SNAP plays outsized role in grocery industry

Even with benefits in the midst of change, it’s hard to overestimate the importance of the Supplemental Nutrition Assistance Program (SNAP) to the people receiving its food dollars—and to the grocery retail market.

SNAP Emergency Allotments (EAs), enacted during the pandemic to help fight food insecurity, lapsed essentially nationwide as of March 1. The loss of these extra funds for food purchases has brought the program under a microscope as grocery industry stakeholders mull the potential effect on SNAP customers and retailers.

More than 42.4 million Americans now rely on SNAP, formerly known as food stamps, to feed themselves and their families, up from around 37 million just before the pandemic, according to the latest available data from the U.S. Department of Agriculture’s Food and Nutrition Service (FNS), manager of the program. The numbers, through the end of March, reflect nearly 22.5 million participating households receiving an average monthly benefit of $386.17, with the average payout per person at $204.54.

Nationwide, monthly benefits through March topped $8.67 billion, down 18.1% month to month and 9% year over year, FNS data show. On an annual basis, the average monthly benefit shrank 11.1% per person and 12% per household.

About one in eight people in the United States—including children, older adults, working adults, parents, those with disabilities and others in low-income families—receive SNAP aid each month, the Center on Budget and Policy Priorities (CBPP) reported. CBPP noted that research has linked SNAP benefits to improved health, education and economic outcomes, in addition to lower medical costs.

“This is a great example of a public-private partnership that works. It was incredibly efficient during a very difficult time, to try to make sure that folks had the food they needed to feed their families during the COVID emergency,” said Jennifer Hatcher, chief public policy officer and senior vice president of government and public affairs at FMI-The Food Industry Association. “One of the keys going forward is to make sure we’re not putting systems in place that would add costs or complexity to a system that’s worked so well.”

The demographic cross-section of the SNAP user base illustrates that the ability to regularly shop for food to feed the family “isn’t a given” in many households, according to “The SNAP Rollercoaster: A Special Report on Hunger in the U.S.,” released in late May by dunnhumby.

Citing data from CBPP, the customer data science firm’s study said 92% of SNAP recipients are at or below the poverty line, and they are likely to be caregivers, employed or both—65% of SNAP households have children, 36% have families with older adults who are disabled, and 41% work.

That data snapshot also is borne out by Numerator’s “Helping SNAP Consumers During Economic Headwinds” report, released in mid-March. Of 1,250 SNAP beneficiaries surveyed by the consumer data specialist, 61% are in the bottom 30th percentile in purchasing power, 45% have children, and 29% have five or more household members. Thirty-seven percent of respondents are Generation Z or Millennial, and SNAP households are twice as likely to be Black/African-American or Hispanic/Latino versus non-SNAP households.

Numerator’s findings, including from its Insights research base, also revealed that SNAP households are significantly more impacted by economic uncertainty. Seventy-nine percent of those polled said their financial situation is the same or better compared to the prior year. But one in five feel overwhelmed by financial burdens, and 56% are concerned about job stability. SNAP customers, too, are 3.8 times more likely to be disabled, Numerator said, and 56% are more likely to not actively manage their health.

The bottom line: SNAP concerns a large number of Americans. Roughly 12% of the U.S. population now gets SNAP benefits to ward off food insecurity. And while the user base exhibits much turnover—around half of SNAP recipients participate for two years or less, the dunnhumby report said—an estimated 20% of Americans have been on food stamps at some point in their lives, translating to some 80 million people.

“Let’s imagine the SNAP program was considered its own grocery store,” Numerator analyst Shawn Paustain said via email. “The USDA shared that approximately $125 billion worth of SNAP benefits were redeemed in 2021 and grew by 61% compared to 2020. If we were to rank it in terms of grocery dollar sales, it would be the second-biggest store right behind Walmart and the fastest-growing out of the top 100 grocery stores in the U.S. That, in and of itself, is profound enough to understand the importance it has on consumer spending overall, particularly in the categories eligible for SNAP redemption.”

The SNAP grocery customer

For 2022, SNAP participants accounted for 24% of total U.S. spending on consumer packaged goods, Numerator calculated in its report. That was fueled by bigger basket sizes. When SNAP recipients use their benefits during a shopping trip, the ticket size is about $15 more and grocery spend per trip is nearly $18 more. Units per trip also double from 5.2 to 10.4, the research showed.

SNAP users, too, spend disproportionately more per unit on CPGs. Numerator found that, for the quarter ended Dec. 31, SNAP customers paid 13% more per unit year over year, versus 11% more for non-SNAP consumers. That trend was driven by higher inflation on baby care and health-and-beauty aids, as well as in the dollar store retail channel, areas in which SNAP consumers over-index, Numerator’s study said.

Last year, SNAP benefits represented about 12% of food and beverage sales, Moody’s Investors Service said in a report on the expiration of SNAP emergency benefits, citing Commerce Department data. Combined, Walmart, The Kroger Co. and Albertsons Cos. redeem roughly 80% of all SNAP benefits, Moody’s reported, pointing to USDA figures.

“We estimate Walmart’s SNAP sales average in excess of $20 billion a year,” Moody’s wrote in its study, titled “As SNAP Benefits Shrink, Food Retailers Brace for Revenue Hit” and released in April. “SNAP benefits also account for about a mid- to high-single-digit percentage of sales for extreme value discounters such as Dollar General and Dollar Tree.”

By retail channel, supermarkets/grocery stores garnered 33% and mass merchants 26% of SNAP households’ CPG dollar spend in 2022, according to Numerator. Those retail segments were far ahead of SNAP CPG share for clubs (9%), online (9%), convenience stores (8%), dollar stores (5%) and drug stores (3%).

Numerator’s SNAP Shopper Scorecard, released in mid-May, gave a snapshot of where SNAP shoppers are spending their benefit dollars. For the year through the end of the 2023 first quarter, Walmart captured 25.5% of SNAP shoppers’ grocery spend, well ahead of Kroger (8.4%), Costco Wholesale (6%) and Albertsons Cos. (5.9%). Rounding out the top 10 were Sam’s Club (4.3%), Ahold Delhaize USA (4.2%), Publix Super Markets (2.7%), 7-Eleven (2.3%), Dollar General (2.3%) and Aldi U.S. (2.1%).

“From our SNAP Shopper Scorecard, there were two main findings,” Paustain said. “The first is that SNAP recipients resonate with Walmart. Over 25% of total grocery dollars is spent at Walmart among SNAP recipients, with Kroger at a distant second (8%). The second is that spending at dollar stores, such as Dollar General and Dollar Tree, while a smaller proportion, is two times larger than that of non-SNAP recipients.”

FMI’s Hatcher emphasized the supplemental nature of SNAP, since purchases aren’t just being made with monthly benefit dollars and often include non-eligible items.

“One of the things we think is so important about the program is that it is a supplemental program,” she said. “These folks are customers in our stores, and more than 50% of the time they are paying for their groceries with their SNAP benefits and also with another form of payment.”

When shopping, SNAP customers are looking not just at groceries but also at other product categories, Paustain noted. “What many Americans and business leaders tend to forget is how the program also affects the spending ‘periphery’ among SNAP recipients, where those extra billions of dollars can stimulate spending.”

An inflection point?

The surge in monthly SNAP benefits during the pandemic and the cutoff of those extra dollars starting in March created difficult spending decisions for millions of Americans, including “more skipped meals; smaller meals; cheaper, less healthy food; skipped medication; and delaying or forgoing medical care,” according to dunnhumby’s “SNAP Rollercoaster” report.

In March 2022, the average SNAP household collected $439 in monthly benefits, but the Emergency Allotment (EA) phaseout slashed those food dollars by $97 to an estimated $342 per month a year later, dunnhumby reported, citing CBPP data.

Specifically, EAs went into effect in April 2020, lifting average monthly SNAP household benefits from over $250 to $365. A SNAP hike in the COVID-19 relief bill in late 2020 ended up hoisting SNAP dollars to $479 in May 2021. Then a recalculation of SNAP benefits under the USDA’s Thrifty Food Plan boosted the household benefit amount to $493 as of November 2022, before it sank to $342 at the start of March.

Meanwhile, food-at-home price growth climbed from 4% in April 2020 (compared with the 2019 pre-pandemic period) to 25% as of March 2023, even as EAs increased SNAP benefits by 52% in April 2020, to highs of 99% in May 2021 and 105% in November 2022, and then back down to 42% this past March.

“SNAP recipients began a roller coaster ride in April 2020 with the arrival of higher SNAP benefits due to the pandemic that initially left them with larger food budgets to feed their households. For many, this meant they could purchase healthier foods. But although benefits were increased again in 2021 under the COVID Relief bill, consumers were also hit with record inflation eating into in all areas of their household budgets,” explained Matt O’Grady, Americas president at dunnhumby. “This year, they are again left in a precarious position with a deep reduction in their SNAP benefits, resulting in much less disposable income available to take care of their household food needs.”

The Census Bureau reported in late April that 32 million people were receiving smaller SNAP payments after EAs ended on March 1. The SNAP policy change meant, for example, that a household of four with a monthly net income of $2,000 got almost $900 more in SNAP benefits in early 2023 versus before the pandemic, but the ensuing loss of EAs knocked that family’s SNAP dollars back down by $600 per month. Also, a Census Bureau survey found that one in four households receiving SNAP benefits in states impacted by the EA phaseout reported “sometimes” or “often” not having enough to eat.

“Because it’s a supplemental program, we hope that as people get back to work we see those benefits being supported through their income as well,” FMI’s Hatcher said. “We recently released some consumer trends research that shows the importance of getting good deals and bargains is top-of-mind right now. So we know they’re trying to find ways to save money to make sure they’re getting a good value on their shopping right now because of concerns about the economy.”

Moody’s reckoned that EAs totaled around $100 billion over the last three calendar years, and the lost emergency benefits will slash overall SNAP payments by $35 billion to $40 billion per year.

“CBPP estimates that total monthly SNAP benefits will decline by about $3 billion a month as of this March and that an average three-person household will see their monthly benefit drop by some $170 a month,” the Moody’s report said. “One-person households will see their benefits fall $132 per month, although changes in benefits will vary more broadly because declines are predicated by a household's income level and what SNAP benefits they received before Emergency Allotments.”

Some SNAP households will feel a further benefits squeeze. In early June, legislation to raise the U.S. debt ceiling was signed into law, and bargaining to pass the emergency bill to avoid a national default included extending SNAP work requirements to recipients ages 50 to 54. CBPP estimated that the change put about 750,000 older adults at risk of losing food assistance.

Citing Numerator research, Paustain said just 38% of SNAP recipients report being able to buy enough food to feed their families, and 58% say their benefits last them only two weeks, even though SNAP is designed as supplementary aid for the purchase of healthy food.

“While SNAP recipients are happy to receive their benefits, recipients are saying it isn’t enough to close the gap,” he said. “While I wouldn’t go as far to say we are reaching an inflection point, it does start to present the opportunity to refine the program and determine how the government can get to answering the mission of the program.”

Lost SNAP dollars: Grocery industry impact

SNAP benefits paid out for 2023 are expected to total around $84 billion (9.5% of grocery industry sales), down from $114 billion (13.5% of grocery industry sales) in 2022, dunnhumby’s study said. That $30 billion decrease would translate into $20 billion in lost grocery retail sales, or about 2.8% of roughly $850 billion in overall industry sales in 2022.

Every $1 change in SNAP benefits brings a 66-cent change in grocery sales, as program participants shift other household spending to or away from grocery, based on funds received, according to CBPP data cited by dunnhumby.

A “good portion” of lost grocery sales from SNAP benefit reductions will come from product trade-downs and shifting out of the grocery retail channel toward fast food for meal solutions, dunnhumby said. Its research estimated that a $90 decrease in monthly SNAP benefits this year would translate into sales decreases for fresh vegetables (-4.4%), poultry (-3%), milk (-2.9%), fresh fruit (-2.1%) and fish (-2%), but sales increases for beef ( 2.3%), pork ( 2.5%), legumes ( 4.7%) and fast food ( 7.6%).

Dollar migration from grocery to fast food could account for $4 billion of the projected $20 billion in lost grocery sales, dunnhumby reported. “When SNAP benefits go away, low-income shoppers need to shuffle their household budgets to pay for food. Whatever money they were using to pay for other bills doesn’t have to be used in grocery stores and can be used elsewhere, like at cheaper fast-food chains,” the study said.

In the post-EA period, Numerator’s SNAP Trip Tracker pegged the average spend for a SNAP grocery trip at $32.92 in April, down almost $4 from $36.62 in January. Spending for all grocery trips, including non-SNAP purchases, fell just over $1 during the same time span. SNAP users also are buying fewer items and selecting less-expensive options. From January to April, the average number of items purchased on a SNAP grocery trip dipped from 10 to 9.2, while spend per item declined from $3.66 to $3.57.

“SNAP recipients are beginning to focus on absolute price. That is translating to all parts of the shopping trip,” Paustain told WGB. “From how much they buy to the brands they purchase (inclusive of value and private brands), SNAP recipients are looking to bring the shopping total down. This sentiment has grown significantly since February of this year, and we are seeing shifts to private label across categories, including grocery.”

Numerator’s trip tracker revealed that SNAP beneficiaries are scaling back purchases in categories such as refrigerated foods (19% less likely to buy in April 2023 versus April 2022), seafood and fish (18% less likely to buy), canned foods (13% less likely to buy), breakfast foods (12% less likely to buy) and meat (11% less likely to buy). Meat was in more than a quarter (25.8%) of SNAP shopper grocery baskets in April 2022, but that percentage shrunk to 22.9% by April 2023.

“Benefit losses come as many food retailers—especially extreme value discounters—are finding it tougher to pass along cost increases to strapped consumers, while at the same time absorbing rising operational costs that have been exacerbated by high wage growth. These pressures will likely trigger margin deterioration,” Moody’s observed in its SNAP report. “As food is essential, there is a limited ability to pare back spending. Since lower-income consumers have a fixed amount of disposable income, they will have to fill in the gap of lower SNAP benefits by spending a larger part of their income on food while spending less on other retail categories. This shift will cause an overall compression in margins for the retail sector, as food has lower profit margins compared to other merchandise.”

SNAP shoppers have shifted among retail channels, with warehouse clubs and supermarkets seeing the biggest declines. Club stores captured 4.2% of SNAP grocery trips in April 2023, down from 4.6% a year before, Numerator reported. Grocery stores still hold the largest share of SNAP trips, but that percentage decreased to 39.2% in April 2023 from 41.2% in April 2022. Smaller-format retailers have picked up these trips. Numerator said SNAP grocery trips are up 17% for fuel/convenience stores and 1% for dollar stores year over year, whereas all other in-store retail channels saw decreases in these shopping trips.

“One interesting change we are seeing is that SNAP traffic has shifted away from club and into c-store,” said Paustain. “This is in line with what we have heard in our interviews with SNAP recipients. They are balancing the value versus absolute price equation right now, and SNAP recipients are leaning towards the latter. Club offers better value but at a higher entry cost, and c-store offers smaller packs and can help drop an additional trip needing to be made. If this insight is to tell us anything, it is that proximity could start playing a bigger role, depending on external factors such as gas prices.”

Despite margin pressure, Moody’s expects grocery retailers to withstand the impact of reduced SNAP benefits. Its report pointed to strong food-at-home trends continuing from the pandemic, many consumers still working at home and a spending focus on essentials amid elevated inflation.

“Overall, the grocery and food sector remains quite strong relative to the broader retail industry and will weather this significant benefit drop. We estimate that supermarket sales will increase about 3% to 4% and earnings will grow about 1% in 2023,” Moody’s said. “According to the Department of Agriculture Food and Nutrition Service, nearly 40% of SNAP recipients redeem their benefits in traditional supermarkets. However, many of these supermarkets already have significant cushions built into their credit profiles.”

From short- and long-term financial perspectives, the case for the grocery retail sector to respond to the change in SNAP benefits this year is “even stronger,” the dunnhumby report said.

“Retailers need to understand that one out of every eight grocery shoppers in 2023 are walking into their stores stressed, emotionally drained and looking for retailers to be part of the solution,” dunnhumby’s O’Grady noted. “At one point or another, 20% of Americans have been on food stamps. Retailers that can be part of the solution by providing customers with strategies and tactics that meet their needs better than the competition will be building loyalty with a group of customers that over time will represent a sizable portion of the grocery market.”

Click here to view WGB's full SNAP report.