Virtually all grocery stores, convenience stores, and supermarkets sell hot foods. Nearly all sell cold prepared foods as well. Most of the more than 260,000 retail food stores authorized by USDA’s Food and Nutrition Service (“FNS”) to accept Supplemental Nutrition Assistance Program (“SNAP”) benefits sell some hot foods and cold prepared foods. But the SNAP authorizations of several hundred retail food stores may be in jeopardy resulting from a new effort by FNS to characterize those grocery stores as restaurants -- even if they do not have tables, chairs, or servers -- based solely on their sales of hot foods and cold prepared foods,.
During August 2016, FNS sent an e-mail to more than 200 SNAP-authorized small retailers warning them that “starting October 16, 2017, stores that have more than 50% of their total gross sales from the sale of ready-to-eat items will be treated as restaurants by the Food and Nutrition Service (FNS).” FNS’s e-mail also stated:
Prepared food items include the following:
In the coming months, FNS may contact you to request information regarding your store’s inventory, sales, and other business records.
FNS’s efforts are based on the agency’s 2016 revisions to regulations governing the authorization of SNAP retailers. 7 CFR §278.1(b)(1)(iv), which governs “ineligible firms,” provides:
[F]irms that are considered to be restaurants, that is, firms that have more than 50 percent of their total gross sales in foods cooked or heated on-site by the retailer before or after purchase; and hot and/or cold prepared foods not intended for home preparation or consumption, including prepared foods that are consumed on the premises or sold for carryout, shall not qualify for participation as retail food stores under Criterion A or B. This includes firms that primarily sell prepared foods that are consumed on the premises or sold for carryout.
Neither Congress nor FNS has formally defined the term “prepared foods.” After OFW Law reached out to senior FNS officials inquiring about the definition of that term and several others, FNS’s Retailer Policy and Management Division issued RPMD Policy Memoranda 2017-01 and 2017-02. These memoranda purport to clarify FNS’s policy regarding its 2016 regulations regarding retailer eligibility. However, much uncertainty remains and many small SNAP retailers will likely have difficulty substantiating the percentage of sales of “foods cooked or heated on-site by the retailer before or after purchase.” Many small retailers do not have sophisticated point-of-sale systems and their cash register receipts likely do not have the ability to differentiate between hot or cold food.
The second part of FNS’s revised “ineligible firm” regulation is equally problematic, albeit for different reasons. That section includes “hot and/or cold prepared foods not intended for home preparation or consumption, including prepared foods that are consumed on the premises or sold for carryout” in the calculation for determining whether a retailer exceeds the 50% threshold that makes it a restaurant in FNS’s eyes. Most people (SNAP beneficiaries and otherwise) have purchased hot foods and cold prepared foods at supermarkets and convenience stores to eat at home, including rotisserie chickens, pizza, salad bar items, and foods from the deli counter. Retailers have no way of determining whether their EBT customers intend to consume hot or prepared foods at home and may not be permitted to ask SNAP beneficiaries this important question. OFW has reached out to senior FNS officials for clarification, but have not yet received a response.
FNS also has never promulgated a regulation defining “carryout.” Retailers, who are left to guess what that means to FNS, also likely do not have any way of determining whether their sales are “carryout.” Under one reasonable interpretation, 100% of all sales are “carryout” if the grocery does not have any tables or chairs at which food can be consumed on the premises. FNS’s inclusion of “carryout” in its revised regulation also cannot be reconciled with the portion of the revised regulation that relates to whether the foods are intended for home consumption. It is also unclear whether FNS will treat a sale involving heated foods that a customer confirms will be consumed at home towards the 50% restaurant threshold merely because it is deemed by FNS to be a “carryout” transaction.
Last February, FNS withdrew the SNAP authorizations for more than a dozen stores owned by a Midwestern retail food chain that OFW represents on SNAP-related matters. These stores, which have no servers or tables at which food can be consumed, heat seafood and other products post-sale upon a customer’s request. SNAP customers that request foods purchased raw to be cooked post-sale may not use EBT to pay for any cooking charges. Two days after OFW filed requests for administrative review of FNS’s decision to withdraw the stores’ SNAP authorizations, FNS rescinded all of its withdrawal letters and restored the chain’s SNAP authorizations. Based on the latest round of letters, it appears that FNS has commenced a new effort to withdraw the SNAP authorizations of small retailers it would prefer not participate in SNAP. While it is unclear whether FNS will ultimately withdraw the SNAP authorizations for any retailers that it believes are restaurants under its interpretation of its regulations, retailers that sell substantial amounts of heated and prepared foods would be well advised to start collecting receipts and other information that will permit it to demonstrate to FNS that it is a retail food store and not a restaurant. Failure to do so will impair the retailer’s ability to successfully seek administrative or judicial review and may result in the loss of its SNAP authorization for at least six months.
OFW Principal Stewart D. Fried provides regulatory advice to and represents grocers, convenience stores, and associations across the United States before FNS and in the federal courts on SNAP and WIC-related issues, including those relating to licensing and concerning trafficking and other program violations.