The approximately 45,000 vendors in the WIC program accept vouchers  and exchange them for cash payment—or redemption—from their WIC  state agency. WIC-Only Vendors Increased in Number during Fiscal Years 1999-2004, although Their Market Share Remained Relatively Small in Fiscal Year 2004

Since 1999, WIC-only vendors have increased in number, with  concentrated growth in a few states, but their share of the national WIC  market stayed small in comparison to the share of regular WIC vendors  during an average month in 2004. Because these data represent simply the average monthly payments  received per vendor from WIC state agencies, differences between WIC- only vendors’ redemptions and those of regular WIC vendors could signify  that a vendor type charges higher prices for WIC food, but could also  reflect the number of participants that shop at each vendor type; the  probability that a participant selected all or only part of the food items on  a voucher; the amount of WIC business volume conducted, on average, by  WIC-only and regular WIC vendors; or all of these practices. 6). WIC-Only Vendors and Regular WIC Vendors’ Business and Marketing Practices Differ in Their Approach to Customer Service and Price

WIC-only and regular WIC vendors generally employed different business  and marketing practices, largely in response to the two different customer  groups they served and the nature of the markets they faced. Because WIC  participants are not required by the WIC program to consider retail prices,  vendors that served only WIC participants competed for their business by  emphasizing customer service, which participants seemed to value. On  the other hand, regular WIC vendors served non-WIC consumers as well as  WIC participants. Because these non-WIC consumers are considered price  sensitive, regular WIC vendors competed for their business based on price  and competitors’ behavior. Finally, WIC-only and regular WIC vendors used similar food purchasing  practices, because the cost of food purchased for resale by vendors is  related more to the quantity of food purchased than the type of vendor  purchasing the food. Both WIC-only and regular WIC vendors were able to  lower the average cost of food purchased for resale when they bought in  volume, according to WIC state agency officials. However, we were unable to obtain the data needed to confirm these  views. We Estimated That Program Participation Would Have Decreased by about 136,000 WIC Participants or Expenditures Would Have Increased by About $50 Million if WIC-Only Vendors’ Market Share Had Doubled in 2004

If the market share of WIC-only vendors had doubled in California, Texas,  and Florida, either program participation would have decreased by about 3  percent—about 136,000 participants—or program expenditures would  have increased by about 3 percent—about $50 million—in those states,  according to our scenario estimates using conditions present in 2004. Conversely, in Texas and Florida, redemptions at WIC-only vendors  accounted for a smaller market share than in California in 2004—8 percent  in Texas and 13 percent in Florida. However, the cost containment  provisions are complex and entail significant changes for some states. (3) What would  WIC-only vendors’ contribution to WIC program expenditures have been if  their market share increased? Procedures for Analyzing WIC-Only Vendors’ Growth and Market Share

To determine what is known about WIC-only vendors in recent years, we  gathered various federal and other data sources. The model

To answer the questions presented in these two scenarios, we used the  following equation for the sum of WIC-only and regular WIC retail vendor  food expenditures:  1) (program food expenditures for WIC-only vendors) + (program food  expenditures for regular WIC vendors) = total WIC program food  expenditures, or:  2) qx + qx = Fq x = program food expenditures for WIC-only vendors where  q= number of vouchers redeemed by WIC-only vendors  x = average value of vouchers redeemed by WIC-only vendors  qx = program food expenditures for regular WIC vendors where  q = number of vouchers redeemed by regular WIC vendors  x= average value of vouchers redeemed by regular WIC vendors   ) equaled $13.15. If the average value is higher, fewer food  vouchers could be issued under this scenario and thus fewer participants  could be served. All else was held constant at  2004 levels. Because we used the average value of all food vouchers in our analysis  without knowing the price or quantity of the individual food items that  made up the vouchers, we could not determine if the higher average value  meant that prices for individual food items were higher at WIC-only  vendors.
Why GAO Did This Study

The Special Supplemental Nutrition Program for Women, Infants and Children (WIC), authorizes retail grocers, called regular WIC vendors, to provide the food benefit. Recently, some states have seen an increase in vendors called WIC-only vendors, who stock only WIC food and accept only WIC vouchers. Both vendor types accept WIC vouchers in exchange for a cash payment, or redemption, from WIC state agencies with U.S. Department of Agriculture (USDA) grant funds. To determine what effect WIC-only vendors' growth would have on program expenditures, in the absence of recent cost containment legislation, Congress asked GAO (1) what is known about WIC-only vendors' growth and their share of the WIC market in recent years, (2) to what extent do WIC-only and regular WIC vendors differ, and (3) what would WIC-only vendors' contribution to WIC program expenditures have been, if their market share increased. GAO analyzed national WIC vendor data, interviewed WIC state officials about vendors' business practices, and analyzed redemption data from California, Texas and Florida.

What GAO Found

The number of WIC-only vendors has tripled since 1999, with growth concentrated in a few states. However, WIC-only vendors' share of the national WIC market was relatively small compared to that of regular WIC vendors in 2004. Nationally, WIC-only vendors increased in number from 394 in 1999 to 1,180 in 2004, but 84 percent of these vendors are in California, Texas, and Florida. Despite their growth, WIC-only vendors accounted for 3 percent of all WIC vendors nationwide, and their market share, that is, their percentage of all WIC redemptions nationally, was on average 6 percent in 2004. Because of limitations in the data, we were unable to calculate annual growth rates or analyze changes in market share over time. WIC-only and regular WIC vendors generally employed different business and marketing practices, largely in response to the two different customer groups they served, according to WIC state agency officials. Because WIC participants are not required to consider retail prices, WIC-only vendors competed for participants' business by emphasizing customer service, which participants seemed to value. On the other hand, regular WIC vendors served non-WIC consumers as well as WIC participants. Because these non-WIC consumers are price sensitive, regular WIC vendors competed for their business based on price and competitors' behavior. An important difference in these approaches was that because WIC participants were not price sensitive, they might choose the service offered by WIC-only vendors, regardless of price. Finally, WIC-only and regular WIC vendors used similar food purchasing practices, because the cost of food purchased for resale is related more to the volume purchased than to the type of vendor purchasing the food. Both WIC-only and regular WIC vendors were able to lower the average cost of food purchased for resale when they bought in volume, according to WIC state agency officials. If WIC-only vendors' market share in 2004 had doubled in California, Texas, and Florida, either about 3 percent--about 136,000--fewer participants could have been served in each state, or program food expenditures would have increased about 3 percent--about $50 million--according to our scenario estimates. The average value of all vouchers redeemed by WIC-only vendors in 2004 was higher than the average value of all vouchers redeemed at regular WIC vendors. Thus, if the number of vouchers redeemed by WIC-only vendors had increased and state food expenditures remained at 2004 levels, fewer vouchers could have been issued, and fewer participants served. Conversely, if the number of vouchers issued remained at 2004 levels, the higher average value of vouchers redeemed at WIC-only vendors would have resulted in increased program expenditures. However, the price and quantity of the individual food items that make up the vouchers were not available to us; therefore we could not determine if the higher average value of vouchers meant that prices for individual food items were higher at WIC-only vendors. Making price comparisons would require food item price and quantity data for both WIC-only and regular WIC vendors, at a minimum.