Recent proposals to reduce funding for the Supplemental Nutrition Assistance Program (SNAP) are poised to significantly impact both beneficiaries and major retailers, particularly Walmart, which captures a substantial portion of SNAP spending.
Walmart stands as the leading retailer for SNAP beneficiaries, accounting for approximately 25.8% of grocery spending by SNAP households. This dominance is attributed to Walmart's extensive store network, competitive pricing, and integration of technology that facilitates the use of Electronic Benefits Transfer for online grocery shopping and delivery. Such features make Walmart a convenient and accessible option for low-income families relying on SNAP benefits.
Potential Impact of SNAP Funding Reductions
The proposed budget plan by House Republicans aims to cut $2 trillion in mandatory spending over the next decade, with $230 billion targeted from the U.S. Department of Agriculture, which administers SNAP.
This could result in a 22% reduction in SNAP benefits, significantly decreasing the purchasing power of millions of low-income Americans.
For retailers like Walmart and Kroger, which derive a significant portion of their revenue from SNAP transactions, these cuts could lead to a noticeable decline in sales.
Walmart's Chief Financial Officer, John David Rainey, acknowledged that previous reductions in SNAP benefits had a "net negative" impact on the company's bottom line, despite some offset from increased spending through other means.
Inflation and Economic Context
The proposed SNAP cuts come at a time when inflation has been affecting food prices, further challenging low-income households.
As the cost of living increases, the real value of SNAP benefits decreases, making it more difficult for recipients to afford nutritious food. This economic pressure not only impacts beneficiaries but also retailers who rely on SNAP spending as a steady revenue stream.
Impact on Grocery Categories
SNAP households allocate their benefits across various grocery categories, with certain items comprising a significant share of their expenditures. According to data, the top categories include:
- Meat, Poultry, and Seafood: 19.2%
- Sweetened Beverages: 9.3%
- Vegetables: 7.2%
- Frozen Prepared Foods: 6.9%
- Prepared Desserts: 6.9%
- Dairy Products: 6.4%
Reductions in SNAP benefits are likely to decrease spending in these categories, particularly in high-cost items like meat and dairy products.
Retailers may observe a shift in consumer behavior, with SNAP recipients opting for less expensive alternatives or purchasing smaller quantities to stretch their limited resources.
Non-Food Items and SNAP Eligibility
Some non-food items, like seeds and plants that produce food, are eligible for purchase with SNAP benefits, but essential non-food items like diapers, hygiene products, and household supplies are not covered.
This limitation means that any reduction in SNAP funds could force households to reallocate their limited cash resources to cover these necessities, further straining their budgets.
Impact on Other Major Retailers
Beyond Walmart, other major retailers also receive significant revenue from SNAP transactions.
Kroger, for instance, captures about 9.1% of SNAP spending, while Costco accounts for 6.2%. These retailers, along with others like Albertsons and Sam's Club, could experience a decline in sales if SNAP benefits are reduced, as a considerable portion of their customer base relies on this assistance for grocery purchases.
State-Level Assistance Programs
In response to potential federal cuts, some states may consider bolstering their own assistance programs to support affected residents. For example, New Jersey passed legislation to supplement SNAP benefits through state funding after federal reductions.
However, not all states have the financial capacity or political will to implement similar measures, potentially leading to disparities in assistance across the country.
The proposed cuts to SNAP funding are expected to have far-reaching consequences for both beneficiaries and retailers.
Major retailers like Walmart and Kroger may experience a decline in sales, especially in key grocery categories heavily patronized by SNAP households. Additionally, the inability to use SNAP benefits for essential non-food items like diapers means that reductions in assistance could further strain household budgets.
