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New federal food aid restrictions in 23 states are forcing a major shake-up in the U.S. food and beverage industry. With an estimated $830 million in sales at risk this year, major corporations like Hershey, PepsiCo, and Kraft Heinz are closely monitoring evolving shopper behavior. This movement, intensified by initiatives like Iowa’s “Make America Healthy Again” law, targets sugary drinks, candy, and ultra-processed foods, pushing manufacturers to accelerate product reformulations and eliminate artificial ingredients.
The landscape of American grocery shopping is undergoing a significant transformation as a growing movement seeks to restrict federal food aid from being used on certain processed and sugary products. This shift presents a formidable challenge for some of the U.S.'s largest food and beverage corporations.
As of May, the U.S. Department of Agriculture has greenlit food restriction waivers for Supplemental Nutrition Assistance Program (SNAP) benefits in 23 states. This affects roughly one-third of all SNAP recipients, and research firm Numerator forecasts these restrictions could slash food and beverage sales by up to $830 million this year. Consumers are expected to either pivot their purchases towards approved items or reduce their overall spending.
Kroger CEO Greg Foran highlighted these pressures during the company's first-quarter earnings call, noting that customers are experiencing budget squeezes due to reduced SNAP benefits and rising gas prices. "Customers are managing spend carefully and shopping with real intent," Foran stated.
The majority of these waivers target sugar-sweetened beverages and confectionery, signaling a deliberate strategy rather than broad food bans. As this trend expands, prominent packaged food companies are compelled to meticulously track shopper behavior and evaluate the necessity of overhauling product lines. Many, however, have already initiated changes in response to shifting consumer preferences in recent years.
Iowa recently became the first state to integrate elements of the "Make America Healthy Again" (MAHA) movement into law. This groundbreaking legislation targets artificial food dyes and ultra-processed foods in schools, alongside imposing restrictions on SNAP purchases. "Altogether, this bill advances the health and wellness for every Iowan today and for generations to come," Iowa Gov. Kim Reynolds declared upon signing the measure, emphasizing the law's aim to refocus federal food assistance on nutritious options for low-income families.
The new law specifically bans synthetic dyes like Red 40 and Yellow 5 from most K-12 school meals and vending machines, while simultaneously preventing SNAP recipients from using benefits to buy products such as soda and candy.
Navigating the MAHA era
Many food companies are not passively awaiting policy evolution. Hershey, for instance, has dispatched researchers to Texas to conduct in-store interviews with SNAP recipients, seeking to understand the real-time impact of new state restrictions on purchasing habits.
A Hershey spokesperson informed CNBC, "We've observed some consumer uncertainty at the register as new restrictions take effect. We anticipate this will improve as store execution improves, rules become clearer, and SNAP users can plan and budget with more certainty." The company is scrutinizing everything from product substitutions to budget trade-offs, providing an early insight into how major food manufacturers are preparing for a potentially significant shift in consumer demand.
Products most susceptible to these changes often originate from industry behemoths like Kraft Heinz, PepsiCo, Coca-Cola, General Mills, Nestle, and others.
However, J.M. Smucker CEO Mark Smucker expressed a more tempered outlook to CNBC, anticipating a muted impact from the SNAP policy changes. "I would say the current environment isn't really that different than what we've seen over time, and thus far some of the modifications have really had no meaningful impact to our business," he remarked. Nevertheless, products such as the company's Hostess Twinkies and Donettes, which recently saw a 13% rise in net sales, could face repercussions if broader state restrictions on "highly processed snacks" come into play. Current SNAP waivers, like those in Texas, focus primarily on candy and sugary drinks, but some states are proposing wider definitions that could eventually include packaged desserts and sweet baked goods.
Meanwhile, the number of Americans receiving these benefits is also declining. An analysis indicates that approximately 3.5 million individuals have lost their SNAP aid since former President Donald Trump signed a sweeping bill last year that tightened eligibility requirements.
These changes have made it harder for many U.S. households to afford groceries and have consequently reduced the flow of dollars to major businesses. Walmart is particularly exposed to SNAP spending, capturing roughly a quarter of all SNAP grocery dollars nationwide, according to Numerator. Kroger, Costco, and Amazon follow, securing about 8%, 6%, and 5% respectively.
Restrictions on federal assistance are just one of several shifts food companies are observing. At an April Senate Committee hearing, Health and Human Services Secretary Robert F. Kennedy Jr. voiced support for a ban on junk-food television advertising, though his department has yet to take action on such a ban.
In response to both Kennedy's MAHA initiative and evolving consumer preferences, food manufacturers have ramped up efforts to reformulate products and reduce synthetic ingredients. Iconic brands like Kool-Aid, Fanta, Doritos, and Flamin' Hot Cheetos, known for containing dyes such as Red 40 and Yellow 5, are undergoing these changes.
General Mills, Kraft Heinz, and Target have all committed to phasing out certain artificial colors and additives by 2027 or earlier. Nestle recently announced it met its commitment to completely eliminate Food, Drug & Cosmetic colors from its U.S. food and beverage portfolio on schedule.
