As low-income shoppers tighten belts further, businesses worry

Jimmy Wright, the owner of Wright’s Market in Opelika, Alabama, is worried about his turkeys.

Ahead of the Thanksgiving holiday, Wright stocked his grocery store with the large birds, potatoes, stuffing and other foods for his customers in the community, about 28 miles northwest of Columbus, Georgia.

But with payments on hold for the Supplemental Nutrition Assistance Program, or SNAP, and continued uncertainty around when or how much recipients may receive, Wright is anxious. As much as 45% of his store’s sales come from customers using the food-assistance program and he isn’t sure whether those customers will be buying a Thanksgiving meal this year.

“I’ve got a freezer full of turkeys,” Wright said. “We ordered inventory for holidays, all this stuff months ago. We’re on the hook for all of that.”

For the better part of two years, well before the federal government shut down and SNAP payments were paused, lower-income consumers have been slowing their spending, especially for discretionary items. Nearly three-quarters of individuals who receive SNAP benefits live below the poverty line, making less than $32,000 a year for a family of four.

The ripple effect of that spending pullback is being felt by retailers, food companies and restaurant chains.

“We have now one of the worst consumer sentiments we have seen in decades as we go into the holiday season,” Kraft Heinz CEO Carlos Abrams-Rivera told investors last month.

Traffic from low-income consumers at quick-service restaurants declined by “nearly double digits in the third quarter, a trend that’s persisted for nearly two years,” McDonald’s CEO Chris Kempczinski said on an earnings call last week.

And at Papa John’s, even though consumers ordered more pizza in the third quarter, total sales were in effect flat as the “order mix shifted to more medium pizzas and fewer added toppings,” Todd Penegor, the pizza chain’s CEO, told analysts last week.

Adding to its troubles, the food industry has been in the crosshairs of the Trump administration all year. Health Secretary Robert F. Kennedy Jr. has blamed companies for a variety of the nation’s chronic ills and is pressuring manufacturers to remove artificial colors.

And the shutdown isn’t the only impact on SNAP benefits. The latest budget bill tightened rules around who is eligible for the program and made billions of dollars in cuts in the coming years.

Separately, a dozen states, including Nebraska, West Virginia and Florida, have received approval from the U.S. Department of Agriculture to bar people from using SNAP dollars to purchase items such as sodas, energy drinks and candy.

Food manufacturers and restaurants in recent months have been looking for ways to keep lower-income consumers buying.

PepsiCo, the maker of popular chips such as Doritos and Cheetos, began emphasizing smaller individual bags and multipacks on shelves later in the month when consumers are stretching their paychecks.

McDonald’s said it expected to spend $75 million in the fourth quarter toward covering half of franchisees’ costs for offering value meals at lower prices, like a $5 Sausage Egg and Cheese McGriddle or a 10-piece Chicken McNugget Meal for $8, as a way to draw customers.

But some economists say the lapse in food-assistance payments is likely to cause lower-income households to scrutinize their spending more.

“This is a shock to people’s income and their budgets,” said David Ortega, a food economist at Michigan State University. “Food is a necessity. They’ll protect that part of their budgets. But that will cut into their discretionary spending and it couldn’t happen at a worse time for lower-income consumers as we head into the holiday season.”

A continued delay of $8 billion in monthly SNAP payments could negatively affect spending on meat, frozen foods, dairy and snacks, analysts at Morgan Stanley wrote in a note in late October.

Among the companies with the greatest exposure to SNAP spending and households with less than $40,000 in annual income are Conagra, Kraft Heinz, Smithfield Foods, J.M. Smucker and General Mills, according to analysts.

Smithfield said that about 7.5% of industry sales across the food categories it participates in come from SNAP benefits, adding that a disruption would have “a relatively minor impact” on the business. The other companies did not return requests for comment.

As for retailers, the bulk of SNAP dollars for groceries are spent at Walmart, Kroger, Costco and Albertsons, with Walmart receiving nearly 26%, according to consumer data firm Numerator.

But for Walmart, with annual revenues of $680 billion, the pause in spending for a few billion dollars isn’t likely to affect its business much, said Peter Keith, an analyst at the investment bank Piper Sandler.

Rather, Keith said retailers such as Dollar General may feel a bigger hit as SNAP spending could represent a “mid-single-digit percent” of its total sales.

Jerome Bouyer, vice president of retail operations for Save-A-Lot, a discount-grocery chain with hundreds of stores, said consumers in recent weeks shifted away from fresh meat and produce to more-processed items such as hot dogs, deli meats, ramen and pasta — which tend to be cheaper, more filling and longer lasting.

The proportion of SNAP sales varies considerably among Save-A-Lot locations, Bouyer said, from 10% to over 50%. Those more reliant on SNAP revenue may be forced to cut costs elsewhere, such as labor.

Some say that independent grocers serving smaller, or even rural communities, are likely to feel the most pain.

Customers at Simpson’s Local Market in Trinidad, Colorado, used the last of their SNAP dollars in October for pantry and freezer items before the November lapse in funding, said Molly Snook, a co-owner.

SNAP and the state’s dollar-match program accounted for about 15% of monthly revenue, she estimated. And in the early days of November, sales were down 40% from the same period last month, she said. That sort of decline will be tough to manage since most months the store just breaks even, she said.

Wright’s Market has not yet seen the impact of benefit cuts because Alabama typically distributes SNAP benefits beginning on the 4th of the month. But Wright said that his customers were already “very much trying to stretch every dollar they have,” by purchasing marked-down food and private label products and swapping out expensive items such as beef for pork and chicken.

Wright, who posts videos on social media to help customers understand food inflation and has won awards for improving access to food in his community, says he has been actively trying to help his customers and employees during this time.

But with all the disruptions to SNAP, he wondered, “How do I do that and still make a profit?”

This article originally appeared in The New York Times.

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