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

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.

Keeping Customers

Some relief for food-stamp recipients may be near. Economists have estimated that more new jobs will be created this year than any time since 2006. The number of Americans receiving food stamps fell to 46.2 million in October, the most recent month for which data is available, as the labor market improved. The 0.1 percent decline from the previous month is the second such drop since 2008, the USDA said Jan. 6.

Still, the stores’ new strategies will be around for a while. The unemployment rate has averaged higher than 9 percent for the past two years and an estimated 29 percent of Americans owed more than the market value of their homes in the third quarter, according to a Zillow Inc. survey.

While food-stamp recipients buy less-expensive items that don’t offer the higher margins of other food, it’s important that retailers market to lower-income consumers because “you want those clients coming into your store, not going somewhere else,” said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago.

Hitting More Neighborhoods

“It’s important to be positioned to deal with it,” she said. “It has hit a lot more neighborhoods than people once thought, so you’ve got to compete in that arena.”

That has pushed Supervalu to highlight boneless chicken breasts for $1.49 a pound early in the month and legs and thighs for 88 cents a pound later.

Save-A-Lot in June introduced a lower-priced store brand called “Today,” which includes a four-roll package of toilet paper for 89 cents and four-ounce instant mashed potatoes for 79 cents.

Supervalu also started offering individual portions of meat for $1 and is adding 80 lower-cost items under its Shoppers Value brand. The company has expanded shelf space and displays of cheaper goods, including 10-for-$10 items and $1 frozen pizzas, Herkert said on a conference call in October.

Wal-Mart Stores Inc. (WMT) adjusts staffing at midnight when benefits cards are loaded and makes sure stores are well stocked in produce and canned goods, said Greg Rossiter, a spokesman for the Bentonville, Arkansas-based company.

‘To The Minute’

“We are seeing customers on government assistance timing their shopping at the beginning of the month to the minute and the second” of when benefits are loaded, Rossiter said. “Some of them are doing shopping for the month or that night or that day,” he said, so they also are looking for frozen food and other items that will keep throughout the month.

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.

Drugstores and dollar stores are trying to woo those customers, too. Family Dollar Stores Inc. (FDO) finished overhauling its checkout systems to accept food stamps in 2010.

That business “is growing like weeds and is an important part of the food strategy” Howard Levine, chairman and CEO of the Matthews, North Carolina-based company, said at a conference in April.

Michigan Strategy

Last year, the State of Michigan staggered the days when its food-benefit cards are loaded, giving grocers a reprieve from long checkout lines at the beginning of each month.

“It helped the stores to offer more of those fresh fruits, meat, veggies and dairy products throughout the month,” said Dave Akerly, a spokesman for the Michigan Department of Human Services in Lansing. The change makes it “less congested” at grocery stores, he said.

In Michigan, $2.77 billion in supplemental-nutrition benefits were redeemed in fiscal 2010, making it the fifth- largest state in terms of food-stamp receipts, according to the USDA.

To contact the reporters on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net; Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editor responsible for this story: Kevin Orland at korland@bloomberg.net

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