Retailers Accept Food Stamps from More Consumers

Food stamps aren't what they used to be. In this recession, they're appearing in the hands of people who never thought they would need them. And retailers are adjusting to that "new normal."

Some stores have had to change they way to do business to accommodate shoppers on food stamps, Reuters reports. They're staffing up on the first day of the month -- when the benefits arrive -- by stocking up on more eligible items and updating their checkout technology. Resistance, at First

Wal-Mart Stores (WMT) was the first retailer to take note of the change. As early as this summer, CEO Mike Duke told investors his stores saw traffic drop near the end of each month, then spike again at midnight on the first day of the new month.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%

And Costco Wholesale Corp. (COST) seems to be the latest retailer to bend to the trend. After some arm-twisting from New York attorney general Andrew Cuomo, the retailer began accepting food stamps in that state in May. Other states followed throughout the fall, and Costco recently announced it now accepts food stamps in stores nationwide.

The discount club chain had resisted accepting food stamps, because of the difficulty in separating food items covered by the public assistance program and ringing them up separately from items that aren't covered. But after the New York decision, CFO Richard Galanti told investors the company had been "probably a bit arrogant" in assuming its customers didn't need public assistance.

Improved Technology

Technology has ironed out many of the problems with accepting food stamps, Galanti said, who noted that checkout scanners can segregate eligible items -- and that, because food stamps have been replaced by a stored-value card, the checkout process shouldn't be tied up.

"Some of our reasons for not doing it have gone away," Galanti told investors earlier this month. And the clubs, he said, have even attracted new customers precisely because it accepts food stamps.

Indeed, many people are shopping with food stamps for the first time: one in eight Americans, by most counts. The New York Times found 239 counties nationwide where at least a fourth of the population receives what is euphemistically called "nutritional assistance."

Paper-Thin Margins

Groceries are hardly a profit center for retailers. The margins are paper-thin, even in good times, and they've been hit by price deflation this year -- the constant complaint of big boxes and discounters.

So why are stores putting the effort into it? Because food is a necessity that draws customers steadily, even in bad times. Costco, Wal-Mart and their rivals know if they want to thrive in the recovery, they need to hang on to those customers now -- so the shoppers will keep coming once they're off the welfare rolls.
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