Food Stamps Are About to Spoil Grocery Stores’ Outlook
The end of enhanced food-stamp benefits could hurt sales at chains like Walmart
By Jinjoo Lee, The Wall Street Journal,
Feb. 20, 2023
The federal government started beefing up households’ food budgets starting March 2020 to address food insecurity during the Covid-19 pandemic. Over the last three calendar years, that added up to about $98 billion of extra assistance—known as emergency allotments—on top of regular food stamps issued through the Supplemental Nutrition Assistance Program, or SNAP…In 2022, SNAP benefits (including the emergency allotments) made up 12.3% of total at-home U.S. food and beverage retail sales…
Congress in late December put an end to that food-stamp boost, which will mean that SNAP-eligible households in 35 U.S. states and jurisdictions will lose at least $95 a month in benefits starting in March…
One offset to the emergency allotment cliff is the cost of living adjustment on the regular SNAP benefit, which raised the size of the food stamps by 12.5% starting in October. …
Bargain retailer Grocery Outlet, Walmart, Dollar General, Family Dollar, Kroger and BJ’s Wholesale Club, all saw almost 10% to 15% of revenue come from food stamps…[end quote]
In the current hot economy, unemployment rates are low and wages are increasing for the lowest economic tier. The reduction of SNAP benefits will hurt those who can’t work. If and when a recession reduces employment in this low-income tier many will feel the pinch.
Investors should be aware that the ending of Covid-related SNAP enhanced benefits will probably hurt supermarket stock prices.
Is this of interest to people who own supermarket stocks? The reality is, grocery stores will just get back to selling the real amount of food the market dictates and not excess unneeded stuff to people who wouldn’t be buying it if they didn’t have the extra money. This is not a negative. It’s right-pricing.
More likely, people still need to eat, so other things will be cut back to maintain the food budget.
I am under the impression that the soon-to-be-missing SNAP funds are excess, beyond what you are referring to. The extra, add-on money is being discontinued. The poor will still eat. And my heart will not weep for supermarkets.
The extra SNAP money that was spent on food will go away. Thus, there will be less spending in the non-food economy ($98B/yr per OP) because that money will be diverted to cover the cost food.
What food costs? How were they eating before? (Hint: They were eating) We seem to be in agreement anyway. This money is the COVID cushion, you might call it. It’s not needed anymore. (At least not any more than before Covid) So it’s being ended. I am not really commenting on the moral aspects of societal subsidies or anything like that. I am merely responding to the economics of the end of The COVID Cushion. There’s no need to continue subsidizing Walmart and Krogers.
Actually, it is not a (known) subsidy to those businesses. Rather, the money was able to expand the economy by freeing up funds that used to be required to buy food. That money could then be used to buy other goods and services. With the loss of that additional income, the non-food economy will shrink by about $98B per year.
It could go either way. Have there been any studies on how much of the money switched to non-food items versus more/different food? (Not that it would change the overall spending.)
Yes, it changes overall spending. There will be $98B/yr unavailable to be spent by consumers after the program ends. Where those reductions will occur is up to the investor to figure out.
Yes, Anytime you have less money floating around there tends to be less money to spend. The economy will not “Shrink.” It will simply return or attain it’s natural size without the “Slosh Money.” If that means “Shrinking” from its current size then, yeah, it gotta do what it’s gotta do. Why keep it at slosh levels forever?
And that, as a percentage of the $6.5T/year in US retail spending is how impactful?
Depends upon the velocity of money, which is usually low during recessions and downturns.
“Simply put, it’s the rate at which consumers and businesses in an economy collectively spend money. The velocity of money is usually measured as a ratio of gross domestic product (GDP) to a country’s M1 or M2 money supply. The word velocity is used here to reference the speed at which money changes hands.”
According to this list, it would put 93 of the top 100 retailers out of business. I’d say that is pretty impactful.