SPECIAL REPORT-Midnight in the U.S. food-stamp economy

Fri Dec 18, 2009 10:21am EST

END OF THE MONTH BLUES

Tina Contraeras is one of those shoppers who goes to Walmart on the first of each month. She shops at the one in American Canyon, just outside California's Napa Valley.

Unemployed and on disability benefits, Contraeras, 45, has custody of her grandchildren, ages 2 and 3. She has resorted to circling the first of the month on her calendar so that when her grandchildren are hungry, she can count down the days until they can return to the grocery store.

"I have to make a game out of it for the kids," she said. She feels she has no other choice.

Technology is one reason the food-stamp stigma is fading. While recipients once announced their status by pulling out bulky coupon books at the checkout counter, today's users are far less noticeable.

Benefits from the food stamp program, now known as the Supplemental Nutrition Assistance Program (SNAP), and other types of government financial assistance are loaded onto EBT cards that can be swiped to make a payment, just like a debit or credit card.

Like Contraeras, other food-stamp beneficiaries appear to waste little time cashing in their benefits. According to J.P. Morgan (JPM.N) which administers EBT programs for more than 20 states, 85 percent of food stamps are depleted within the first three days they are available.

Companies like Walmart and Kroger now talk about a sales bump on those days, a phenomenon that more than a decade ago inspired a song by hip hop group Bone Thugs-n-Harmony called "1st of tha Month."

Poverty hit an 11-year high in 2008, the same year in which a government report showed that more than 49 million Americans were at risk of going hungry.

And recreating the jobs lost during a downturn doesn't necessarily happen fast. It took nearly four years to regain all the jobs lost during the 2001 recession, when unemployment peaked at 6.3 percent, according to the Economic Policy Institute, a progressive think tank in Washington, D.C.

Expecting the worst this time around, retailers are trying to reposition their business for what they call a "new normal," where jobs are scarcer, and more and more Americans depend on the government to make ends meet.

After years of wooing higher income shoppers, national chains are now seeing opportunity in the low end of the market.

Supervalu Inc (SVU.N) recently announced plans to open 50 new Save-A-Lot discount stores this year and to have another 100 stores in the pipeline for next year. The additions will bring its total number of Save-A-Lot stores to about 1,330.

It is paying for the initiative by halving its quarterly dividend.

Family Dollar Stores Inc (FDO.N), which sells most of its merchandise for below $10, began realigning its business even before the downturn. It installed refrigerators and coolers in its stores, enabling it to sell perishable food like milk and luncheon meat, and upgraded its checkout system to accept EBT as payment.

To accept food stamps, retailers must sell food in each of four staple food groups: bread and grains; dairy, fruit and vegetables; and meat, poultry and fish. Or, at least 50 percent of the total sales in a store must be from the sale of eligible staple food, like flour, bread or beef.

Dorlisa Flur, Family Dollar's chief merchandising officer, says the store's core shoppers have been "under pressure" for years. She describes that core shopper as a woman who earns less than $40,000 a year and lives paycheck to paycheck. This shopper was hit hard in 2005 when gasoline prices spiked in the wake of Hurricane Katrina. Then came a surge in food prices, a housing bust and recession.

"When the whole housing market fell apart too, that really drove her to lean on food stamps," Flur said. "By accepting EBT, we were opening up a portion of the wallet we were not able to touch before."

Most retailers are reluctant to discuss how much money they have spent updating their point-of-sale, or POS, systems to accept food stamps as payment.

J.P. Morgan said that in an effort to limit expenses for retailers as paper food stamps were phased out, EBT cards were designed to work off existing magnetic stripe technology.

"The expense for updating POS terminals was more than absorbed by the savings from eliminating paper handling," according to Christopher Paton, managing director in J.P. Morgan's Treasury Services Public Sector Group.

Retailers could more than make up for their investments if food stamp ranks continue to swell, as expected.

There are currently 1.25 million households receiving food stamp benefits in California, and 1.22 million households in Texas, according to the USDA. As of 2007, the latest year of available data, only half of eligible individuals in those states were enrolled to receive the benefits.

Many Californians are intimidated by the application process or do not realize they are eligible, keeping food stamp usage far below where it should be, said Alameda County Community Food Bank spokesman Brian Higgins.

Calls to his food bank, across the bay from San Francisco, for emergency food help have surged.

"In our first 13 years, we only went over 1,500 (phone calls) in one month twice," he said. "We've gone over 3,000 (phone calls) for the fourth month in a row and the numbers are going up."

The food bank, which runs a food stamp outreach program, tells callers that they might qualify for the benefit.

Pamela Center, 48, turned to the Alameda Food Bank for help when she signed up for food stamps in November. Center, an in-home care provider, saw her monthly income shrink to about $410 from $1,500 after she lost a client.

She tries to stretch her dollars by eating at her parents' house or visiting food banks, but she was still not getting enough to make it through the month. That hunger led her to overcome her own inhibitions and sign up for benefits.

"With my pride, I was like, 'I really don't want to do this,' but if I don't I will have nothing left in my house," she said.

For an interview with the Walmart Foundation see [ID:nN17142974]

For an interview with Barbara Ehrenreich see [ID:nN15243889] For a factbox on food stamp benefits see [ID:nN17243077]

(Additional reporting by Phil Wahba in New York; Editing by Jim Impoco, Michele Gershberg and Robert MacMillan)