Dollar Stores Put Their Stamp on Food Subsidy Programs

Discussion
Aug 14, 2009
George Anderson

By George Anderson

It’s no secret that many shoppers at dollar stores are near or at the bottom of the economic ladder. Many of these same consumers take part in the Supplemental Nutrition Assistance Program (SNAP), which previously was known as the Food Stamp Program.

Today, dollar store chains such as Family Dollar welcome the growing numbers of SNAP consumers, knowing they have a significant effect on the chain’s top and bottom lines.

According to a Dow Jones Newswire report, the federal government has expanded the the stamp program to provide for individuals and families hit hard by the economic downturn. Over 34 million low-income individuals are enrolled in the program, which saw participation jump by 21 percent in the last year. The government, which spent $6.1 billion for the year ending in May, is looking at expenditures as high as $15 billion this year, according to Pali Research.

MKM Partners analyst Patrick McKeever said Family Dollar has looked to expand its acceptance of electric payment cards used conduct transaction for the program. Mr. McKeever is looking for Family Dollar to see continued growth in same-store sales in part because of its participation in the program and expansion of food SKUs.

“We’ve seen over the last few years there is a need for more fill-in grocery trips,” Family Dollar spokesperson Josh Braverman told the wire service. “It’s not automatically a reaction to the recession. It’s more of a long-term strategy for us to grow our food business … People changed to buy what they need, not necessarily what they want.”

Discussion Questions: Do dollar stores participating in SNAP have a competitive advantage over those that do not? Are there any downsides for retailers participating in government food subsidy programs?

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7 Comments on "Dollar Stores Put Their Stamp on Food Subsidy Programs"


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Steve Montgomery
Guest
11 years 8 months ago

Generally speaking the more programs a retailer has that drive non-conflicting traffic to their sites the better (i.e., fast turnover businesses such as c-stores don’t want to locate next to a hairdressing salon whose patrons tie up their parking spaces). The only issue I see is if the “value” customers who have recently started shopping this segment alter their perception of the channel due to the presence of the new food stamp shoppers.

Len Lewis
Guest
Len Lewis
11 years 8 months ago

Every government subsidy program has a downside. In the case of SNAP, it’s paperwork, data collection and reporting.

Tough question. I don’t know if it’s a competitive advantage all the time–probably moreso at the end of the month when recipients are running low on benefits and trying to stretch what they have left.

Mel Kleiman
Guest
11 years 8 months ago

Simple answer is YES.

The number of people on the SNAP is over 10% of the population and the program may be a hassle but if you make these consumers feel welcome, they will remember that they were treated with respect and will become loyal over the long run.

David Livingston
Guest
11 years 8 months ago

Most grocers have exited markets where there is a high concentration of low-income shoppers. Dollar stores have taken their place. So it just makes sense to accommodate your consumer base.

Camille P. Schuster, PhD.
Guest
11 years 8 months ago

Examining the costs and benefits in realistic terms is critical. Doing some scenario planning in terms of what happens if this move drives consumers away, what happens if demand significantly increases, what happens if this program becomes important to profitability and the program changes, and how much does it cost to administer the program versus the additional sales/profits are all important questions to answer before making a decision.

Roger Saunders
Guest
11 years 8 months ago
FAMILY DOLLAR, and other retailers who are participating in the SNAP program are filling a consumer need. And, with the funds in the SNAP program more than doubling to nearly $15 billion, the temptation to lean into the program is great. If retailers can deal with the administrative issues that inevitably come their way with government programs, there is solid upside for the retailer. Most “Dollar” store locations have a tight trading area. FAMILY DOLLAR is about 1 mile in urban areas. Thus, consumers visiting those stores are likely to have similar needs and expectations. FAMILY DOLLAR has a track record of staying attuned to customer and consumer needs, as they have linked store operations, marketing, finance, real estate improvements (freezers, shelving), and merchandise (quantity, mix of brands, and sizes of products) to consort to their overall strategies. If they are expanding the SNAP program, it’s done with all of their divisions on the same page. Retailers who don’t have everyone on strategy will surely fail on programs like this one. Knowing the consumer–on everyone’s… Read more »
Scott Knaul
Guest
Scott Knaul
11 years 8 months ago

I agree with Roger, Family Dollar is filling a need for their customers. They go into locations that many other grocers won’t go and they do it with a relatively smaller footprint. Accepting stamps or EBT payments has been a big boost for their revenue and ensures a steady stream of clients at the first of the month. No reason to think this positive trend for them won’t continue.

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