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[8 comments]

Family Dollar Sees Opportunity in Food Stamps

January 8, 2009

By George Anderson

Family Dollar has found a niche serving lower income consumers and found that offering consumables is a sure fire way to drive traffic during good times and bad. Now the chain is looking to speed up its rollout of the company's "store of the future" so it can sell food to consumers paying with food stamps.

As reported by the Los Angeles Times, Family Dollar CEO Howard Levine recently told analysts that the company currently accepts food stamps at 3,000 of its stores and is looking to offer the service at the 3,600 locations that don't currently accept payment from the government program.

Mr. Levine said that the number of households using food stamps increased by 17 percent in September '08 compared to the previous year. A total of 14 million households were food stamp recipients.

"The expansion of our food assortment, combined with the upgrade of our point of sale technology, positions us well to serve this growing population of customers," he said.

Discussion Questions: What are your views on the food stamp opportunity? What does it mean for retailers looking to serve this market while finding a point of difference from the competition?

FINANCIALS:     [NYSE:FDO]

Discussion Questions:

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How much do you expect the rolls of food stamp recipients to grow or shrink in 2009?

Comments:

I am not very familiar with the Food Stamp program but on the surface, welcoming Food Stamp usage in Family Dollar Stores makes ultimate sense.

Family Dollar focuses on a low income niche. Therefore:
1. Accepting Food Stamps will help those in the target niche who don't know Family Dollar to discover it.
2. Every user of Food Stamps they attract has the potential to buy other Family Dollar offerings.
3. There is no doubt that more potential shoppers will qualify for Food Stamps in 2009.
4. As the current Food Stamp users go off of Food Stamps, the likelihood of having a connection to Family Dollar is high.

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Gene Detroyer, Professor, Independent

A smart move by Family Dollar to further develop it's niche market segment of lower income and opportunity shoppers.

America's social welfare dependents rolls are increasing and that trend is unlikely to reverse itself any time soon. Family Dollar is simply preparing itself to accept the new forms of payment that will continue to develop in our new economy.

Charles P. Walsh, President, OmniQuest Resources, Inc

Smart move by Family Dollar. I'm surprised they don't already accept Food Stamps at all locations. Family Dollar has been brave enough to open stores in areas that most of us would be terrified to go. Combining a weak economy along with the fact that many grocers have deserted urban areas, look for other dollar stores to follow suit.

David Livingston, Principal, DJL Research

A sale is a sale as long as you get paid for it. Most major food retailers already take food stamp payments. Now Family Dollar is doing it in such a way that it is making it easier and getting great press out of it. Great move on their part.

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Mel Kleiman, President, Humetrics

I'm not to familiar with the food stamp program but I'm sure it's awful for anyone to have to use them. That said, Family Dollar is the first major chain that I have heard of that accepts food stamps (I could be and probably am wrong at this point but I've never walked into a Target or Walmart and seen the option to pay by stamps, only in small localized grocers). I would think that families could really stretch the value of those stamps at Family Dollar so it may benefit the user at the end of the day. I would love to know what the costs are and if this is more a charitable move by FD or does it work like cash?.

Doron Levy, President, TheMortgageMachine.ca

As of Oct 2008, the SNAP program has been helping consumers and retailers transfer food stamp benefits easily at the point of purchase. Here's a paragraph from the government site about how it works:

"SNAP recipients electronically receive SNAP benefits on an EBT Card, which operates like a debit card, to buy eligible food at stores authorized by the Food and Nutrition Service. In order to complete a transaction, the customer swipes the card in a point-of-sale device (POS) and enters a four digit Personal Identification Number (PIN). The store clerk enters the exact amount of the purchase on the POS device. This amount is deducted from the household's EBT SNAP account and credited within two banking days to the retailer's bank account."

Because the program is geared to work across all 50 states, uniformly at POS (to the extent possible), it doesn't become a point of difference per se, for the retailer. Nor should it be.

Rather, Dollar Stores have an advantage with SNAP simply because of their shoppers are more likely to use SNAP cards. Here are the advantages for Dollar Stores the way I see it:

1.) The clerks may be more accustomed to accommodating these purchases perhaps making the check-out process smoother than other channels,

2.) The retail context of (cultural) acceptability of the cards in this venue could avoid any potential social embarrassment for shoppers. They aren't waving cards around in a retail environment with very high-end shoppers, standing in line behind them.

Years ago, before stored-value cards, many unbanked consumers viewed debit/credit cards as a socio-economic shibboleth. They weren't wrong. This card helps mitigate that social signal. All the more so in a Dollar Store context.

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Liz Crawford, VP, Strategy & Insights, Match Drive

This is a classic example of how innovative technologies can grow the business. Retailers who are tempted to cut their IT budgets should think again.

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Cathy Hotka, Principal, Cathy Hotka & Associates

In preparing a response to this question I did a little research. (First of all, for some reason the name of the program was changed from Food Stamps to Supplemental Nutrition Assistance Program (SNAP) in October 2008. I am sure someone saw a benefit to changing the name of a program that had existed since 1939 but it is beyond me.) The number of monthly benefit recipients in 2006 was 29 million people. There are about 15 qualification requirements ranging from "countable assets" to gross and net income. The first one is countable assets and puts the limit at $2,000 or $3,000 depending on whether someone in the household is disabled. All states are now on the Electronic Benefits program so the person in front of you could be using a Food Stamp, sorry SNAP, Card and you may not even realize it. So, the potential market here is 29 million people who don't have more than $3,000 in countable assets.

The qualification for retailers is that each store must meet either of the following requirements:

Offer for sale at least three varieties of food in each of the following four staple food groups, with perishable products (frozen, fresh, etc.) in at least two categories on a daily basis: Bread and Grains, Dairy, Fruits and Vegetables, and Meat, Poultry, or Fish.

OR:

At least 50 percent of the total sales (e.g., food, non-food, services, etc.) must be from the sale of eligible staple food.

Soda, chips, and prepared foods are not considered staples so I guess that is why most convenience stores don’t accept food stamps.

After all this, I would say going after the food stamp (snap) business doesn't make a lot of sense unless your product and sales mix already match the requirements. If you have integrated your POS system with credit and debit, you probably already (at a slight additional cost) have the ability to handle electronic benefits so the technical costs should not be a stopper. It might even turn out that the decision would be a location by location one based on individual market characteristics.

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Bill Bittner, Principal, BWH Consulting

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