A worker loads bananas inside a Walmart SuperCenter in North Bergen, New Jersey.
Eduardo Munoz Alvarez | AP
For some shoppers already struggling to cover grocery bills, the budget is getting tight.
This month, pandemic-related emergency funding from the Supplemental Nutrition Assistance Program, formerly known as Food Stamps, ends in most states, leaving many low-income families with little to spend on food.
More than 41 million Americans receive funding for food through the federal program. For those families, it would amount to at least $95 a month to spend on groceries. However, for many families, the decline will be more severe as government assistance will rise to adjust to family size and income.
For groceries such as KrugerLike the big players Walmart and discounts like dollar generalThe drop in SNAP dollars adds to an already long list of concerns about the year ahead. It’s likely to hit a weak part of retailers’ business: discretionary merchandise sales, which are important categories for retailers, because they tend to drive higher profits.
Big companies incl best buyAnd Messi And license plateshared cautious views for the year, saying income shoppers are becoming more careful about spending on items like clothing or consumer electronics because they’re paying more for necessities like housing and food.
Food, in particular, has emerged as one of the categories hardest hit by inflation, rising 10.2% year over year as of February, according to the US Bureau of Labor Statistics.
“You still have to feed the same number of mouths, but you have to make choices,” said Karen Short, retail analyst at Credit Suisse.
“So what you’re doing is you definitely have to cut back on your discretion,” she said.
This expanse made it impossible for some to carry even the most basic items. It’s still too early to see the full impact of the reduced SNAP benefits, but food pantries in the Dallas-Fort Worth area are starting to see more guests for the first time, said Trisha Cunningham, CEO of North Texas Food Bank. The nonprofit helps stock shelves in stores that serve 13 counties.
She said demand for meals has ballooned, even from pandemic levels. The nonprofit used to serve about 7 million meals a month before the pandemic and now serves between 11 million and 12 million meals a month.
“We knew that [extra SNAP funds] “They were going away and they were going to be out of the sun,” she said. “But what we didn’t know was that we would have the effect of inflation to deal with on top of that.”
Converting market share
So far, retail sales in the first two months of the year have proven resilient, even as consumers grapple with inflation and follow a stimulus-driven spending boom in the early years of the pandemic. On a yearly basis, retail spending rose 17.6% in February, according to the Commerce Department.
Some of those higher sales came from higher prices. The annual inflation rate was 6% as of February, according to the Labor Department’s consumer price index tracker, which measures a broad mix of goods and services. This indicator also got a boost from spending on restaurants and bars, which has rebounded from earlier in the pandemic and is starting to compete more with money spent on goods.
However, retailers themselves have pointed to cracks in consumer health, pointing to rising credit card balances, increased sales of low-priced brand names, and shoppers’ increased responsiveness to discounts and promotions.
Some retailers reported that SNAP funding fell on earnings calls as well.
Rodney McMullen, CEO of Kroger, called it a “meaningful headwind to the balance of the year.”
“Hopefully everyone will work together to survive or find additional cash,” he said on the company’s earnings call with investors earlier this month. “But you know, because of inflation, there are a lot of people whose budgets are under strain.”
Credit Suisse’s Short said that for low-income households, the pressure of food cost comes on top of climbing expenses for almost everything else, whether that’s paying the electric bill or filling a gas tank.
“I don’t think I can tell you what the consumer tailwind is,” she said. “There is not a single tailwind from my point of view.”
Emergency provisions for SNAP benefits previously expired in 18 states, which could showcase the impact of reduced funding nationwide. In a research note for Credit Suisse, Short found an average decline in SNAP spending of 28%. Many retailers have crossed the expiration date of the additional financing.
Some grocers and large retailers may feel the impact more than others. According to an analysis by Credit Suisse, grocery outlet It has the highest SNAP exposure with an estimated 13% of its 2021 sales coming from the program. It follows Wholesale BJ’s by about 9%, dollar general at about 9%, dollar tree at about 7%, Wal-Mart’s U.S. business at 5.5% and Kroger at about 5%, according to the bank’s estimates, which were based on company filings and government data.
Retailers that draw a high-income customer base, such as Target and Amazon.com CostcoYou should feel relatively less impact, Short said. If nothing else, she said, SNAP’s dwindling dollars could move shoppers from one retailer to another, as major players seek to grab market share and undercut prices.
Less dollars to go
Another factor that could lead to a rocky start to retailers’ fiscal year, which typically begins in late January or early February: Tax refunds are trending lower this year.
The average refund was $2,972, down 11% from 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. As the IRS continues to process the return of millions of Americans before the mid-April deadline.
Dollar General CFO John Garratt said on an earnings call this month that the discount company is watching how shoppers respond to ending emergency SNAP benefits and lowering tax refunds.
He said the stores did not see a change in sales patterns when SNAP emergency funds previously expired in some states, but added that “the customer is in a different place now.”
The tax refund could be an infusion of cash for retailers, said Marshall Cohen, senior industry advisor for The NPD Group, a market research firm, as some people turn to expensive items like a pair of brand-name sneakers or a stylish new TV. .
This year, though, even if people get their regular refund, they might use it to pay bills or reduce debt, he said.
One bright spot for retailers could be an 8.7% increase in cost of living in Social Security payments. Starting in January, recipients have received an average of $140 per month.
However, Cohen said, the cash flow may not be enough to relieve pressure on young consumers, particularly those between the ages of 18 and 24, who are just starting their careers and facing important expenses like signing a lease or buying a car.
“Everything is costing them so much more for the big early outlay of their consumer career,” he said.