Grocery e-retailers may soon be able to process food stamps online

October 6, 2016 11:00 AM

Everybody eats, and consumers, as they have with other purchases, are increasingly turning to the web to order groceries. Online grocery sales in the United States are expected to reach $42 billion this year, according to a recent Morgan Stanley AlphaWise report. However, consumers who receive federal assistance for groceries cannot redeem their food stamps online—yet.

A program more than two years in the making and with more years of testing ahead may give food retailers nationwide the ability to accept food-stamp payments online. The U.S. Department of Agriculture (USDA) is seeking retailer volunteers for a two-year, nationwide pilot that would allow some recipients of benefits under the Supplemental Nutrition Assistance Program—known as SNAP and formerly the food stamp program—to use their benefits online. The USDA will select up to five retailers in three states this year and the pilot program is scheduled to begin next summer.

Jessica Shahin, associate administrator for SNAP, says the idea of allowing recipients to use their benefits online is rooted in the language of the Food Stamp Act of 1964, which established the program that later became SNAP. The 1964 law mandated that the program be “operated through normal channels of trade.”

“Online shopping has become more of a normal channel of trade,” Shahin says, so it makes sense for SNAP, which is administered by the USDA under the department’s Food and Nutrition Service, to move toward e-commerce.

Shahin says online food shopping could be a valuable option for certain groups of SNAP recipients, particularly consumers with transportation challenges, those who are homebound and working recipients with families who might have difficulty finding time to shop. “SNAP recipients are just like everybody else,” she says.

As of June 2016, nearly 43.4 million people across almost 21.3 million households received SNAP benefits. U.S. Census Bureau estimates put the U.S. population at 321.4 million as of July 2015, with 116.2 million households as of 2014, which means about 18% of U.S. households receive SNAP benefits but are unable to buy groceries online. Eligibility for SNAP benefits depends on several factors and varies by state. The current average monthly benefit payment is $125.27 per person and $254.97 per household.

In the United States, the online grocery market is expected to reach about 6% of the overall grocery market in 2016. The Congressional Budget Office says federal spending on SNAP is expected to be about $75 billion this year. Of that, according to the Center on Budget and Policy Priorities, about 93%, or $69.75 billion, will likely be paid out in benefits. So, if food stamp users were buying groceries online at the same rate as the overall population, they would boost the size online of the grocery market by about $4.2 billion, or 10%.

The project to expand SNAP to online shopping has been in the works since the passage of the 2014 Farm Bill, which directed the Agriculture Department to test allowing retailers to accept SNAP benefits online. However, making the program work has been challenging because of the way SNAP transactions work, Shahin says.

SNAP benefits are distributed via debit Electronic Benefits Transfer (EBT) cards, which require consumers to enter a secure PIN at the time of purchase. The same will be true for SNAP purchases made online but, until recently, it was virtually impossible to securely complete such PIN transactions online because the technology was not available, Shahin says. Also, because SNAP benefits are administered to recipients at the state level, any secure PIN-entry technology used online must be compatible with that of the EBT processing firms states contract with to process SNAP benefits in stores.

So far, Shahin says, the USDA has found only one vendor—Atlanta-based payment and authentication firm Acculynk—that offers secure the encrypted-PIN technology necessary to handle online PIN transactions. Therefore, retailers that want to participate in the pilot program will have to work with Acculynk to process online SNAP transactions. As other vendors develop workable, secure PIN-entry technology, Shahin says, SNAP will evaluate them for the program.

As of mid-September, only one benefits card processor, Xerox State and Local Solutions, had agreed to perform the system upgrades necessary to participate in the trial. That initially limited SNAP’s focus to states under contract with Xerox. But since then, other EBT host processors agreed to make the system adjustments necessary to conduct online EBT transactions in 2017. That means retailers could participate in the pilot if they would serve SNAP recipients in any state or territory except those transitioning to a new EBT processor during the pilot implementation period. States and territories in that category are Alaska, California, Hawaii, North Carolina, Tennessee, U.S. Virgin Islands, West Virginia and Wisconsin.

Because of the inclusion of additional EBT processors, the deadline for retailers to submit letters of intent, which originally was Sept. 30, has been extended to Oct. 7. The deadline for application forms has been extended to Nov. 7 from Oct. 31. The USDA still expects to select participating retailers by Dec. 31, according to the online purchasing program’s web page.

The letters of intent must include contact information and a description of where retailers would like to conduct their pilot programs. The application form requires e-retailers to provide more detailed information.

The USDA has been under increasing public pressure to get the pilot program off the ground.

In June, e-retailer Thrive Market, which sells organic food and natural products online, launched an online petition asking the USDA to allow SNAP benefits to be redeemed online. The petition, which received more than 300,000 signatures over three months, was joined by online meal delivery service Blue Apron Inc., No. 231 in the Internet Retailer 2016 Top 500 Guide, and such brands as organic food and drink maker Clif Bar & Co. and skincare manufacturer Kiss My Face. Nonprofits such as Share our Strength—a national organization that works to end childhood hunger in the United States—and the Organic Consumers Association also expressed support.

“With this petition, we aimed to raise awareness of the food insecurity problem in this country and drive a sense of urgency around bringing food stamps online,” says Gunnar Lovelace, co-founder and CEO of Thrive, No. 547 in the Internet Retailer 2016 Second 500 Guide. “We've been in conversations with the USDA on the issue for a couple of years, but it can be a lengthy process with a list of considerations and technical hurdles. We wanted to leverage our wide network of supporters to bring attention to the issue.”

On Capitol Hill, Democratic Sen. Cory Booker, along with Democratic Reps. Tim Ryan of Ohio and Barbara Lee of California, sent a Sept. 12 letter to Secretary of Agriculture Tom Vilsack, asking the USDA to speed up the digitization of food stamps.

Thrive Market’s Lovelace says he’s happy to see the agency moving toward allowing SNAP benefits to be used online, adding that the retailer plans to apply for one of those five spots in the USDA pilot program.

“Given that we've been a supporter of the policy change and in conversations with the USDA on the issue since launching in 2014, we are applying for the pilot program and would be honored to be included as a retailer,” Lovelace says. “We hope we're selected, but that was never the primary goal with the [petition] campaign. Our goal was to give voice to … Americans on food stamps and bring SNAP into the 21st century.”

If selected, Thrive Market would work with the USDA to address any technical challenges associated with accepting SNAP online, Lovelace says. It’s too soon, however, to know exactly what changes to its website might be necessary.

A list of the other retailers expressing interest in the pilot program will be made available after the Nov. 7 deadline, according to the USDA.

Several major grocery chains including The Kroger Co., which had $467.4 million in online sales in 2015 and ranked No. 83 on the Internet Retailer Top 500 and Meijer Inc., which ranked No. 332 on the Top 500 with $66.1 in 2015 web sales, could not be reached for comment.

Internet Retailer’s first-ever 2016 Online Food Report documents how the online sale of food is suddenly a booming market in the United States and puts to rest the notion that food retailing is the exclusive province of stores. The 25-page research report, “Online Food Shopping Goes Mainstream,” identifies the major players driving this sea change in food retailing, estimates the future growth of the online food retailing and more. For more information about the report, visit this page. 




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