Food-stamp recipients are the new frontier for Target's online service

Target Corp. is preparing to let shoppers use food stamps to pay for online orders, following in the footsteps of Walmart Inc. and Amazon.com, in a move that could help the Minneapolis-based retailer gain market share among lower-income shoppers.

Roughly 21.7 million U.S. households use food stamps, which are mostly restricted payments to cold food items, non-alcoholic beverages and seeds and plants.

Target disclosed to Reuters last week that it will begin to accept payment online with food stamps, tentatively starting later this month, through a service offered by Shipt, its delivery arm. A Target spokesman said that it hadn't "shared any official launch date" for the service, which also will include drive-up and pick-up orders.

Offering food-stamp payment for online orders could help Target fill a long-time gap in its e-commerce strategy and reach households that might otherwise purchase groceries at so-called "dollar store" chains, or at Walmart.

Walmart and Amazon already accept purchases with food stamps on their websites since 2019 as part of a program with the U.S. Department of Agriculture, which distributes food stamps. Grocery-delivery service Instacart also offers the option.

Still, even though Target has lost the early mover advantage, investors and industry watchers were positive on the move. Accepting food-stamp payments online could build customer loyalty and help it sell other products, said David Klink, senior equity analyst at Huntington Private Bank, which holds over $30 million in Target shares.

"Target is kind of taking the long view, saying you can use your food stamps now," he said. "But maybe at some point you won't depend on food stamps and you'll remember that Target was there for your various shopping needs."

Grocery is a big part of Target's operations. In 2020, it accounted for 20% of its overall sales of $92.4 billion, putting it in competition with the 10 largest U.S. grocers.

The Biden administration in October began providing about 42.8 million people with an additional $20 billion in food stamps, through the Supplemental Nutrition Assistance Program (SNAP).

According to the USDA, more than 3.2 million food-stamp households shopped online in January, doubling from a year before. To buy groceries online, food-stamp recipients generally must have an electronic benefits transfer (EBT) card, similar to a debit card. However card holders can't use the benefits to pay for nonfood items.

For Target, one question is whether food-stamp recipients will be willing to pay delivery fees. Shipt, which Target acquired in 2017, charges $7 per delivery but offers free same-day delivery to subscribers who pay $99 per year.

Amazon has since offered additional discounts of up to 15% on select meat, produce, toiletries and paper products purchased at Amazon Fresh or Whole Foods by food-stamp recipients using EBT cards.

EBT cards can not be used to pay for Amazon Prime subscription membership, tips or items sold by third-party sellers; however, Amazon offers membership discounts of $6.99 per month for customers who are on government programs including SNAP and Medicaid. An Amazon Prime membership costs $14.99 per month, or $139 per year.

Lower-income households are seeing their purchasing power erode as meat and bread prices, and heating and gas costs, rise. The price of groceries purchased online in the United States rose 7.6% on average in February, compared to a year earlier, according to the Adobe Digital Economy Index.