the month, during the company’s results call with investors, he remarked, “We’re confident that everyone will work together to continue or find extra money.” Yet as you are aware, many individuals are having financial difficulties as a result of inflation.
According to Credit Suisse’s Short, the strain on food prices for lower-income households comes on top of rising costs for almost everything else, including paying the electric bill and filling the petrol tank. She responded, “I don’t think I could explain to you what a tailwind is for the customer. In my opinion, there just isn’t a single tailwind.
The termination of SNAP emergency allocations in 18 states might have been a foreshadowing of the effects of the cut in federal funds. Short discovered a 28% average reduction in SNAP spending across numerous stores from the day the increased financing terminated in a research paper for Credit Suisse.
Grocery stores and big-box merchants may be more affected than others. Credit Suisse’s study shows that
