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Shutdown threatens $8 billion revenue gap for grocers

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Retailers face inventory and staffing challenges

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Trade groups urge government action to fund SNAP

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Smithfield Foods ( SFD ) factors SNAP delay into profit outlook

By Leah Douglas and Jessica DiNapoli

WASHINGTON, Oct 31 (Reuters) - U.S. grocers and food

companies ranging from Walmart ( WMT ) to Smithfield Foods ( SFD )

are bracing for a dip in November sales if federal food

aid benefits lapse for the first time due to the ongoing

government shutdown.

The shutdown has imperiled next month's Supplemental Nutrition

Assistance Program, also known as food stamps, which serves

nearly 42 million people.

Neither Congress nor the U.S. Department of Agriculture has

acted to fund the benefits beyond Saturday.

The gap could mean an $8 billion revenue drop for grocers,

declining sales for their suppliers and reduced hours for

workers as it drives SNAP recipients to reduce spending, trade

groups, companies and a union said this week.

"It's not only poor people who are on SNAP who are going to

be affected. It means the places where they spend the money

aren't going to get that money," said Marion Nestle, a professor

emerita of health, nutrition and food studies at New York

University.

The National Grocers Association said on Wednesday that Congress

should reopen the government and fund SNAP to avoid instability

for customers and retailers, warning of "serious consequences

for local grocers, their employees, and the food supply chain."

"Retailers are going to be in a terrible situation here

trying to manage costs and inventory," said Rob Karr, president

and CEO of the Illinois Retail Merchants Association, adding

stores could see unsold perishable goods go to waste.

A USDA spokesperson called the benefit lapse "an inflection

point for Senate Democrats." The agency has repeatedly blamed

Democrats for the shutdown, most of whom have withheld votes on

a spending bill in an attempt to keep healthcare costs from

spiking for many Americans.

WALMART TOP SNAP RETAILER

Nearly 267,000 retailers are authorized to accept SNAP and

they collect $96 billion each year, or $8 billion a month, in

benefits, according to USDA data.

About 75% of all SNAP benefits are used at supermarkets and

superstores, rather than smaller retailers like bodegas, the

data shows.

Walmart ( WMT ), the biggest U.S. retailer, takes the biggest share

of the funds, capturing about 26.1% of all of the grocery spend

from the program, according to research firm Numerator.

The big-box store, along with smaller rivals like Dollar

General ( DG ) and Dollar Tree ( DLTR ), could see its sales in

the fourth quarter fall by less than 1% compared to last year if

the payments do not go through, and depending how long the

shutdown continues to last, according to a note sent Tuesday by

research firm Bernstein.

Walmart ( WMT ) declined to comment. Dollar General ( DG ) and Dollar Tree ( DLTR )

did not respond to requests for comment.

Retailers are also navigating other policy issues, like the

USDA's September proposal to change stocking requirements for

stores that accept SNAP, and cuts to the food aid program from

Trump's July tax-cut and spending bill, said Alex Baloga,

president and CEO of the Pennsylvania Food Merchants

Association.

The impact of lapsed benefits on grocery prices is hard to

predict, but some retailers could respond to a drop in sales by

raising prices in an attempt to protect thin margins, said David

Ortega, professor of food economics at Michigan State

University.

"Especially if you're looking at a small-size grocery store

in a low income area, this is quite concerning for them," Ortega

said.

The United Food and Commercial Workers Union, which

represents grocery retail and food manufacturing workers, said

in a statement that their members "could see a reduction in

hours and wages if SNAP dollars aren't available to be spent in

their stores or on their products."

FOOD COMPANIES EXPOSED

Packaged food companies like Kraft Heinz ( KHC ), J M

Smucker ( SJM ), General Mills ( GIS ) and Tyson Foods ( TSN ),

which supply grocery stores, could also take a sales hit in

November of a couple of percentage points, the Bernstein note

said.

The companies did not respond to requests for comment.

Smithfield Foods ( SFD ), the largest U.S. pork processor,

said on Tuesday that it factored in potential impacts of delayed

SNAP benefits as it raised its fiscal year 2025 operating profit

outlook for other reasons.

Across the U.S. food industry, about 7.5% of dollars are

tied to SNAP usage in categories in which Smithfield sells

products, though suspended benefits would have a relatively

minor impact on the company, executives said. The company also

said it was working with retailers to promote affordable

products.

"Obviously, it's something that we're focused on, something

we're paying a lot of attention to because it does affect 40

million households in the U.S.," CEO Shane Smith said in an

interview.

Kraft Heinz ( KHC ) has tried to lower its exposure to the SNAP

program in part to reduce volatility from potential cuts. It saw

sales falter in 2023 after the end of expanded SNAP benefits

tied to the COVID-19 pandemic.

CEO Carlos Abrams-Rivera said in June that the maker of

Heinz baked beans and Kraft macaroni-and-cheese reduced its

exposure to purchases made with SNAP from 20% three years ago to

13% in June.

Kraft Heinz ( KHC ) declined to comment.