Already stressed by higher inflation, packaged goods brands and retailers must now contend with cuts to a government program that helps low-income people buy food. The changes are expected to result in billions of dollars lost in consumer spending power, forcing brands to alter marketing strategies by bulking up deals, investing in private labels and moving into dollar stores, experts say.

The cuts involve the Supplemental Nutrition Assistance Program, or SNAP, historically known as food stamps. The recently approved debt ceiling deal tightens work requirements for the benefits: Previously, in order to get the assistance, eligible recipients ages 18 to 49 had to show they were enrolled in a job training program or worked for at least 80 hours a month. That age range is now expanded to 18 to 54. This could result in 750,000 adults ages 50 to 54 losing benefits, according to the Center on Budget and Policy Priorities, a nonpartisan research and policy group.

And those cuts come on top of the expiration of COVID relief programs that had boosted SNAP benefits. The end of the emergency allotments—which some states started cutting in February—will lead to a minimum of $95 per recipient lost every month for the nation's 41 million SNAP recipients, meaning brands and retailers will face a $46 billion-plus gap in consumer spending in the year to come, according to Numerator, a consumer insights firm.

“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,” Matt O’Grady, president of the Americas for Dunnhumby, a customer data science company, said in a statement. “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.” 

Experts say there are several ways for brands to meet the needs of customers dealing with SNAP losses, including clearly communicating deals and final bill costs and being sensitive to budgets running low at the end of the month.

“Communication is key,” said Sally Lyons Wyatt, executive VP and practice leader at Circana, which studies consumer behavior. “The marketing opportunity for CPG and retailers is to zero in on telling these consumers how to feed themselves, for less, but still in a healthy way.”

Wyatt points to brands bundling meal items, like selling sandwich packs that include bread, meat and cheese. 

For instance, last year Kraft Heinz ran a $1 “grilled cheese sandwich night” value bundle that combined Kraft Singles with private-label bread and butter. The company has also increased promotions pairing Kraft Mac & Cheese with Oscar Mayer hotdogs as an affordable meal. Kraft has also expanded its club-sized packing for Kraft Mac & Cheese and Jell-O, and added more products sold in dollar stores, including Lunchables priced at $1.25.

Strategic marketing

Grocery retailers and delivery services can still win some of these now-scarce dollars by altering tactics. One way is to increase transparency around delivery charges and service fees, showing the true final cost of an order before it is delivered, said Wyatt. Or, companies can reduce membership costs and promote those changes. Earlier this year, Instacart offered SNAP recipients half-off Instacart for a year, which includes free delivery on purchases of $35 or more. The promotion reduces the membership fee to $4.99/month.

Retailers should also tailor promotions at the end of the month, when SNAP budgets start to run low. Deals around fresh produce, chicken, seafood, over-the-counter medicine and vitamins are especially beneficial, because food-insecure customers are less likely to be able to afford nutrient-dense food and more likely to forgo medical care, according to a report on hunger by Dunnhumby. Another helpful tactic is freezing prices, such as keeping ice cream gallons the same price all summer. This could be taken a step further for SNAP recipients, in particular, by lowering prices before freezing them.

Indeed earlier this year, Walmart stopped passing on manufacturers’ price hikes on products like milk and frozen meals to consumers. After several rounds of hikes during the pandemic, Walmart warned name brands that it would start pitching Walmart’s cheaper private labels to avoid further stress on customers. One of the retailer’s recent ads promotes its Walmart+ subscription, with a focus on having fun at home.

Walmart TikToks that show how to make easy recipes, or feed a family of four on a budget, are also going viral. One shows chef Loic Sany making braised pork hocks with saffron risotto for $50, and got over 6 million views.

Part of the reduction in SNAP benefits has led to more retailers investing in their private labels, also known as store brands.

“Up until recently, the quality of private labels wasn’t as good,” said Ken Harris, managing partner at Cadent Consulting. “Now it's a different game, and I think under the circumstances we’ll see private labels increase more, especially if the recession lasts longer. We’ll probably see this in canned vegetables, or beans, products that go into recipes, rather than being consumable products on their own.”

Major retailers are already leaning into their own brands.

“We have more influence over what's happening with private brands than we do with branded products,” Doug McMillon, president and CEO of Walmart, said during the retailer’s first-quarter earnings call. “And we do need some of these branded suppliers that are in dry grocery and consumables to get top-line focused more than they have been for a while.”

More news: How Walmart's retail media network is expanding

Dollar General executives told analysts that the retailer is seeing customers spend more on its private labels, which accounted for more than 20% of Dollar General’s total sales in 2022. The company’s private-label food brands, in particular, saw their highest sales in the fourth quarter. Dollar Tree, for its part, started stocking private label bread and ice last year, “and they are doing very, very well,” said Rick Dreiling, chairman and CEO of Dollar Tree, during the company’s fourth-quarter earnings call.

Dollar stores in general have seen increased revenue as consumers look for more affordable options. Dollar Tree’s Dreiling pointed to stores’ $3, $4 and $5 frozen food sales as one of those revenue drivers. He hopes customers can be enticed to pick up a few other things after they get their meal, making checkout totals even higher. “That’s the challenge right now,” he said.

Read more: How TikTok hauls are helping dollar stores