Supervalu-Led Stores Chasing $55 Billion in Food Stamps: Retail

Leslie Patton and Lauren Coleman-Lochner, Bloomberg, January 17, 2012

Supermarkets that had been adding Starbucks Corp. (SBUX) cafes and olive bars to draw wealthy shoppers are now catering to a different audience: food-stamp recipients.

Stores are moving their opening hours, adding products and revamping merchandise assortments as persistent joblessness pushes more shoppers to government support in buying groceries. Distributions from the federal Supplemental Nutrition Assistance Program rose 11 percent to a record $71.8 billion in fiscal 2011, according to a U.S. Department of Agriculture report.

Supervalu Inc. (SVU)’s 1,280-store Save-A-Lot chain opens some supermarkets at midnight, when government benefits are loaded onto food-stamp cards, and promotes higher-priced bulk items early in the month. The chain switches to smaller sizes later as money dwindles and customers make fill-in purchases.

“What we’re learning how to do is to merchandise to those events,” Chief Executive Officer Craig Herkert said in an interview. “You have to learn, market by market, when is that, and you have to merchandise to it, and in some cases, run your stores to it.”

A great deal is at stake for large grocers and supercenters. About 85 percent, or $54.8 billion, of all food stamps were spent there in 2010, according to the USDA. Food stamps account for about 40 percent of sales at Save-A-Lot, up from 26 percent two years ago, and their use is spreading at Eden Prairie, Minnesota-based Supervalu’s Acme, Albertsons and Shaw’s chains, Herkert said. The number of people receiving government food assistance is “shocking,” he said.

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Recipients spend an average of 21 percent of their benefit on the day it’s received and 59 percent within the first week, according to a USDA study. The money can be used to buy meat, dairy, fresh produce and dry goods such as cereal and pasta. Alcohol, cigarettes, pet food, vitamins and hot foods aren’t allowed.

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  • Anonymous

    I have to admit, there is a lot of sense to this business strategy. Just suspend the moral debate around food stamps for a minute and consider it in bottom line dollars and sense from the perspective of the grocer. You’ve got a massive “installed base” of people out there with EBT cards & it’s getting bigger every year. Their demand is less elastic than “regular” shoppers, that is, they don’t care so much about price increases or differences because they’re not paying for it anyway. This is very significant in an industry with razor thin margins like the supermarket business. Sticking another dime on the price makes more of a difference than you might think. A supermarket known as the “food stamp” market can go ahead and do away with pricey store upgrades and the little extras that make a nice place a nice place. Hell, they can just go ahead and turn it into a warehouse and it won’t affect business. That’s a huge savings on operating costs. They can also cut way back on expensive advertising as well – ghetto word of mouth will take care of letting everyone know where to go. On top of all that, there’s the profile of the typical purchase of someone using food stamps. They are much more likely to “buy” high-margin crap – Pringles, soda, kids cereals, etc – than low margin staples like potatoes, apples, etc.  Apart from resigning from any chance of ever being a mainstream brand, there’s little business downside to becoming the “food stamp” grocery store. But then again, look at the hellholes these places will operate in  – they don’t have to worry about respectable chains moving in across the street.

    • Anonymous

      Apart from resigning from any chance of ever being a mainstream brand, there’s little business downside to becoming the “food stamp” grocery store.

      You make many good points but I think there IS a downside. Why are there no major grocery stores in urban Detroit? If it were profitable they WOULD be there but apparently it isn’t.

      • Anonymous

        It’s mostly because they can’t operate on the their established business model of a full-service grocey store with all the nice amenities and extras they offer in, um, “normal” markets. Large grocery stores have to be adapted to the ghetto market. Large chains don’t move in to urban Detroit and other similar places because the cost of doing business doesn’t add up with what they can expect to make. Both customer and employee theft would be significantly higher, they would have to pay for full time security and insurance rates would be dramatically higher among other things. Also, a typical large grocery store has a staff of around 100-120 people. Go to inner city Detroit and find that many people who have no criminal record, can pass a drug test, can operate a cash register or machinery or front office computer, can be depended on to come in to work regularly at 6am and have reliable transportation to make sure they get to work on time. Good luck with that. And after you find them, tell them that they are going to get around 8-9 dollars an hour to work while they watch all their neighbors come in and shop for free food to take back to their section 8 homes.

        Now imagine that you are the representative of a major grocery chain thinking about maybe opening a store in Detroit. You have to deal with all the things I mentioned just so you can take a shot at possibly earning a profit in a hyper-competitive industry with razor thin margins while praying that your store’s name doesn’t get mentioned in the news because of all the fights, robberies and shootings that are part of the mix for life in Detroit.  You can do all that or you look for a nice place close to a new white suburban housing development somewhere else. What would you do?

  • Alcohol, cigarettes, pet food, vitamins and hot foods aren’t allowed.

    I have a secret squirrel source in Tucson who tells me that when he worked for the big Arizona supermarket chain some time ago (I won’t say it’s name, except that it rhymes with Bashas), the managers specifically allowed alc and cig purchases with food stamps, and ordered the clerks to accept food stamps for those things.

    Supervalu owns two chains that have presences in St. Louis:  The aforementioned Save-A-Lot, and Shop-n-Save.  The former is an “inferior goods” grocer (“inferior” in economic terms, not a qualitative judgment), and the latter is a mainstream supermarket that stocks the national brand names, though at slightly lower prices than the main St. Louis supermarket chains.  And I can tell you this:  In many of the STL neighborhoods where there are Save-a-Lots, they’re too dangerous to open at midnight.  The one closest to my boyhood home now has a half aisle for Hispanic groceries.

  • Save-a-Lot is union, Shop-n-Save is not.  If Supervalu brings this policy to St. Louis, they would probably do it at SaL and not at SnS, because they would have union problems if they did it at the union shop.

  • I read somewhere where Walmart is doing the same thing by stocking large boxes of diapers, bulk amounts of food etc. at midnight on the 1st of the month when the food stamp amounts and tanf amounts are placed on the ebt cards.

  • John Maddox

    EBT card users can spend as much as three to four times what the person in a similar financial situation paying cash can on groceries. A family of five can get as much as $600.00 a month in benefits. EBT cards also fuel the drug economy. EBT cards are regularly handed over to drug thugs for pennies on the dollar. The cards are latter reported as stolen and easily replaced. Its a lucrative taxpayer funded underground economy.

    • These so called “reciepients” make it harder for those who need food stamps because of the downturn in the economy.

  • anonymous

    A big supermarket in my town went belly-up because it was in the ghetto and was highly shoplifted from.  I went to another supermarket, and they wouldn’t take credit cards, but would take EBTs.  I will never shop there again.