Why Doesn’t Costco Accept Food Stamps?

November 19, 2008, 6:30 am — Updated: 3:29 pm -->
Why Doesn’t Costco Accept Food Stamps?
By Jennifer 8. Lee
Councilman Eric N. Gioia outside the Costco store in Long Island City, Queens.
Farmers’ markets accept food stamps. The Harlem Fairway accepts food stamps. So does Trader Joe’s in Brooklyn. Even Whole Foods, which has been trying to shake that “Whole Paycheck” image, accepts food stamps. But Costco, the warehouse retailer that made its reputation as the anti-Wal-Mart, generous not only to Costco’s customers but to its workers as well, does not.
“Costco in general has a reputation of being a socially conscious company,” said Eric N. Gioia, a city councilman from Queens who last year began a campaign asking Costco to accept food stamps after discovering it did not during the “live on food stamps for a week” stunt. “There is no logical reason for someone not to accept food stamps. It is not only compassionate, but it’s good for their bottom line.”
Specifically, Mr. Gioia points to the Costco on Vernon Boulevard in Long Island City, Queens, in his district. First opened in 1996, the store is within walking distance for nearly 30,000 residents of three public housing projects: the Queensbridge, Ravenswood and Astoria Homes. “This is their best chance of eating healthy wholesome food at deep discounts,” Mr. Goia said. “And so in this particular case, it’s an especially glaring omission not to accept food stamps.”
Richard Galanti, the chief financial officer of Costco, who handles news media inquiries, declined to comment on the issue.
There has been keen interest in the food stamp program in recent months, as the nation slides deeper into a recession. Last spring, even before the latest economic convulsions, food stamp enrollment was projected to reach 28 million in the coming year, the highest level since the federally financed aid program began in the 1960s. But rising food prices have cut into what food stamps can buy, forcing government officials to come up with creative ways to increase food stamp allotments. For example, Gov. David A. Paterson decided to use a provision in the state’s energy assistance program to increase food assistance.
Pilot food stamp programs were initiated during the Great Depression and again under President John F. Kennedy, but it was during the Great Society era of the mid-1960s that the food stamp program became formally established. The paper coupons were replaced with electronic debit cards that use four-digit identity codes similar to bank cards in 2004, which prompted the renaming of the program to the Supplemental Nutrition Assistance Program as of Oct. 1 this year. The new cards are preferred by users because they reduce the stigma of the paper coupons and preferred by vendors because they get paid more quickly, often within 48 hours.
According to Mr. Gioia’s office, executives at Costco told the office that they declined to accept food stamps for three reasons.
They did not think they would qualify based on the federal government requirements.
It was too expensive to adapt their equipment to accept food stamps.
With their annual fee/bulk-purchase model, people on food stamps probably could not shop there anyway.
Are these valid concerns? If the corner bodega could qualify to accept food stamps, why would Costco, a publicly traded company with $71 billion in annual revenue, not qualify?
A look at the Agriculture Department’s store-eligibility requirements showed that the process of applying seemed simple and pretty straightforward. Merchants can even apply online.
There are apparently two ways to qualify to accept food stamps. The first way is to have at least 50 percent of the total sales — food, goods and services — at the store be from the sale of eligible staple food (i.e. not junk food). Given the diversity of services (for example, photo processing) and goods (like coffins) that Costco offers, Costco may not qualify under this requirement.
But Costco definitely qualifies under the alternate requirement, which is requires that the store (more or less) offer at least three different varieties of food in each of the following four staple food groups on a daily basis: bread and grains; dairy; fruits and vegetables; and meat, poultry and fish. Costco stores sell a wide selection of food in all of these categories. In fact, the high volume of their dairy business (along with Wal-Mart’s) actually helped ease in the redesign of the gallon milk jug.
Even if qualified, is it hard for a store to start taking food stamps? According to the Agriculture Department’s Web site, there are three ways for stores to accept food stamps. One uses old-fashioned paperwork — for stores that do not have electricity or a phone line, or do not average at least $100 a month in food stamp transactions. (Costco has electricity and phone lines and would be likely do more than $100 per month per store.)
Larger stores that average more than $100 a month in food stamp transactions per customer can receive devices from their state governments that accept the debit cards free of charge. They simply have to sign an agreement to cover the use of the equipment and provide banking information to the company that handles processing before they can receive a device. And the number of devices per store depends on the percentage of food stamp sales. (Having a separate food stamp card-reading device can be cumbersome, so most businesses simply reprogram their payment-processing machines to accept the food cards. This would not seem to be a big stumbling block for a Fortune 500 company like Costco.)
The last point about memberships is interesting: Costco makes the bulk of its profit by charging an annual membership fee for access to its stores, executives have said — more than $1 billion a year. The basic membership for most households is $50, which is a one-time outlay that cannot be covered by the food stamps themselves.
While some food stamps recipients are destitute and could not come up with the $50, many surely would pay the fee if they knew that it would save them far more money over time, said Joel Berg, executive director of the New York City Coalition Against Hunger.
Mr. Gioia added, “Not only does it amount to 14 cents a day, but you’ll find that people who are on a fixed income and trying to feed their children become amazingly sophisticated at making smart economic choices.”
Mr. Berg noted that the Agriculture Department recently did a survey that found that food stamps recipients spent an average of $6 to travel for their food shopping, which probably means that many poor people are savvy enough to pay for car services and taxis to travel longer distances to buy food at discount stores that do accept food stamps.
“I am sure that many food stamp recipients would scrimp and save and borrow and do what it takes to get into a discount program — particularly since there are about 30,000 public housing residents near the Astoria Costco,” Mr. Berg argued.
And at a time when many New Yorkers are finding it more difficult to find fresh food within walking distance because of the decline of the neighborhood supermarkets (in part because of competition from the big-box retailers that can offer lower prices), the idea of a Costco within walking distance is appealing.
“It is inexplicable why Costco clings to a policy that is against both their public interest and the company’s own self-interest,” Mr. Berg said. “More than one million New Yorkers a year use more than one billion dollars worth of food stamps benefits. I can’t understand why Costco is essentially placing a sign in their window that says ‘Your Business Not Wanted.’ ”
The government pays dollar-for-dollar for the food stamp use, so it is not as though Costco has to discount their margins. Costco, which has created an image that has both upscale and downscale appeal, has been known for attracting the elite (at least in Washington). But perhaps Costco is more wary of the other end of the spectrum, finding western Queens appealing for its real estate, but not for its customer base.
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