Dive Brief:

• A proposed $191 billion in SNAP cuts by the Trump administration would result in $57.5 billion less for grocers over the course of 10 years, according to an AlixPartners report cited by CNBC. The overall impact on retailers would be $70 billion throughout that time.
• The report estimates that Walmart will be the hardest hit retailer, losing $12.7 billion in sales over a decade, followed by Target, which stands to lose an estimated $4.8 billion to $5.3 billion. Aldi and Kroger are expected to suffer similar losses.
• SNAP cuts initiated in 2013 by the Obama administration have reduced benefits, but recipients have been helped by lower prices due to deflation. With deflation easing, however, these consumers could feel pinched.

Dive Insight:

The Trump administration’s proposed cuts are steep, with individual benefits projected to fall from $252 per month to $173 per month. Stores are set to lose an estimated 37 cents out of every dollar currently spent by SNAP recipients. That’s tough to swallow for many grocers fighting for sales in a low-margin, highly competitive industry. 

But retailers should — and no doubt will — keep things in perspective. Walmart’s $12.7 billion loss over 10 years would amount to just 0.26% of its overall sales, according to CNBC. Kroger, which stands to lose between $3.6 billion and $3.9 billion, only accepts SNAP benefits in around half of its stores.

Moreover, experts say reduced benefits usually don’t translate into a steep reduction in food spending, which is a necessity for consumers. Shoppers will instead reallocate their funds. They’ll buy more private label brands instead of national ones, as well as more products that are discounted or with available coupons.

Some grocers stand to take a bigger hit than others. Save-A-Lot, which operates 1,300 discount stores nationwide, relies heavily on SNAP dollars, as does Tops Markets in New York. Both retailers are struggling right now, citing SNAP reductions as a significant factor.

Should the administration’s proposed cuts go into effect, retailers will adjust their merchandising and promotional strategies accordingly. Retailers like Walmart stand a good chance of holding on to SNAP customers provided they offer good value and attractive store promotions. However, price-sensitive shoppers could very well defect to grocers with a strong private label presence, like Lidl and Aldi.

Retailers that offer the best value on everyday items like milk, eggs and cereal will be in the best position here. Indeed, the price battles on these essentials have been intense of late, meaning easing deflation may not provide much margin relief. It’s a tough environment for grocers, but a very attractive one for shoppers of all income levels.