With Whole Foods, Amazon Could Win Access To Food Stamp Funding — But No One Knows How Much

If Amazon.com closes its deal with Whole Foods Market, the high-end grocery store for which CEO Jeff Bezos has announced a bid, the e-commerce giant would be set to increase its access to taxpayer money — potentially channeling billions in federal funding to the world’s second-richest man. But because of the U.S. Department of Agriculture’s and grocery industry's tight-lipped stance on a program that funnelled close to $66.4 billion in government spending last year to food sellers, the exact amount Amazon would gain by swallowing up Whole Foods remains unclear.

Amazon itself has already received more than $1 billion in state and local subsidy packages over the past 17 years, according to the policy research organization Good Jobs First, which tracks government subsidies. Such funding is often predicated on expectations that, by erecting new warehouses and fulfillment centers, the company is providing new jobs for the surrounding community, Good Jobs First Research Director Philip Mattera told International Business Times. Similarly, Whole Foods has received just under $1 million in state and local subsidies in the past 15 years for “enterprise zone[s]” and “property tax abatement[s],” according to the organization’s database.

Read: Silicon Valley Lawmaker Wants Regulators To Review Amazon-Whole Foods Deal

But at the federal level, Whole Foods also receives taxpayer dollars as part of the Supplemental Nutrition Assistance Program, previously known as food stamps, in which eligible lower-income people pay for groceries with Electronic Benefit Transfer (EBT) cards, and the USDA provides funding to stores accordingly within two business banking days, according to the USDA.

More than 260,000 firms across the U.S. collectively redeemed nearly $66.4 billion from the U.S. government as part of the program in 2016. That total rose from just under $15 billion in 2000, peaked at close to $76 billion in 2013 and has declined by several billion dollars since then. The number of authorized firms winning redemptions over the past five years has averaged just under 256,000. Last year, although supermarkets and “super store[s]” together made up 14.06 percent of the authorized firms that received the redemptions, they took in 81.39 percent of SNAP benefits, according to the USDA’s most recent report on program data.

The USDA declined to say which category housed Whole Foods, as its varying types of stores may fit multiple categories. But “supermarket” appeared to be the most likely candidate, defined by the agency as “establishments commonly known as supermarkets, food stores, grocery stores and food warehouses primarily engaged in the retail sale of an extensive variety of grocery and other store merchandise” that “typically has 10 or more checkout lanes with registers, bar code scanners and conveyor belts.”

Nationwide, at least 430 Whole Foods Market locations participate in SNAP, according to the USDA’s SNAP retailer locator tool. It might seem counterintuitive for a person eligible for government-assisted grocery shopping to head to the supermarket that’s become emblematic of an upper-middle class obsessed with buying organic, locally-sourced foods, and Whole Foods’ annual filings from the past five years make no mention of the program.

The grocer did not respond to repeated requests from IBT to disclose its SNAP redemptions and related information.

But the company has been making inroads in communities with lower-income residents, such as Detroit and the South Side of Chicago, over the past several years. New York’s Harlem neighborhood is getting a Whole Foods in July and Santa Monica’s relatively lower-income Pico district is slated to get one in August, making the company increasingly well-positioned to draw SNAP customers and, consequently, federal SNAP money.

And Whole Foods isn't the only member of the recent deal receiving SNAP redemptions. Amazon is a program participant as well, having won a spot on the USDA’s list of companies included in a two-year pilot program allowing SNAP enrollees to buy groceries online, according to a department press release.

Keeping SNAP Secret

The USDA does not disclose how much of the tens of billions of taxpayer dollars it gives to each of the participating firms. Although, in recent years, the agency has faced pressure to do just that.

Public access to the data the USDA releases today is, according to the department’s Food and Nutrition Service, “based on” a six-year-old lawsuit by a North Dakota newspaper, whose legal effort fell just short of shining a spotlight on how much money the stores themselves get from SNAP. But that could change.

In 2011, the Sioux Falls-based Argus Leader sued the USDA when, in response to the paper’s Freedom of Information Act request, it refused to make public the revenue that retailers receive in SNAP subsidies, citing a FOIA exemption protecting “privileged or confidential” proprietary information.

Grocery store executives argued that the disclosures would harm their competitiveness in an already low-profit market. For example, Andrew Johnstone, the associate general counsel of Sears Holdings Management Corp., which owns KMart, testified that revealing how much stores receive in SNAP redemptions would both help their competition and stigmatize stores by potentially leading their landlords to avoid renewing leases if stores exhibited larger numbers of SNAP sales, according to a South Dakota District Court memorandum. Two business professors testifying on behalf of Argus more or less rejected those claims.

The case made it up to the U.S. District Court of South Dakota, where a judge ruled in favor of Argus at the end of November. The USDA issued a memorandum memorializing the decision to comply with the ruling, which a SNAP administrator within the department signed in January.

But the Food Marketing Institute filed a motion to stay the judgment, which the court granted, and FMI — a food retail industry trade organization — then filed an appeal.

“Until the pending court case is resolved,” the bottom of the USDA webpage on SNAP data reads, “FNS will NOT release SNAP retailer redemption data.”

Read: Will Whole Foods Delivery Be Cheaper After Amazon's $13B Deal?

In February Congressional testimony, FMI CEO and President Leslie Sarasin emphasized the importance of the program to low-income people, especially children, and strongly discouraged limiting the products eligible for purchase through SNAP. Like those who testified on behalf of the USDA in the Argus Leader suit, she emphasized slim grocer profit margins.

“There have been a number of limitations suggested for this program whether it be no meats, no desserts, no snacks, no soft drinks and even no white bread,” Sarasin said, according to her prepared statements. “Not only do such limitations appear incongruous to the policy positioning of a program designed to provide temporary assistance addressing hunger considerations, but they also would prove an administrative nightmare, increasing the cost of acceptance and slowing down checkout lines in an industry that historically has experienced only just more than a 1 percent profit margin and in which every second of delay affects profitability and ultimately the number of associates that can be hired and the prices in a store.”

When asked why the group filed an appeal in Argus Leader Media v. USDA, an FMI spokesman also cited narrow profit margins, adding that the institute’s members “support transparency” but “do not support sharing proprietary market information.”

“Food retailers function in a fiercely competitive market, historically operating on only a one- to two-percent net profit margin, and supermarkets face growing competition from non-traditional food retail companies that offer similar services both within and outside their geographic areas. As a result, individual retailers continuously seek to establish methods for increasing volume and sales to retain a competitive edge,” David Fikes, the FMI’s vice president of communication and consumer/community affairs, wrote in a statement. “A store’s sales data by any type is incredibly sensitive, including data related to SNAP sales. FMI believes it would be inappropriate to disclose SNAP redemption data segregated by individual stores since doing so would thwart companies’ efforts to compete, effectively making proprietary information available to the increasing and myriad entities with whom they compete.”

In an interview with IBT, Argus Leader investigative reporter Jonathan Ellis, who was behind the USDA FOIA request, expressed his frustration with the pace of the newspaper’s legal battle for transparency. Six years after the suit’s initial filing, he is waiting for the case to return to a circuit court later this year. Ellis said he expected to find some interesting story ideas in the trove, if it’s ever released, especially in light of the growth in popularity of dollar stores after the recession, and the effort to bring access to fresh produce to rural and urban “food deserts” in lower-income areas of the country. But a central reason why he wanted the data publicly available was a relatively simple one.

“Fundamentally,” he said, “it’s taxpayer money and taxpayers should know where their money is going.”

Wal-Mart Wins the Lion's Share of SNAP

If federal lobbying files are any indication, the grocer industry has a lot of interest in SNAP. The National Grocers’ Association, whose CEO Peter Larkin testified on behalf of the USDA in the Argus Leader case, spent tens of thousands of dollars on lobbying efforts over the past five years related at least in part to the program. Grocery Manufacturers of America, another trade association, spent $30,000 on lobbying involving the program in 2015. Other trade groups, such as the Grocery Manufacturers Association and the broader business-focused Chamber of Commerce USA, have spent millions on lobbying at least partly dedicated to SNAP in the past several years.

Colleen Heflin, a professor at the University of Missouri’s Truman School of Public Affairs who specializes in social and nutrition policy, provided some insight into why grocery stores and the trade groups that often represent them may see the program as particularly lucrative. Low-income families, she noted, first use what they have for the most important bills — housing, medical problems, electricity — before spending whatever remains on food.

“SNAP increases the amount low-income households spend on food, because it can’t be spent for other items,” she said. “A household might only have $50 left over from paying essential expenses to spend on food for the month, but SNAP may add another $50 to the amount available to buy food. Grocery stores experience this as higher food purchases. Individuals experience this as higher food consumption and lower food insecurity.”

Whole Foods, like fellow grocers Publix, Kroger, Wegmans and Giant Eagle, is a member of the Retail Industry Leaders Association, a trade group that spent $740,000 on lobbying related at least partially to SNAP in the last three months of 2016.

Another member of RILA is Wal-Mart Stores, which spent several million dollars on lobbying efforts related in part to SNAP between 2010 and 2012 and, based on the scant reporting on the program’s funding to retailers, may receive the lion’s share of SNAP redemptions. It also could be on the verge of a bidding war with Amazon over Whole Foods, JPMorgan analysts told CNBC Thursday.

In a 2011 report on the $1.2 billion in Oklahoma SNAP expenditures between July 2009 and March 2011, the Tulsa World found that Wal-Mart received $506 million in taxpayer money as part of the program. Of the top 10 Oklahoma stores ranked by SNAP redemptions, Wal-Mart locations held six spots, according to the World, which obtained its data from the state’s Department of Human Services, the agency determining SNAP eligibility in Oklahoma.

Speaking to Slate in 2014, a Wal-Mart spokesman confirmed that the Bentonville, Arkansas-based company, which likely fits the USDA's “superstore” category for SNAP-authorized firms, received 18 percent of nationwide SNAP funding — equal to $13.7 billion, using the 2013 SNAP funding total, or about 3 percent of Wal-Mart’s total revenues for that fiscal year.

Also in 2013, Wal-Mart cited adjustments to the welfare program among its business risks in an annual filing with the Securities and Exchange Commission.

“Our business operations are subject to numerous risks, factors and uncertainties, domestically and internationally, which are outside our control,” the yearly form said. “These factors include, but are not limited to: general economic conditions, … changes in the amount of payments made under the Supplement[al] Nutrition Assistance Plan and other public assistance plans [and] changes in the eligibility requirements of public assistance plans,” among other factors.

Competition May No Longer Be an Excuse

Grocers argue that disclosing their SNAP redemptions would hurt their already minimal profit margins, but Amazon's net profit margins have historically been low — even lower than those of Whole Foods. Still, if the Amazon-Whole Foods merger closes, hiding how much SNAP money the grocer gets may no longer be an issue.

Instead, as Vox's Matthew Yglesias recently noted, other grocery store chains will face a Whole Foods that, as part of the e-commerce giant, can afford to lower its profit margins — and can stay in business long enough to, as Amazon did with sellers of books, electronics and other goods, run the competition into the ground.