Is Wal-Mart the Nation's Biggest Welfare Recipient?

Michael Teague |

As of Friday Oct. 31, over 47 million Americans began experiencing an acute side effect of Washington’s chronic budget-passing difficulties with the expiration of a temporary hike in the Federal Supplemental Nutritional Assistance Program, otherwise known as SNAP, or simply food-stamps.

The SNAP program has almost doubled in size since 2008 when supplementary funds were allocated in the wake of the economic crisis, from an annual cost of around $37.5 billion to $78.4 billion. For the 15 percent of the nation currently relying on them, it should not be hard to imagine that difficulties that will result how the approximately 5 percent reduction in SNAP benefits. In California, for instance, the Department of Agriculture said that over 4 million residents can expect a reduction of some 21 meals per month, per person. And this comes on the heels of the expiration of the W. Bush-era payroll tax cuts earlier in the year.

Being that the SNAP program is intended to benefit those who are most in need, of which there are an increasing number in the US these days, it might come off as curious that we should also have to consider the effects that any reduction to the program will have on the businesses at which SNAP vouchers are redeemed. All the same, following last week’s announcement of the cuts, a plethora of articles appeared purporting to analyze how Wal-Mart (WMT) and, to a lesser extent, other discount retailers would also feel the pinch.

And with good reason; Wal-Mart accounts for some 18 percent of total SNAP spending in the US, some $14 billion of the nearly $80 billion allocated to the program by the Federal Government last year. Another 25 percent of SNAP funds go to a variety of budget grocery-outlets like Kroger (KR) .

But while other outlets like Kroger, and even Target (T) are bracing themselves for the effects of these cuts, that could be followed by even larger ones when a farm bill is eventually passed by a most fractious legislative, the case of Wal-Mart deserves special attention because of the catch-22 it appears to be caught in vis-a-vis government assistance.

Indeed, by all appearances, Wal-Mart could be said to be the nation’s single-biggest beneficiary of government largesse. As has been known at least since a 2004 study undertaken by the UC Berkeley Institute for Industrial Relations, California employees of the mega retailer required on average $500 more in government assistance than workers from similar large retailers, with 40 percent more assistance required on average for healthcare, and almost as much for other types of supplementary aid.

In other words, on top of the $14 billion per year in direct sales the company counts on from SNAP, Wal-Mart also relies on the Feds to pick up a significant portion of the tab for what it can or will not offer to its employees in the way of health insurance. From the most cynical perspective, it could be said that the main difference between the company’s executives and a large swathe of its employees/customer base is the fact that the former go home with substantially more enormous paychecks, while the latter spend a goodly portion of their free time filling out forms to receive the sorts of assistance they need to make it along.

The recent cuts however, especially when seen in tandem with the expired payroll tax cuts that preceded them, as well as the potentially larger SNAP cuts that could accompany the passage of a new farm bill, but Wal-Mart in more difficult position.

Just last month, President and CEO Bill Simon put on a brave face when he said the company was cautious but modestly optimistic. His reasoning was based on the observation that “when the benefits expanded [in 2009], our market share actually went down.” The implication here is rooted in simple home-economics, as more disposable income leads consumers to purchase better products, thus the increases to SNAP actually had the effect of hurting the company’s sales.

Simon argued, conversely, that cuts to the SNAP program will increase the importance of value-options and discount retailers, where Wal-Mart is playing on home turf. A precursory glance at the company’s anemic sales-growth figures since the turn of the decade would seem to corroborate this story, but it is also possible and perhaps more likely that a more significant reason for the company’s poor sales growth has to do with the simple fact that the demographic upon which Wal-Mart relies for both sales and labor simply does not have any more money to spend. This, in turn, might have something to do with the staunch resistance on the part of mega-retailers, Wal-Mart being the first among peers, to paying liveable hourly wages to its employees.

In all, the actual correlation between the amount of money allocated by the government to programs like SNAP on the one hand, and the financial performance of Wal-Mart on the other is less important than the fact that a shocking portion of the company’s earnings and revenues are so intimately tethered, in both the overt and latent senses, to Federal Assistance.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
KR Kroger Company (The) 33.30 -0.06 -0.18 16,219,313
WMT Wal-Mart Stores Inc. 70.88 0.21 0.30 6,668,383
T AT&T Inc. 38.61 -0.27 -0.69 16,101,258
CSRGF CSR Corp Ltd n/a n/a n/a 0

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