Grocery retailers are well-positioned to earn the loyalty of Supplemental Nutrition Assistance Program (SNAP) shoppers following an up-and-down benefits experience that has raised concerns about food insecurity, new research from dunnhumby shows.
The sharp increase in monthly SNAP benefits during the pandemic and the abrupt end to those extra dollars this past March will force tough spending decisions on millions of Americans, including trade-offs in food versus health care, according to “The SNAP Rollercoaster: A Special Report on Hunger in the U.S.”, released Monday by the customer data science firm.
In March 2022, the average SNAP household received $439 in monthly benefits, but the phaseout of the Emergency Allotments (EAs) granted during the pandemic cut those food dollars to an estimated $342 per month a year later, dunnhumby reported, citing data from the Center on Budget and Policy Priorities (CBPP).
“SNAP recipients began a roller coaster ride in April 2020 with the arrival of higher SNAP benefits due to the pandemic that initially left them with larger food budgets to feed their households. For many, this meant they could purchase healthier foods. But although benefits were increased again in 2021 under the Covid Relief bill, consumers were also hit with record inflation eating into in all areas of their household budgets,” Matt O’Grady, president of Chicago-based dunnhumby Americas, said in a statement.
Impact on SNAP customers
Specifically, EAs went into effect in April 2020, lifting average monthly SNAP household benefits from over $250 to $365. A SNAP hike in the COVID-19 relief bill in late 2020 ended up hoisting SNAP dollars to $479 in May 2021. Then a recalculation of SNAP benefits under the USDA’s Thrifty Food Plan boosted the household benefit amount to $493 as of November 2022, before it plummeted to $342 at the start of March.
That same time span, however, saw food-at-home pricing growth climb from +4% in April 2020 compared with the 2019 pre-pandemic period to +25% as of March 2023, even as EAs increased SNAP benefits by 52% in April 2020 to highs of +99% in May 2021 and +105% in November 2022 and then back down to +42% this past March.
These changes took SNAP recipients on an “emotional rollercoaster” that “does not have them feeling better off,” Dunnhumby noted in the report. “Going from unsatisfied hunger, to eating better and eating enough, back to unsatisfied hunger, takes a toll.”
A $97 cut in monthly benefits means a lot to SNAP households—whose average monthly net income after taxes and deductions about $398—and sets the stage for some difficult choices, according to dunnhumby.
“When your monthly disposable income, between SNAP and other income streams, is around $836, and a shocking 30% of your disposable income goes to food, $97 less means more skipped meals, smaller meals, cheaper, less healthy food, skipped medication, delaying or forgoing medical care,” the report stated. “Faced with more tough decisions this year than last, between paying for shelter, food and medical care, one in eight grocery shoppers will walk into the store everyday extremely stressed, emotionally drained and looking for grocery stores to be part of the solution.
With the cessation of EAs, grocery purchasing power decreased for 22.5 million SNAP households while food insecurity for 43 million Americans, the study said, pointing to U.S. Department of Agriculture figures.
“This year, they are again left in a precarious position, with a deep reduction in their SNAP benefits resulting in much less disposable income available to take care of their household food needs,” O’Grady explained.
Hit to grocery retailers
In 2023, SNAP benefits paid out are expected to total approximately $84 billion (9.5% of grocery industry sales), down from $114 billion (13.5% of grocery industry sales) given out last year, dunnhumby reported. That $30 billion decrease would translate into $20 billion in lost grocery retail sales, or roughly 2.8% of about $850 billion in overall industry sales in 2022, the study said.
Every $1 change in SNAP benefits brings a 66-cent change in grocery sales, as program participants shift other household spending to or away from grocery, based on funds received, according to CBPP data cited by dunnhumby. About 10% of the U.S. population now gets SNAP benefits, though the user base exhibits much turnover. The dunnhumby report said around half of SNAP recipients participate for two years or less, depending on changes in their employment, income and financial situations. Overall, an estimated 80 million have been on food stamps.
Given such a potential base of customers and people in need, grocery retailers “have motivation to do things differently this year” for SNAP households, dunnhumby noted in its study.
“Retailers need to understand that one out of every eight grocery shoppers in 2023 are walking into their stores stressed, emotionally drained and looking for retailers to be part of the solution. At one point or another, 20% of Americans have been on food stamps,” O’Grady pointed out. “Retailers that can be part of the solution by providing customers with strategies and tactics that meet their needs better than the competition will be building loyalty with a group of customers that over time will represent a sizable portion of the grocery market.”
The ability to regularly shop for food to feed the family “isn’t a given” in many SNAP households, as 92% are at or below the poverty line and time is at a premium. Dunnhumby’s report said SNAP participants are likely to be caregivers, employed or both, with 65% of SNAP households having children, 36% having families with older adults who are disabled and 41% working.
As a result, SNAP grocery shoppers lean more towards convenience and affordability, opting for ready-to-eat choices and, when possible, frozen over fresh. And as generally lower-income consumers, SNAP customers emphasize money and time savings over quality more so than other grocery shoppers.
Dunnhumby’s study said a “good portion” of lost grocery sales from SNAP benefit reductions will stem from product trade-downs and shifting out of the grocery retail channel toward fast food for meal solutions. The research pegged a $90 decrease in monthly SNAP benefits this year as translating into sales decreases for fresh vegetables (-4.4%), poultry (-3%), milk (-2.9%), fresh fruit (-2.1%) and fish (-2%) and sales increases for beef (+2.3%), pork (+2.5%), legumes (+4.7%) and fast food (+7.6%).
“When SNAP benefits go away, low-income shoppers need to shuffle their household budgets to pay for food. Whatever money they were using to pay for other bills doesn’t have to be used in grocery stores and can be used elsewhere, like at cheaper fast food chains,” according to dunnhumby. “Given that food-away-from home sales were 54% of total share of stomach as of February 2023, and that fast food is about 40% of food-away-from-home sales, a 7.5% growth in fast food dollars would mean a 3.5% decline in grocery sales among the low-income customer segment, due solely to fast-food dollar migration. This would account for about $4 billion of the $20 billion loss grocery sales will experience in 2023, due to the decline in SNAP benefits.”
Best-positioned retailers for SNAP customer loyalty
Dunnhumby’s report named 10 grocery retailers most likely to win over SNAP shoppers and low-income customers, led by Save A Lot, Food 4 Less (The Kroger Co.) and Dollar General. Rounding out the top retailers positioned to serve the SNAP segment were WinCo Foods, Grocery Outlet, Price Rite (Wakefern Food Corp.), Walmart, Aldi, Marc’s Stores and H-E-B.
What do these chains have in common? According to dunnhumby, they draw a prevalence of SNAP/low-income shoppers to their stores, and these customers have a strong value perception of those retail banners due to their pricing, promotions and rewards.
“These retailers are likely to have more lower-income, more financially stressed shoppers in their stores, and they have a clear competitive advantage to other retailers on price perception,” dunnhumby observed. “For example, 70% of Save A Lot shoppers agree that the retailer has low prices, 33% of their shoppers make under $25,000 a year in household income, 49% are very stressed about their day-to-day finances, and 20% say they sometimes/often don’t get enough food to eat. Save A Lot wins on savings, and a larger proportion of their shoppers are likely to be SNAP or low-income shoppers.”
To better serve SNAP and food insecure consumers, dunnhummby said in the report, grocery retailers can rethink how they define a “loyal” customer (lower-income shoppers typically visit fewer different store banners and tend to spend more at one retailer), create custom KPIs for SNAP/low-income shoppers (such as reducing the percentage of customers who agree they don’t get enough to eat), and developing ways to target these consumers with relevant offers (by zeroing in on SNAP/food insecure customer demographics).
Other ways for grocers to meet the SNAP segment’s shopping needs include value-tiered private labels and targeted communications; mass promotions like “extra-deep price locks and price freezes” for ultra-price-sensitive consumers; and making health and wellness products more accessible to price-conscious customers.
“By helping the SNAP customer of today through a time of painful change—through making fresh produce and ready-to-eat meals for them more affordable, increasing access to consumable food that will be discarded, decreasing their own employees’ food insecurity, and making the food insecure/ultra-price-sensitive segment a high priority for their business—retailers can build long-term loyalty with the sizable current/former SNAP customer,” dunnhumby said.