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Analysis-Food Stamp recipients are the new frontier for Target.com

FILE PHOTO: Shopping carts are driven in front of a Target store during Black Friday sales in Brooklyn, New York
FILE PHOTO: Shopping carts are driven in front of a Target store during Black Friday sales in Brooklyn, New York, U.S., on November 26, 2021. REUTERS/Brendan McDermid

March 31, 2022

By Arriana McLymore and Siddharth Cavale

NEW YORK (Reuters) – Target Corp is preparing to let shoppers use grocery stamps to pay for online orders, following in the footsteps of Walmart Inc and Amazon.com, a move that could help the country’s seventh-largest retailer , to gain market share low-income shoppers.

Around 21.7 million US households use grocery stamps, which are primarily restricted payments for cold groceries, soft drinks, and seeds and plants.

Target told Reuters last week that it will start accepting payments online with food stamps, likely from late April, through a service offered by Shipt, its delivery arm.

Offering grocery brands for online orders could help Target fill a long-standing gap in its e-commerce strategy and reach households that would otherwise buy groceries from so-called “dollar store” chains or Walmart Inc.

Walmart and Amazon.com Inc have been accepting grocery stamp purchases on their websites since 2019 as part of a grocery stamp distribution program with the US Department of Agriculture. The food delivery service Instacart also offers the option.

Even as Target lost its early mover advantage, investors and industry watchers were bullish. Accepting grocery stamp payments online could increase customer loyalty and help sell other products, said David Klink, a senior equity analyst at Huntington Private Bank, which owns over $30 million in Target stock.

“Target is more long-term and says you can use your food stamps now,” he said. “But maybe someday you’ll stop relying on grocery stamps and remember Target was there for your various shopping needs.”

“I wouldn’t call it a game changer, but I think it’s important,” Klink added.

Groceries are a big part of Target’s business. In 2020, it accounted for 20% of its total sales of $92.4 billion, rivaling the top 10 U.S. grocers, including Kroger and Albertsons. The company announced this month that it would expand grocery sales, particularly through private label.

On March 1, Target’s Chief Food and Beverage Officer Richard Gomez told investors that Target will “make our entire experience, in-store and online, available to all families so they can shop on their terms, no matter how they are.” pay for their groceries.”

Target’s own brand, Good & Gather, now offers nearly 2,500 food and beverage products. Target, for example, sells a 12-ounce can of Good & Gather evaporated milk for $0.99 on its website, compared to Nestlé’s Carnation evaporated milk for $1.69.

“Target will be exhibiting a leading national brand like Nestle, but will place the Target (own brand) item right next to it to encourage the consumer to switch,” said Burt Flickinger, chief executive officer of Strategic Resource Group, a consulting firm, adding that the move is “transformative”.

President Joe Biden’s administration began providing $20 billion in additional food stamps to about 42.8 million people through the Supplemental Nutrition Assistance Program (SNAP) in October.

According to the United States Department of Agriculture, more than 3.2 million households used food stamps to shop online in January, double the number a year earlier. In order to buy groceries online, food stamp recipients generally need an EBT (Electronic Benefits Transfer) card, similar to a debit card. However, cardholders cannot use the benefits to pay for non-food items.

One question for Target is whether food stamp recipients will be willing to pay delivery fees. Shipt, which acquired Target in 2017, charges $7 per delivery but offers free same-day delivery to subscribers who pay $99 per year.

Instacart, which handles deliveries for BJ’s Wholesale Club, Food Lion, Publix, and Ahold Delhaize USA, among others, is waiving until March 31.

Amazon has since offered additional discounts of up to 15% on select meat, fruit and vegetable products, toiletries and paper products purchased by EBT card recipients from Amazon Fresh or Whole Foods.

EBT cards cannot be used to pay for Amazon Prime subscription memberships, gratuities, or items sold by third-party sellers; However, Amazon offers membership discounts of $6.99 per month for customers participating in government programs, including SNAP (food stamps) and Medicaid. An Amazon Prime membership costs $14.99 per month or $139 per year.

Low-income households are seeing their purchasing power fall as meat and bread prices, heating and gas costs rise. According to the Adobe Digital Economy Index, the price of online groceries in the United States increased by an average of 7.6% in February compared to a year earlier.

The $50 billion or more that Americans spend annually on groceries purchased with grocery stamps represents only 5% of the $1 trillion spent annually on groceries at home, said Bill Kirk, consumer analyst at MKM partners.

Still, Target’s new payment option underscores its ambition to increase market share in the grocery space, a category where strong sales growth is elusive and where inflation is particularly acute.

(Reporting by Arriana McLymore in New York City and Siddharth Cavale in Bengaluru; Editing by Nick Zieminski)

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DUSTIN JONES

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