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FOOD STAMPS HELP RETAILERS FIND UNDERSERVED CONSUMERS AND UNREALIZED PROFITS

By Joel Groover

The federal food stamp program once clashed markedly with the speed and efficiency of modern American retail. A debit card transaction might take mere seconds from start to finish, but a shopper with food stamps could bring a checkout line to a halt. She might be forced to stand and wait — along with everyone in line behind her — while the clerk counts the stacks of coupons, then checks the selected items against a list of what the users of food stamps are permitted to buy.

Thanks to new technology and cooperation among retailers, anti–hunger advocates and government officials, today’s food stamp program scarcely resembles the one created in the Great Depression. The U.S. Department of Agriculture’s Food and Nutrition Service, having completed a national rollout of a debit–card–based system for transferring benefits, has stopped actually printing food stamps. So transformed is the program, in fact, that the 2007 farm bill is likely to contain language renaming it altogether, says Ellen Vollinger, legal and food stamp director at the Food Research and Action Center, a Washington–based advocacy group. “It is an outdated name,” Vollinger said. “It doesn’t tell the story of how the benefits are delivered now.”

The farm bill (which at press time was still in the Senate) reportedly will boost food stamp benefits by $1 billion. This would come at a time of skyrocketing enrollment in the program. The benefits it distributes doubled from $15 billion in 2000 to $30.2 billion in 2006. According to the government, the number of food stamp recipients during these years rose from 17 million to about 26 million.

These changes are good news for retailers that take food stamps, which include traditional supermarkets and mom–and–pop stores as well as some nongrocery chains that sell food. Dollar stores, in fact, are ramping up their participation. The rising importance of food in this segment has enabled the chains to boost sales by linking their stores to the debit–card–based Electronic Benefit Transfer system. “We plan to roll out our ‘store of the future’ initiative to approximately 1,500 additional stores this year,” said Joshua Braverman, a spokesman for Matthews, N.C.–based Family Dollar. “That will help speed up the customer checkout experience and expand our payment choices for customers, including EBT.”

Family Dollar, which operates 6,461 stores, cites consumables, primarily food, as the main reason its sales rose 3.3 percent in November, to $509.5 million. Likewise, Chesapeake, Va.–based Dollar Tree is installing more food coolers, writes Christine Augustine, a retail analyst at Bear Stearns. The coolers operate in nearly 900 of the chain’s 3,401 stores. “This is more than double the number of stores with coolers at this time last year,” Augustine wrote in a September report. “Stores with coolers generally get a 7 or 8 percent sales lift when they are installed, and results have exceeded management’s expectations.”

In concert with the cooler rollout, Dollar Tree is enrolling its stores in the food stamp program, with 825 of its units now accepting the benefit cards, up from 250 last year. The chain aims to start 2008 with about 900 stores enrolled. “Food stamp acceptance is helping comps in those stores by about 1 percent,” Augustine wrote.

The number of superstores (defined as those with annual sales of $5 million or more, according to the federal government) taking part in the food stamp program grew by 5 percent in 2006, says Regan D. Hopper, a spokeswoman for the Food and Nutrition Service. “Some of the reasons for the increase might be attributable to EBT technology, or just the growing opportunity represented by the larger numbers of consumers participating,” Hopper said.

Meanwhile, Dillons, Kroger, Pathmark, Sav–a–Lot and other grocery chains have awakened to the value of reaching out to food stamp users, says Vollinger. Indeed, the food stamp program doubled in size not necessarily because more Americans are hungry, but because of extraordinary outreach efforts by a broad coalition that includes retailers, sources say.

Pathmark, which operates 140 supermarkets in the New York, New Jersey and Philadelphia metro areas, works with anti–hunger advocates to sponsor food stamp outreach fairs, Vollinger says. The chain also sets aside space in its circulars to educate shoppers about the program. Those efforts earned Pathmark the USDA’s first Golden Grocer Hunger Champions Award in 2006. Clearly, supermarket chains see strong community relations as an important way to build customer loyalty. Pathmark and others now regard food stamp outreach as part of that strategy, Vollinger says.

Make no mistake, though: Retailers have a direct financial incentive to encourage low–income shoppers to sign up for the program, says Edward M. Cooney, executive director of the Washington–based Congressional Hunger Center, an advocacy group. “If you’re a retail store and food stamp dollars are coming into your operation, obviously you’re making money,” he said. “But it also helps the local economy. The value of the turnover of a federal dollar in the local economy is significant — $5 or $6 for every $1.”

Do the retailers that sign up, or their landlords, face significant costs or logistical challenges? Some may choose to operate two electronic payment systems — one that takes food stamp cards and is supplied by the state, the other reserved for standard transactions. If so, the government picks up the tab for all equipment costs. Operating two payment systems, however, could be a hassle and would require more training. “Most large stores, instead, choose to use their own equipment to avoid having two sets of equipment for stores to operate,” Hopper said. “In so doing, there may be additional costs from their existing equipment provider.”

Despite the growing outreach, many poor communities still lack access to healthy and affordable foods, hunger advocates say. They say national chains, in particular, could make more money by opening stores in poor neighborhoods and launching more food stamp outreach campaigns. “There is a huge unmet demand for groceries in inner–city areas that supermarket chains aren’t meeting,” said Andy Fisher, executive director of the Community Food Security Coalition, in Venice, Calif. “There is a lot of leakage of money out of poor neighborhoods.”

A retailer taking a second look at the demographics in a lower–income neighborhood might factor food stamp enrollment into the equation, says Barbara Van Burgel, who heads efforts to disseminate food stamps and other benefits in Maine. The number of Maine households enrolled in the food stamp program rose from 51,326 in 2000 to about 83,000 in 2006. In September the state distributed $14.2 million in food stamp benefits to 169,323 people. Van Burgel attributes these increases to the electronic benefits system and to Maine’s older population, which is more likely to join the program. But Maine, like the federal government, also tries to make things easy for retailers by providing a variety of online tools. “On our Web site, we provide the geographic distribution of our caseload every month,” Van Burgel said. “It actually shows how many people [are on food stamps] by town and what the total benefit value is.”

Of the 38 million people eligible for food stamps in any given month in 2005, 25 million were actually enrolled, the government says. For retailers that take food stamps, then, that translates into 13 million people who could be persuaded to sign up and start spending their benefits. Its users no longer feel stigmatized and reimbursement times for retailers are vastly improved. “Look at Hurricane Katrina, and the only thing that worked there was the EBT system,” Cooney said. “There was no failure on the food stamp front.”