In short, because competitive forces do not prevail in WIC-only stores, the WIC program spends more for the same food items when WIC participants shop at these stores than when they shop at regular stores.
Since the sole source of sales revenue in these stores comes from federal WIC funds, WIC funds are essentially being used for items such as diapers or strollers that are not allowable WIC purchases, as a way to bring more WIC shoppers into these stores. Many WIC-only stores use a share of the increased profits they make by charging higher prices on WIC foods to attract additional WIC participants by offering incentives such as free diapers, strollers, or even bicycles. In states such as California, WIC-only stores are attracting increasing numbers of WIC participants. It therefore should not be surprising that WIC-only stores tend to have higher shelf prices than regular competitive stores. But WIC-only stores have no need to attract non-WIC customers - and thus no need to keep prices for WIC foods in line with the amounts charged at comparable stores that serve non-WIC customers. Since regular retail food stores need to attract a wide customer base, market forces induce them to keep prices for WIC food items low enough to attract non-WIC shoppers if a store prices these items too high, it is likely to lose customers to other stores. Nonetheless, competitive pricing has long been the basis for WIC food costs. Participants consequently are not price-sensitive to the amounts that stores charge for WIC food items. WIC participants receive the same food items regardless of the shelf price charged for these foods. The WIC program provides a monthly food package of specific food items, which participants obtain at grocery stores in exchange for their WIC food vouchers. They operate outside the regular retail market. As a result, virtually all of their sales revenue comes from the federal Treasury, through the WIC program. WIC-only stores stock only WIC food items and serve only WIC customers. Although WIC-only stores currently are concentrated in a handful of states, they account for about 40 percent of WIC food voucher redemptions in California and more than nine percent of WIC food voucher redemptions nationwide, and their share of WIC food sales has been growing at a substantial rate. If left unchecked, however, a growing phenomenon in the WIC program - the spread of “WIC-only stores” - could compromise this cost-containment success and drive up WIC food costs significantly. Food prices have risen by 28 percent over the last ten years while WIC food costs have grown by only 18 percent. Over the past decade, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) has successfully leveraged market forces to contain program costs.
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