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The restaurant industry has been lobbying for a loosening of restrictions on food stamp recipients’ food purchasing options.  YUM is regularly called out in media reports on the issue so we decided to call the company to get a better understanding of the issues.

BACKGROUND

We recently reached out to senior vice president and chief public affairs officer at Yum! Brands, Jonathan Blum, to discuss the topic of food stamps.  He provided us with some insight on the company’s efforts to help bring about a modification to the Farm Bill that would allow a portion of food stamp recipients to use their Electronic Benefit Transfer (EBT) cards at restaurants. 

Contrary to the overly-simplified headlines of late, the action YUM and others are pushing for would not result in restaurants accepting food stamps across the board.   Rather, under the modification to the Farm Bill that the restaurant coalition is promoting, only participants classified as homeless, elderly, or disabled (HED) would be allowed to use food stamps to buy “hot, prepared food”.  The origins of what is officially named the Supplemental Nutrition Assistance Program prohibited, among other things, the purchase of hot, prepared meals.  Federal regulatory changes in 1978 provided states with the option to allow elderly and disabled food stamp households to use food stamps at restaurants.  In 1996, the program was expanded to include homeless food stamp households. 

Thus far only Michigan, Arizona, and California (in certain urban centers only) have opted to allow HED program participants to purchase food at approved restaurants (restaurants in these states still have to apply to the state for authorization).  The coalition within the restaurant industry that is agitating for change, including YUM, is arguing that the rule disallowing the purchase of hot, prepared foods is antiquated given that restaurants are now visited far more frequently by the general public than in the mid 20th century when the program was kicked off.  Furthermore, for elderly and disabled participants in particular, allowing access to prepared, affordable, possibly delivered food makes sense, according to YUM (and we would agree).

HURDLES

Mr. Blum’s hope is that a modification to the Farm Bill can be brought about in the next thirty days.  It seemed to us from his tone and general commentary that achieving that goal may be difficult for several reasons. 

Firstly, mobilizing the federal government to focus on an issue so small relative to other concerns is a challenge.  Secondly, the modification’s effect of moving the power of authorization from states to the Federal government (restaurants would apply to the Federal government, not the states) could be adding a political component to the debate.  It certainly makes sense that it would, given the heightening skepticism of centralized power in this country. 

The alternative, if left with the status quo, is for restaurant companies to appeal to individual states to take advantage of the exemption for HED participants, as Michigan, California, and Arizona have done.  Mr. Blum told us that that was likely not worth the effort, despite the 45.2 million people currently registered as participants in the program and the $74 billion of expenditure, annually, that that represents.  To be clear, a modification of the current law would not represent $74 billion of revenue for the restaurant industry but would likely distribute that money differently than it is currently being spent.  In certain, mainly urban, areas of the three states currently allowing HED SNAP participants to spend their allowance at restaurants, YUM is seeing sales improve in the MSD range.  While Florida and Rhode Island are running pilots, there is no sign of any other states following suit, according to Mr. Blum. 

CONCLUSION

While not privy to any significant insights into the legislative process surrounding this particular issue, we believe that the coalition lobbying for this modification to the Farm Bill are up against difficult headwinds.  The first, as we wrote above, being that the Federal government is proving difficult to mobilize for the lobbyists.  Secondly, given that the modification would involve a ceding of control by states to the federal government of which restaurants would be allowed to accept EBT cards as payment for food, we believe that the current political mood in Washington – one of smaller government and less federal power – may impede the coalition's progress. 

We will continue to monitor this issue closely given that it would represent a possible sales boost for YUM’s ailing U.S. business if things were to change.  As the chart below shows, the number of people depending on this program has been growing steadily for some time, despite the slowdown in June from May (the first month-over-month decline since 2008).  There may come a point where states begin to expand options for the growing ranks of participants in the program, even if the federal government does not move to modify the Farm Bill, as YUM hopes.

FOOD STAMPS TAILWIND FOR YUM? - foodstamps

Howard Penney

Managing Director

Rory Green

Analyst