SAN FRANCISCO/LOS ANGELES (Reuters) - At 11 p.m. on the last day of the month, shoppers flock to the nearest Walmart. They load their carts with food and household items and wait for the midnight hour. That’s when food stamp credits are loaded on their electronic benefits transfer cards.
“Once the clock strikes midnight and EBT cards are charged, you can see our results start to tick up,” says Tom Schoewe, Wal-Mart Stores Inc’s chief financial officer.
As food stamps become an increasingly common currency in a struggling U.S. economy, they are dictating changes in how even the biggest retailers do business.
From Costco to Wal-Mart, store chains are rethinking years of strategy as they watch prized customers lose jobs and turn to this benefit, the stigma of which is disappearing not just in society, but in corporate America.
Besides staffing up for the spike in shoppers on the first day of the month, retailers are adjusting when and what they stock, updating point-of-sale systems to accept food stamps and shifting expansion plans to focus on lower-income shoppers.
Take Costco Wholesale Corp, a warehouse club operator that caters to middle income Americans who must pay $50 a year to shop in its stores. Nudged along by New York Attorney General Andrew Cuomo, who threatened legal action, Costco began accepting food stamps at a few New York stores in May. It now plans to clear the payments in all of its 413 locations in the United States and Puerto Rico.
“Our view was ... we would not get a lot of food stamps because our member on average is a little more upscale,” Costco Chief Financial Officer Richard Galanti said in October. “Well, I think that was probably a little bit arrogant on our part.”
As of September, a record of more than 37 million people were enrolled for the government benefit, federal officials told Reuters, an increase of nearly 35 percent since the U.S. slid into recession at the end of 2007.
An estimated one in eight Americans depends on the benefit to buy food. With the nation’s unemployment in double digits, more people are expected to enroll. By some government estimates, up to 16 million people who are not receiving food stamps today could qualify.
For a graphic on growing food stamp use, click on link.reuters.com/huq47g
What’s more, unemployed Americans are finding that it takes longer and longer to get work. This suggests that food stamps will play a bigger role over the next few years, not just for people, but for stores in need of customers, according to interviews with retail executives, economists, federal and state officials and benefit recipients.
“It is a very important and increasingly important source of revenue for the ... supermarkets and stores that have been approved across the country to process those benefits,” Kevin Concannon, U.S. undersecretary of agriculture, said in an interview this month.
Stores have little choice but to respond. And they are.
In the fiscal year that ended in September, 193,753 U.S. retailers accepted food stamps, 17 percent more than the same period two years earlier. “For some chains... it’s 10 to 12 percent of their revenues,” Concannon said. “Depending on how poor the area may be, it may even be higher.”
Tellingly, electronic benefits transfer (EBT) transactions processed by retailers jumped 53 percent this year on a same-store sales basis on Black Friday, the kickoff to the U.S. holiday shopping season, payments processor First Data told Reuters.
EBT includes food stamps and other government benefits like temporary cash assistance for needy families and food assistance for new and expecting mothers.
Thelma Zambrano wants to keep shopping at Costco, but can’t afford to renew her membership since losing her customer service job at a bank. Now, she takes monthly food stamp benefits of about $300 and helps others do the same at the Community Action Partnership of Orange County, California, a nonprofit that helps poor people and where she now works.
“Before we made anywhere from $55,000 to $65,000, and right now... I’m lucky if I make $15,000 or $20,000,” said Zambrano, a 26-year-old mother of two from Santa Ana. She and her husband have cut spending to the bone and moved in with relatives.
Most food stamp recipients subsist on earnings below the poverty line — roughly $22,000 annually for a family of four — and many new users are from the ranks of the working poor.
Zambrano’s experience illustrates how the recession also has sent many middle-income families into economic freefall. Their circumstances have, in turn, served as a wake-up call for food retailers that never thought their clientele would depend on public assistance.
For her part, Zambrano let her mother know that a new membership to Costco would make a perfect holiday gift. “She got the hint,” she said. “I’m sure we’ll probably get our membership for the next year.”
Eighty-five percent of food stamp benefits are redeemed at grocery and warehouse stores, and the program means serious business for such retailers.
Nearly $55 billion in food stamps may be redeemed this year, up from about $37 billion in 2008 and $31 billion in 2007, according to The Nilson Report.
The USDA expects to have more than $64 billion to spend on food stamp benefits in fiscal 2010, including nearly $6 billion in anticipated stimulus money, up 14 percent from fiscal 2009.
Dollar General says food-stamp use accounts for about 4 percent of its sales, and is growing about 10 percent year over year.
Kroger Co Chief Executive David Dillon said food stamp use at the biggest U.S. grocery chain is at the highest levels that executives at the company can remember.
“You go back to three or four years ago, the food stamp volume we’re currently running is not quite double, but it’s a lot higher. So it’s very significant,” Kroger’s Dillon said recently.
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 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 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, 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.