Modern-Day Bread Lines Breaking Records

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 |  Includes: CMG, DNKN, JPM, MCD, PNRA, WEN, YUM
by: The Financial Lexicon

Several comparisons can be made between the situation the U.S. faces today and the Great Depression. One of these comparisons has to do with “bread lines.” Although we do not have tens of millions of people lining up outside of soup kitchens waiting to be fed, we do have nearly 15% of people in the country depending on money from the government just to buy food.

When the Great Depression began, there wasn’t a widespread national program like the Supplemental Nutrition Assistance Program, or SNAP. But today there is, and it is the key to avoiding the psychological damage to the nation as well as the fear and uncertainty that would result from millions upon millions of people lining up at soup kitchens. In the 21st century, the government, through financial institutions like JPMorgan Chase (NYSE:JPM), provides debit cards to people who meet certain qualifications for financial assistance with their food purchases. We don’t do bread lines the way they did in the 1930s. Instead, we have our own modern-day bread lines, and those are growing longer and longer by the month.

The latest data from the U.S. Department of Agriculture is out for SNAP, and it isn’t pretty. More commonly known as “food stamps,” SNAP rose to a new all-time high in September (the latest month for which data is presented) with 46,268,257 participants. Using the current estimate for the U.S. population on census.gov, food stamp usage is now at 14.79% of the population.

In the 1980s and 1990s, as the stock market enjoyed multiple years of rising values, food stamp usage went down. But the 2000s brought with it a change, and that change became very pronounced beginning in 2009. At the end of February 2009, just days before the stock market bottomed in early March 2009, the SNAP program had a total of 32,332,622 participants. Since that time, total participation in the program has risen by 43.10%. The number of people participating has actually increased every single month since October 2008, with the exception of a brief respite in June 2011. The following chart shows the average annual participation in the food stamp program from 1969 through September 2011.

When looking at this chart, the trader in you might be thinking, “I want to short that thing.” However, while the near-vertical line on the right side of the chart might someday top out, there seem to be too many structural problems in the U.S. economy to bet on SNAP participation falling precipitously any time soon. Unless, of course, the federal government decides to change current eligibility requirements to make fewer people eligible.

Speaking of the federal government, as the number of people on food stamps grows, so does the amount of money the government spends on the program. In fiscal year 2011, the government spent $71.81 billion dollars on the program, up from $64.70 billion in FY 2010, and $50.36 billion in FY 2009. When factoring in other various costs to the program, the fiscal year totals were actually a few billion dollars higher at $75.33 for FY 2011, $68.31 for FY 2010, and $53.64 for FY 2009. That's over $3 billion dollars a year for things such as “printing and processing of stamps, anti-fraud funding, program evaluation,” as well as the “Federal share of State administrative expenses and Employment and Training programs.”

With that kind of federal spending going directly into the hands of over 46 million people, we can bet that some businesses not currently benefiting from the program are eager to get their slice of the pie. Enter the restaurants. As a September 5, 2011 article from USA Today states, “The number of businesses approved to accept food stamps grew by a third from 2005 to 2010.” Currently, four states, California, Arizona, Michigan, and Florida, already allow some restaurants to accept food stamps.

A few months ago, Yum! Brands (NYSE:YUM) was receiving attention for its lobbying efforts to allow food stamp participants to use the electronic benefit transfer cards at its restaurants. Recently, however, YUM announced it is ceasing those efforts. But, should the number of participants in the program and federal expenditures going towards the program continue to grow year after year, it can only be a matter of time before YUM and others restart lobbying efforts with a vengeance.

Beyond YUM, McDonald’s (NYSE:MCD) and Wendy’s (NASDAQ:WEN) are two companies which will likely pursue SNAP dollars in several U.S. states in the future, given their current customer mix and menu price points. If the number of participants in the program continues to grow strongly for a few more years, I could even envision companies like Panera Bread (NASDAQ:PNRA), Chipotle Mexican Grill (NYSE:CMG), and Dunkin’ Brands Group (NASDAQ:DNKN) eventually lobbying for inclusion in the program.

Over the past few years, one of the takeaways from the happenings in the financial markets and world economy has become to expect the unexpected. Without major structural reform in the United States and in the global financial system, it may not be as farfetched as it may sound to eventually have a couple more tens of millions of people participating in SNAP.

While that would likely be several years down the road, keep these stocks in mind for when the time comes that fast food and casual dining restaurants work hard to get themselves a slice of the food stamp dole. And last, but not least, don’t forget about JPMorgan Chase, the too-big-to-fail bank that makes money distributing SNAP debit cards. The more people that enter into the program, the more money JPMorgan will make.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.