Trump's plan to slash food stamp assistance could be a major setback for these retailers
CNBC
Jun 02, 2017
Though the border adjustment tax might be off the table, for now, some retailers should be paying close attention to the GOP's plans to change how the government allocates its dollars. Specifically, food assistance dollars.
President Donald Trump's proposed budget is expected to slash $193 billion from the federal government's Supplemental Nutrition Assistance Program, or SNAP, for the period 2018 to 2028.
SNAP currently has an annual cost of around $70 billion.
Should Trump's plan be approved by Congress, millions of Americans are sure to bear the brunt of the drastic changes, with the impact trickling down to one group of companies that's already been seen struggling of late: retailers.
"The probability of [Trump's budget] passing in its current form remains low, but it should be monitored, particularly for the discounters, grocers, and dollar stores — all of which have called out last year's big reduction as a drag on sales," Gordon Haskett analyst Chuck Grom wrote in a recent note to clients.
As of December 2016, the average SNAP household — there were roughly 43 million — was taking home about $252 per month in benefits, the Congressional Budget Office has estimated.
This amount would drop to $173 a month if Trump's budget is passed, representing a significant reduction of more than 31 percent, Grom went on, citing his firm's latest research on the subject.
Trump's budget proposal, if passed, could significantly speed up what was already expected to be a gradual reduction in SNAP, from $65.8 billion in 2017 to $64.8 billion by 2026, according to a report from the CBO.
After peaking in late 2012, the total number of SNAP participants has declined significantly, weighing on sales trends at a number of retailers as a result, Grom added. SNAP enrollment has been falling largely because some states have decided to end benefits even earlier than when they were required to.
Those retailers affected could include supercenters such as Wal-Mart and Target, dollar stores such as Dollar General and Family Dollar, and conventional grocers like Kroger, Grom said.
"This is definitely a big concern," GlobalData Retail Managing Director Neil Saunders told CNBC in an interview. "Anything that can damage [shoppers'] spending power can have a serious impact on the amount stores take in. ... [F]ood stamps do have a big effect on the amount they can spend and on the frequency of their trips to stores."
According to the U.S. Department of Agriculture, which administers SNAP, supercenters have traditionally received the largest share of the food stamp program's redemptions.
For example, 51.7 percent of SNAP dollars were redeemed at U.S. supercenters in 2016, while supermarkets received 30 percent of the program's currency, the group said.
Meanwhile, a 2010 USDA study found that every $1 spent on SNAP generated another $1.79 for the economy. The study also called out specifically how food stamps can help support employment in the retail, wholesale and transportation industries.
Recent SNAP changes hit 1Q earnings
With budget details yet to be hashed out, retailers aren't warning about the potential harm of future cuts. However, on recent earnings conference calls, they did discuss the hit they took from changes earlier this year.
Gary Philbin, enterprise president of Family Dollar parent company Dollar Tree, said last week that the "timing of sales through the first quarter was impacted by various factors including the material delays and the timing of tax refunds ... and cycling of the SNAP benefit rejections from 2016."
Philbin was referring to the more than 500,000 people cut off SNAP over the course of 2016, due to the return (in many states) of a three-month limit on SNAP benefits for unemployed adults ages 18 to 49, who aren't disabled or raising minor children.
Dollar General also hit on this point during its earnings conference call Thursday. CEO Todd Vasos told analysts and investors: "We continue to believe many of the headwinds we faced in 2016, and are continuing to face, are transitory in nature, such as ... customer behavior that we believe to be associated with changes to the federal SNAP benefit program."
The reduction of SNAP benefits continued to weigh on Dollar General's same-store sales results for the latest quarter, Vasos added.
Forty-three percent of dollar-store shoppers made an annual household income of $29,000 or less, according to Nielsen data, illustrating just how much stores like Dollar Tree, Family Dollar and Dollar General depend on lower-income, SNAP recipients, for sales.
As of December 2016, there were more than 29,000 dollar stores open in the U.S., representing a 35 percent increase from a decade ago, Nielsen said.
Meanwhile, the gradual rollout of changes to SNAP in 2016 is estimated to have weighed about 0.4 to 0.6 percent on Wal-Mart's same-store sales, according to Craig Johnson, president of Customer Growth Partners.
"It's not insignificant," Johnson had said. "People are very stretched financially ... this is yet another pressure factor."
The alterations to SNAP qualifications in 2016 had a smaller impact than when a separate benefit increase ended in late 2013, he added.
According to the Center on Budget and Policy Priorities, the implementations in 2013 reduced the benefits of "nearly every SNAP recipient" — roughly 47 million people — who on average saw their benefit cut by 7 percent. During the first quarter of 2014, Wal-Mart said these particular changes trimmed its grocery sales by 0.9 percent.
Obviously, there are still many caveats to how Trump's latest government budget proposal will pan out and ultimately impact retailers, Gordon Haskett's Grom told CNBC in an interview.
Though, overall — food stamps noise aside — "retailers should be doing better in general," he added, "if we're seeing this growth in the economy."
Grom said he hopes retailers don't begin to "cast blame" again — masking poor earnings results — on fewer families using food stamps at their stores.