Major SNAP Cuts Loom as Costs Stress Low-Income Families

Millions of low-income Americans, who are already grappling with rising tariffs and escalating prices, may face further financial burdens due to proposed modifications to a government program aimed at assisting with grocery expenses.

House Republicans have introduced a measure that seeks to slash $230 billion from the U.S. Department of Agriculture’s budget over the coming decade, primarily to fund tax reductions. The Senate’s version of the bill suggests at least $1 billion in cuts to the USDA budget, with most, if not all, of these savings anticipated to originate from reductions in the Supplemental Nutrition Assistance Program (SNAP), previously known as food stamps.

If enacted, these cuts would represent a reduction three times greater than the most significant adjustment recorded in the past, even when accounting for inflation, according to UnidosUS, an advocacy group focused on Latino issues in the U.S.

However, the proposal faces obstacles; Congress must reconcile the differing bills passed by the House and Senate, and lawmakers might choose to eliminate potential reductions to food assistance funding to retain essential votes for the farm bill.

These changes could also negatively impact major retailers, potentially shifting consumer spending towards more affordable brands during a period when financial stress is already evident among consumers.

In response to the proposed cuts, the USDA asserted that the initiative is an effort by the Trump administration to “right size the program.”

“The Supplemental Nutrition Assistance Program is just that, supplemental,” the USDA stated. “It was never designed to be a windfall for food companies and retailers, but rather a temporary safety net for families and communities in need.”

Historically, participation in SNAP has varied with economic conditions and eligibility criteria, but this demographic plays a crucial role in driving sales for retailers.

Individuals utilizing SNAP benefits generally reside in larger households and tend to spend around 20% more on monthly groceries compared to those not receiving benefits, according to market research firm Numerator.

SNAP represents approximately $112.8 billion, or 4% of total U.S. food expenditures, based on an analysis of USDA data by Evercore ISI. For major players like Walmart, Kroger, General Mills, and PepsiCo, sales from SNAP beneficiaries significantly contribute to quarterly revenues.

At the state level, various changes are already in motion. At least 11 states have proposed restrictions on what can be purchased with SNAP funds, including bans on soda, candy, and other less nutritious food items. Recently, both Arkansas and Indiana formally requested to restrict SNAP funds for such purchases.

Efforts to remove sugary and unhealthy food items from SNAP are likely to progress with backing from the Trump administration. Health and Human Services Secretary Robert F. Kennedy Jr. supported these proposals as part of a broader initiative to combat chronic diseases, known as “Make America Healthy Again,” or “MAHA.”

“I’m collaborating with [Secretary of Agriculture Brooke Rollins] and governors in 24 states to advance MAHA legislation aimed at prohibiting soda from being purchased through the SNAP program,” Kennedy stated during a Cabinet meeting at the White House.

While Kennedy lacks the authority to implement these changes independently, Rollins has expressed her intent to approve any necessary waivers for states wishing to ban the specified purchases.

In fiscal 2023, approximately 42.1 million people utilized SNAP benefits each month to purchase groceries, equating to roughly 1 in every 8 residents in the U.S., per USDA data.

For low-income families dependent on SNAP, the impending funding reductions come at a time when grocery expenses are already tightened due to inflation.

Dollar General CEO Todd Vasos highlighted the struggles faced by his consumer base during a mid-March earnings call. “Our customers are consistently reporting worsened financial situations over the past year due to ongoing inflation,” he noted. “Many have stated they can only afford essential items, with some indicating they’ve had to compromise on necessities.”

Walmart, the nation’s largest grocery retailer, reported increased volatility in consumer spending patterns. Chief Financial Officer John David Rainey indicated during the company’s recent investor day in Dallas, “Changes in consumer sentiment have resulted in heightened sales volatility, both week-to-week and even day-to-day.”

Moreover, new tariffs on imported goods such as clothing, furniture, and footwear have raised concerns about prices climbing further and forcing consumers to make tougher choices about spending.

This month, consumer sentiment deteriorated across all demographics, including age, income, and political affiliation, as reported by Joanne Hsu, head of the University of Michigan’s respected survey.

Even high-end retailers like Restoration Hardware, Tiffany & Co., and LVMH have shown signs of a sales slowdown.

As prices rise and potential cuts to SNAP loom, companies within the food and beverage sectors, including Hershey and Monster Beverage, might feel the impacts.

Estimates from Bernstein Research indicate that nearly 9% of food-at-home spending is attributed to SNAP recipients.

Widespread SNAP reductions would disproportionately affect General Mills due to their cereal products, as per Bernstein analyst Alexia Howard. Following close behind is J.M. Smucker, driven by sales of their frozen Uncrustables and sweet snacks portfolio acquired from Hostess, and Kraft Heinz, known for its luncheon meats, and Tyson Foods, recognized for its meat and frozen products.

Beverage companies may also feel the strain of reduced SNAP benefits. USDA studies show that approximately 5% of SNAP funds are spent on soda alone, while nearly 9% is allocated to “sweetened beverages,” which encompasses sports drinks, energy drinks, juices, and powdered mixes.

This exposure places Monster at risk, particularly because of its substantial connection to the energy drink market and lower-income consumers, according to Citi Research analyst Filippo Falorni. Although giants like Coca-Cola and PepsiCo might experience decreased sales as well, their diverse product lines and demand from out-of-home consumption mitigate the potential impact on global sales, which Citi estimates to be around 1.5%, based on a late March analysis.

Walmart refrained from commenting on the potential SNAP adjustments during its recent investor day. Despite attracting more affluent shoppers over the years, Walmart remains the leading grocery retailer among regular SNAP recipients, boasting a market share of nearly 26% as of late July, based on Numerator data. CEO Doug McMillon emphasized the retailer’s commitment to providing “opening price points” for essential items, highlighting the introduction of lower-cost private label alternatives to national brands.

For SNAP recipients, the three primary retailers include Kroger, capturing about 9% of this demographic’s annual grocery expenditure, and Albertsons, with nearly 7%, per Numerator’s findings.

The total revenue generated by Walmart and others through the taxpayer-funded food program remains unclear, as the USDA does not disclose information regarding the amounts retailers receive from SNAP. A 2019 ruling by the Supreme Court upheld the decision to keep this data confidential following claims from the Food Industry Association, formerly the Food Marketing Institute, that sought to protect this information.

Dollar stores such as Dollar General and Dollar Tree are particularly vulnerable to adjustments in SNAP benefits, according to Bernstein retail analyst Zhihan Ma.

“Dollar store operations heavily cater to low-income consumers,” Ma explained.

Approximately 60% of Dollar General’s sales are derived from households earning less than $30,000 annually, as highlighted by CEO Vasos during a Goldman Sachs retail conference last year.

Changes at dollar stores may influence the supply chains of food and beverage companies. Given their focus on SNAP consumers, these stores may adjust their inventory based on customer preferences. For instance, if Utah households become unable to use SNAP for soda purchases, dollar stores in the state might prioritize other product offerings.

“Due to their limited shelf space, dollar stores may need to adapt quickly,” Ma said. “While this could be a positive health initiative, it might simultaneously pose challenges for some food manufacturers.”

If low-income families lose financial support from SNAP, they would likely have less available for essential expenses, including housing and utilities, according to Lauren Bauer, a fellow with the Brookings Institution.

Shoppers relying on SNAP not only purchase groceries at low-cost retailers but also contribute significantly to non-grocery sales. Approximately 95% of SNAP households made non-food purchases at Walmart within the past year, averaging $1,878 spent during that time, according to Numerator’s research. Dollar General and Dollar Tree also capture substantial non-grocery spending from this demographic.

Bauer added that reduced grocery dollars could lead to fewer purchases of healthier items, such as lean meats and fresh produce, which generally cost more than processed foods.

Rolling back SNAP benefits may encounter significant challenges, even with the Trump administration’s support, as opposition exists from suppliers.

“This isn’t a cut to the program; it’s an attempt to dictate what consumers can purchase, effectively involving the government in determining winners and losers at grocery stores,” stated Merideth Potter, senior vice president of public affairs for the American Beverage Association.

Previous attempts to ban specific items within SNAP at the state level have not succeeded, regardless of the administration in power. The former Trump administration declined to issue a waiver over concerns regarding the costs of implementing such restrictions, according to Potter.

To impose limitations on specific products via a state request, a state must initiate a cost-neutral pilot program, which should include a trial period along with evaluations and designated start and end dates.

Legal challenges regarding the USDA’s authority to grant state waivers could emerge, as noted in a late March report by Deutsche Bank analyst Steve Powers.

Reducing SNAP may have broader economic repercussions, as it would decrease the monetary flow to retailers, farmers markets, and other businesses participating in the program across communities, warned Bauer from the Brookings Institution.

Historically, funding for SNAP has increased during tough economic times. The U.S. government expanded program funding to deliver support to vulnerable Americans during both the Great Recession and the COVID-19 pandemic.

“SNAP acts as a stimulus,” Bauer explained. “It stimulates economic activity, particularly during downturns.”