Food-Stamp Cuts Likely to Nick CPGs
Uncle Sam has a lump of coal for retailers and packaged-goods marketers just in time for the holidays: a $5 billion cut in food-stamp benefits.
That may seem tiny in the context of a $3.5 trillion federal budget, but that $5 billion amounts to a 5% reduction in benefits for a family of four, or $36 a month. Sanford C. Bernstein analysts projected cutbacks could slash the revenues of U.S. food and beverage companies around 1%.
And even if recipients reduce spending on things other than food, growth for packaged-goods marketers and retailers could take a hit. Kantar Retail estimates the cuts could carve 0.5 percentage points off the anticipated 2.5% annual growth rate for consumables retailing in the U.S.
Kantar's ShopperScape data indicate that about 8% of primary shoppers used the Supplemental Nutrition Assistance Program (SNAP) and/or the Women, Infants and Children program to pay for groceries on their last trip. Usage was even higher at Walmart (10%), Dollar General (15%) and Family Dollar (18%), while supermarkets generally relied less on electronic-benefit transfers (7% of transactions).
Frank Badillo, Kantar Retail's senior economist, expects people to spend less on consumables, trade down to less-costly products and shop more at Walmart and dollar stores.
Value messaging crucial
The latter scenario is certainly welcomed by those stores. Speaking to analysts last month, Walmart U.S. CEO Bill Simon said SNAP reductions drive more business to Walmart.
"When the benefits expanded, our market share actually went down," he said. "When price is more important, we're more relevant."
Speaking on the company's September earnings call, Dollar General Chairman-CEO Richard Dreiling said only 5% to 6% of its sales come from SNAP.
"Our customer spends the bulk of their wallet somewhere else before they come to me," Mr. Dreiling said. "That somewhere else is going to be where the impact is."
But Peter Cloutier, chief marketing officer of shopper-focused Catapult Marketing, noted that Walmart and dollar chains overindex in states that overindex for SNAP benefits, such as Louisiana, Arkansas and Texas. He said the benefit cuts represent an opportunity for brands and retailers to ramp up their value messaging.
That's particularly true given that the cuts may not be over. This round resulted from the expiration of provisions in the 2009 economic stimulus bill, but doesn't reflect a proposal by House Republicans to cut another $3.9 billion annually from SNAP benefits over the next 10 years.