PORTLAND, Ore. - With many families suddenly struggling to feed themselves, the big warehouse clubs known for king-sized packages of steak and jumbo boxes of Cheerios are increasingly competing with grocery stores for the 36 million Americans now on food stamps.
Costco Wholesale Corp. said Wednesday that it will start accepting food stamps at its warehouse clubs nationwide, a big about-face for a chain that has catered to the bargain-hunting affluent with its gourmet foods - and a reflection of the fact that food stamp use has hit new highs.
Costco joins warehouse-club competitors BJ's Wholesale Corp., which started taking food stamps last April, and Sam's Club, which began accepting them in fall 2008.
Until recently, some wholesale clubs were skeptical that poor people would be willing to pay the $50-a-year membership fee or would be interested in buying food in the bulk quantities the stores are famous for.
But now, in this economy, stores are battling for every dollar, and they see a big potential market in the growing ranks of food stamp recipients.
"Certainly, this economy was a wakeup call," Costco chief financial officer Richard Galanti recently told investors. "It is not just very low-end economic strata that are using these."
In May, Costco began accepting food stamps in New York under political pressure, and the practice turned out to be more popular than expected.
The rolls of food stamp recipients have grown by 10 million over the past two years. The U.S. Department of Agriculture said nearly 200,000 retailers nationwide now accept food stamps, 20 percent more than in 2005.
Costco executives said they were surprised to find that some shoppers are, in fact, paying the $50 fee precisely because the company takes food stamps.
The company hopes to accept food stamps in about half of its 407 stores in the United States by Thanksgiving. The rest will be phased in as Costco gets the necessary state approvals.
Peter Hsia, a retail strategist for the Kurt Salmon Associates consulting firm, said taking food stamps could help stores even after customers don't need the stamps anymore.
"They've got a big slice of their core customers who are now using food stamps, and you don't want to lose them when the economy picks up," he said.
The move could also help the warehouse clubs hold on to members who have fallen on hard times.
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By the numbers: Food stamps
36 million Number of Americans on food stamps
10 million Number of people added to the rolls during the past two years
$4.6 billion Amount of food stamps distributed by the U.S. Department of Agriculture in June
200,000 Number of retailers participating in the program, up 20 percent since 2005
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Food stamp facts
The program, at a glance:
- Food stamps were established by Congress in 1964.
- The program pays for most foods. It cannot be used for household or personal hygiene products, pet food, prepared hot meals, alcohol or cigarettes.
- About 66 percent of those eligible participate.
- The average recipient in June got more than $133; the average household, more than $293. The U.S. Department of Agriculture distributed more than $4.6 billion in food stamps that month.
- The income limit is 130 percent or less of the U.S. poverty level ($2,389 monthly for a family of four). There are adjustments for deductions and households with an elderly or disabled member. Some states have raised income limits to as much as 200 percent of the poverty level.