WIC Program: More Detailed Price and Quantity Data Could Enhance Agriculture's Assessment of WIC Program Expenditures
Published: 2006-07-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: Each month, the Special Supplemental Nutrition Program for Women,  Infants, and Children, better known as WIC, provides nutritious food,  nutrition education, and referrals to health care to more than 8 million  low-income women, infants, of Agriculture’s (USDA) Food and Nutrition  Service (FNS) through WIC state and local agencies that implement the  program and manage the food delivery system. WIC is a discretionary  program, as Congress does not set aside funds to allow every eligible  individual to participate, and was funded at a level of more than $5 billion  in fiscal year 2005.
In most states, WIC participants receive vouchers to exchange for food  from authorized retail grocery stores that are known as WIC vendors in the  program. These vouchers provide participants with a prescribed type and  quantity of supplemental WIC foods tailored to their health needs, such as  infant formula, milk, and peanut butter. Participants generally are not  required by the federal WIC program to obtain all items on a voucher.  However, they may not use the voucher to purchase items that are not  listed on it. Because participants receive food in exchange for their  vouchers, without exchanging any cash, their purchasing decisions are not  price sensitive, that is, they do not need to consider the prices WIC  vendors charge for the items. The vendors, which include independent  stores as well as national and local chains, accept the vouchers and  exchange them for a cash payment, or redemption, from the WIC state  agency. Until recently, retail grocery stores that commonly carry a variety  of foods including supplemental WIC foods—or regular WIC vendors, as  they are referred to in this report—represented 98 percent or more of the  stores each WIC state agency authorized as WIC vendors. However,  beginning in about fiscal year 2000, some WIC state agencies noticed an  increase in another type of authorized vendor in the WIC vendor market,  one that sells only WIC-authorized food items to program participants and  accepts only WIC vouchers. Prior to changes introduced by the Child  Nutrition and WIC Reauthorization Act of 2004, these vendors were called  WIC-only vendors.  With data reported by the WIC state agencies, FNS has  tracked WIC-only vendors’ redemptions since 1998, but little else is known  at the national level about the percentage of total WIC redemptions that  WIC-only vendors are receiving, that is, their market share, or about their  business practices.
Questions have been raised about whether WIC-only vendors charge  higher prices than other vendors and therefore will place a higher demand  on overall program expenditures over time. If so, the WIC program may  need to restrict program participation or seek additional funding.  Concerned about the potential consequences of increasing claims on  program funds, in fiscal year 2004, Congress established cost containment  provisions to ensure that the WIC program is not charged more for food  items obtained at WIC-only vendors than it would be for the same items at  regular WIC vendors.  Also, in fiscal year 2005, Congress prohibited the  payment of administrative funds to any state agency that authorized any  new WIC-only vendors, unless deemed necessary to ensure participant  access, for 2 years. To determine what the effect of WIC-only vendors’  growth on WIC program expenditures would have been without the recent  cost containment changes and the prohibition on authorizing new vendors,  and to better understand how they do business, you asked us (1) what is  known about WIC-only vendors’ growth and their share of the WIC market  in recent years, (2) to what extent do the business and marketing practices  of 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.
To find out what is known about WIC-only vendors’ growth and their share  of the WIC market in recent years, we analyzed data from FNS’s  administrative data files on the national WIC vendor population—The  Integrity Profile (TIP)—for fiscal years 1999-2004 to determine the number  and distribution of WIC-only vendors. We focused exclusively on data  from the 50 states and the District of Columbia, and excluded from our  analysis any vendor type other than WIC-only vendors and regular WIC  vendors. To determine WIC-only vendors’ share of the WIC market, we  analyzed redemption data for an average month in fiscal year 2004 from  FNS’s regional office files. However, because TIP does not record when  vendors enter or exit the WIC program, but instead records any vendor  that participated in WIC during the fiscal year, it may overstate the number  of vendors in operation at any point in time. As a result, we calculated the  number of WIC-only vendors in the program each year, but we were  unable to determine percentage-based growth from year to year. In  addition, because national redemption data for fiscal years 1999-2004 did  not meet GAO’s data reliability standards, we could not use these data to  analyze changes in WIC-only vendors’ share of the WIC market over time.  However, the fiscal year 1999-2004 TIP data on the number of vendors and  FNS regional office redemption data were sufficiently reliable for our  purposes.
To determine the difference in WIC-only vendors and regular WIC vendors’  business and marketing practices, we interviewed WIC state agency  officials in seven of the eight states that had authorized more than 10 WIC- only vendors in fiscal year 2004: Alabama, Arkansas, California, Florida,  Georgia, North Carolina, and Texas. To complement these telephone  interviews, we visited 4 WIC-only vendors and 4 regular WIC vendors in  California, Texas, and Florida, for a total of 24 site visits. Our vendor  selection criteria included urban and rural locations, years in operation,  and redemption practices. WIC state officials’ accounts and the site visits  to vendors provided insight into the distinctions in WIC-only and regular  WIC vendors’ business behavior, but were not quantifiable or applicable  beyond the states and vendors they represented.
To calculate the contribution of WIC-only vendors to WIC program  expenditures, we obtained administrative data from the California, Texas,  and Florida WIC state agencies on the redemption value for every voucher  redeemed in those states in fiscal year 2004. We selected these three states  because they represent more than 80 percent of the national WIC-only  vendor market. Because we needed data on both the price and the quantity  of WIC food items purchased from WIC-only and regular WIC vendors to  isolate the effect of WIC-only vendors’ prices on program expenditures,  and both of those data elements were not available from any existing data  source, we developed a scenario analysis that used redemption data. We  used the redemption data to determine the actual number of vouchers  redeemed and to calculate the average value of all vouchers redeemed in  each of the states by WIC-only and by regular WIC vendors. We applied the  number of vouchers redeemed and the average value of all vouchers  redeemed to the scenario analysis to estimate the effect on program  participation and expenditures of successive increases in WIC-only  vendors’ market share. However, because redemption data do not break  out the price and quantity of the individual food items on each voucher,  we could not determine whether prices of individual food items were  higher at WIC-only vendors than at regular WIC vendors. Thus, even  though we were able to calculate the average value of all vouchers  redeemed by both types of vendors, we were not able to explain why the  values may have been different.
Appendix I provides a detailed description of our methodology and its  limitations. We conducted our work from April 2005 through June 2006 in  accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: WIC aims to protect the health of low-income women, infants, and young  children who are at nutritional risk by providing nutritious foods to  supplement diets, information on healthy eating, and referrals to health  care at no charge to participants. Permanently established in 1974, WIC  serves more than 8 million participants each month, including women who  are pregnant, postpartum, or breastfeeding; infants under the age of 1; and  children under the age of 5, the largest category of participants. To  participate in the program, eligible applicants must meet income  guidelines, be deemed nutritionally at risk by a health professional (e.g.,  having a poor diet, low weight, or anemia), and must apply in the state in  which they reside.
In fiscal year 2005, the federal government spent over $5 billion on WIC.  WIC is not an entitlement program that allows every eligible individual to  participate; rather, it is a federal discretionary grant program for which  Congress authorizes a specific amount of funds each year. At the federal  level, WIC is administered by FNS, which provides grants to WIC state  agencies for food and for nutrition services and administration. The  nutrition services and administration grant covers the cost of certifying  participants and determining nutrition risks; providing outreach and  nutrition education services, including breastfeeding promotion; and  printing vouchers and administering the food delivery system. FNS also  determines WIC program policy and guidance, provides technical  assistance to the WIC state agencies and sponsors research on program  issues. In turn, WIC state agencies operate the program through thousands  of local agencies and clinic sites. The 90 WIC state agencies include 50  state health departments, as well as those of the District of Columbia, 34  Indian Tribal Organizations, and five U.S. territories (Northern Mariana,  American Samoa, Guam, Puerto Rico, and the Virgin Islands).
subsections: section_title: How the Retail Food Delivery System Works
paragraphs: In most WIC state agencies, WIC participants receive vouchers to  purchase supplemental food in appropriate amounts tailored to their  health needs from authorized retail stores, known as vendors in the WIC  program. Vouchers prescribe food that is high in nutrients found to be  lacking in a participant’s diet, such as milk, cereal, and eggs, and are  adapted from a set of federally established food packages that differ  according to participant type (e.g., infants or pregnant woman). Each WIC  state agency designs its own vouchers and usually issues vouchers that  contain a combination of WIC food items.  For example, one frequently  used voucher contains eggs, juice, cereal, cheese, milk, and beans.   However, some vouchers contain only one food item, such as formula or  cereal.  (See app. IV.)  Most participants receive multiple vouchers each  month for all of the food they are prescribed. However they may not use  the voucher to purchase items that are not listed on it. Figure 1 shows a  sample voucher for food items from California’s WIC state agency.
VALID FOR WIC APPROVED FOOD ONLY.
AUTHORIZED SIGNATURE (SIGN AT PURCHASE) “FIRST DAY USE.” NOT VALID IF ALTERED.
The kind of food tht ce prchased with vocher  The mont of food  prticipnt cn prchase with vocher (Prticipnt cn prchase only p to thi mont)
The ctual price of prchase with vocher (cashier fill in t checkond)
Unlike some other food assistance program models, WIC vouchers do not  provide an incentive for program participants to consider vendor prices  for supplemental foods. For example, the Food Stamp and WIC Farmers’  Market Nutrition Programs generally provide electronic benefits or  coupons that are used like cash at grocery stores or through farmers, and  which encourage participants to make cost-conscious decisions regarding  food choices. In contrast, because WIC participants purchase  supplemental foods with vouchers that prescribe the type and quantity of  foods a participant may receive, regardless of the prices charged by  vendors to the WIC program, WIC participants are not price sensitive, that  is, participants do not have an incentive to purchase their food benefit  from lower-priced vendors.
The approximately 45,000 vendors in the WIC program accept vouchers  and exchange them for cash payment—or redemption—from their WIC  state agency. Vendors are subject to price limitations, often in the form of  an overall maximum, not-to-exceed amount for each voucher, determined  by WIC state agencies. As shown in figure 1, a state may clearly print the  not-to-exceed amount for the total amount charged on the voucher.
Like other retail grocery stores, WIC vendors sell to participants small  quantities of food items that they typically purchase from manufacturers,  wholesalers, or, on occasion, other retailers. The methods that grocery  stores use to purchase food items are important business practices,  because the cost of buying goods for resale is the largest single expense  for an average grocery store, according to Food Marketing Institute  research.
section_title: How WIC Vendors Are Managed
paragraphs: Through regulation and program guidance, FNS provides broad oversight  to WIC state agencies on cost containment and vendor management. FNS  provides the food grant that state agencies use to reimburse vendors for  redeemed vouchers, gathers program integrity data, supports upgrades to  states’ management information systems, and sponsors research on  vendor management issues. Because federal legislation grants primary  responsibility for WIC vendor management to the WIC state agencies, WIC  state agencies have considerable flexibility in designing and implementing  their vendor management systems. FNS regulations require that WIC state  agencies’ vendor management systems include six areas of activity:    authorization and reauthorization—The authorization process begins  with a vendor’s application and an on-site visit by WIC state agency  staff to verify the information provided in the application. Authorized  vendors must enter into a written agreement, which may be  reauthorized, usually every 1-3 years.  training—WIC state agencies train vendor staff on the purpose of the  WIC program and program procedures such as accepting vouchers  from participants at the point of sale.    representative monitoring—State agencies are required to conduct  routine monitoring visits of at least 5 percent of their vendors annually  to observe vendor and participant transactions and collect shelf prices  to ensure they are within the required state limits.    voucher review and redemption—State agencies are required to  develop and implement an edit system of the vouchers turned in for  redemption to detect noncompliance with program regulations. The  redeemed-voucher review includes checking that charges for food  items do not go over the not-to-exceed payment amount for vouchers,  set by the state, and other edits such as transactions or redemptions  outside of valid dates.    high-risk vendor monitoring—WIC state agencies identify high-risk  vendors through on-site monitoring visits or through the redemption  system and must investigate a minimum of 5 percent of vendors  meeting high-risk criteria, such as high rates of redemption at or near  the not-to-exceed payment amount for vouchers.    sanctions—State agencies may impose sanctions ranging from fines to  disqualification on vendors that violate program requirements or may  impose a civil money penalty when a disqualification would result in  inadequate participant access. A temporarily disqualified vendor may  reapply after the disqualification period has expired.
section_title: How Vendor Management in the WIC Program Has Evolved
paragraphs: In the past few years, the WIC program has initiated significant changes in  vendor management practices to contain costs and maximize the number  of eligible women, infants, and children that can receive benefits.  Prior to  fiscal year 2004, FNS characterized authorized WIC vendors that  participate in the program as:    retail grocery stores—vendors that commonly stock a variety of foods,  including supplemental WIC foods, and serve a wide variety of  customers, referred to as regular WIC vendors in this report;    WIC-only vendors—vendors that stock only WIC-approved food and  accept only WIC vouchers;    military commissaries—vendors located on military installations and  designed for military families; and    pharmacies—vendors that only provide infant formula, exempt infant  formula, or WIC-eligible medical foods.
The Child Nutrition and WIC Reauthorization Act of 2004 established new  cost containment provisions designed, in part, to ensure that the WIC  program is not charged more for the same supplemental food items  provided in exchange for vouchers that participants might use at WIC-only  vendors instead of at regular WIC vendors. These cost containment  provisions require state agencies to implement a vendor peer group system  that groups stores according to similar characteristics, such as vendor size  and geographic location, in a manner that ensures that the WIC program  pays all authorized vendors competitive prices for supplemental foods.  FNS expects to complete certification of states’ plans for cost containment  by September 2006.
One cost containment provision created a new category of vendors  referred to as above 50 percent vendors, which include any vendor whose  revenue from the sale of WIC supplemental food is more than half of its  annual revenue from food sales.   In addition, the Act prohibited above 50  percent vendors from providing any incentive items, such as free diapers,  detergent, baby strollers, or bicycles, to participants unless the incentives  are of nominal value or were obtained at no cost. On November 29, 2005,  USDA issued an interim rule, effective on December 29, 2005, that  incorporated the cost containment provisions of the Act into program  regulations that are applicable to WIC state agencies. To help ensure that  vendors’ prices are competitive, these regulations require states to collect  and review vendors’ shelf prices at least every 6 months after  authorization.  The regulations also require state agencies to compare the  average cost of each type of food instrument redeemed by WIC-only  vendors against the average cost of the same type of food instrument  redeemed by regular vendors.
In December of 2005, attorneys representing an association of WIC-only  vendors and three food companies, the plaintiffs, filed an action in federal  district court for the District of Columbia to stop implementation of FNS’s  regulations.  Arguing that the regulations were contrary to the Act and to  congressional intent, the plaintiffs asserted that the cost containment  provisions concerning above-50-percent vendors would reduce their WIC  reimbursements to a level that would be unsustainable.  In describing  services that WIC-only vendors offered WIC participants, the plaintiffs  characterized WIC-only vendors as small businesses and acknowledged  that their cost of doing business was higher than that of large stores,  referred to as box stores, that purchased food in high volume at discount  prices. The plaintiffs estimated that WIC-only vendors’ prices were about 8  to 15 percent higher than prices charged at box stores, on average.  On  February 23, 2006, the court dismissed the case, finding that the cost  containment provisions of the interim rule were consistent with the plain  language and purpose of the Act.
Recent initiatives suggest that more changes to the WIC program are  forthcoming. In 2003, FNS developed a plan to transform WIC from its  paper-based food benefit delivery system to an electronic benefits transfer  system. Through pilot projects in many states that are still under way, FNS  is working toward a national model that is both technically and financially  viable for implementation of EBT by 2008. In addition, in 2004 the Institute  of Medicine (IOM) began examining WIC food packages to determine if  modification could help participants eat a healthier diet. In its 2005 report,  IOM recommended revisions to the food packages that match current  dietary guidance for infants and young children, encourage consumption  of fruits and vegetables, emphasize whole grains, lower saturated fat, and  appeal to diverse populations.
section_title: WIC-Only Vendors Increased in Number during Fiscal Years 1999-2004, although Their Market Share Remained Relatively Small in Fiscal Year 2004
paragraphs: 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. The number of WIC-only vendors  nationwide tripled from 1999 to 2004, and the number of states with WIC- only vendors also grew over this period. Notwithstanding these increases,  in 2004 the majority of WIC-only vendors were located in California,  Texas, and Florida, and nearly half of all WIC-only vendors operated in a  few metropolitan areas within these states. Nationwide, WIC-only vendors  still accounted for about 3 percent of all WIC vendors in 2004 and  generated about 6 percent of business in the WIC market during an  average month that year, compared to regular WIC vendors’ predominant  market share. On a store-by-store basis, however, WIC-only vendors’  redemption value was greater, on average, than regular WIC vendors’  during this period.
subsections: section_title: WIC-Only Vendors Tripled from Fiscal Year 1999 to Fiscal Year 2004, and They Are Highly Concentrated Geographically
paragraphs: The 1,180 WIC-only vendors in operation at any point during 2004 were  three times the number in business at any point in 1999 (see fig. 2).
Just as the total number of WIC-only vendors has increased, the number of  states with WIC-only vendors has grown in recent years. Of the 50 states  and the District of Columbia, 15 had WIC-only vendors in 2004, an increase  from 12 in 1999 (see table 1).
Even with the increase in recent years in both total WIC-only vendors and  the number of states with such vendors, in 2004 most WIC-only vendors  were located in three states, and nearly half operated in three  metropolitan areas. Figure 3 shows that, at the national level, 84 percent of  all WIC-only vendors operated in California, Texas, or Florida. Moreover,  approximately one out of every two WIC-only vendors nationwide  operated in Los Angeles, California; Riverside, California; or Miami,  Florida. In contrast, each of the remaining states with WIC-only vendors  accounted for less than 7 percent of total WIC-only vendors in 2004.
The total number of WIC-only vendors in operation at any point in 2005 is  not yet available, but may be lower than the 1,180 reported for 2004. For  example, WIC state agency officials in Texas and Florida have indicated  that the number of WIC-only vendors in their respective states decreased  after 2004. Both WIC state agencies continued to monitor and occasionally  disqualify WIC-only vendors. At the same time, Texas WIC agency officials  have indicated that a number of WIC-only vendors went out of business.  Moreover, because the Consolidated Appropriations Act of 2005  prohibited states from authorizing additional WIC-only vendors after  December 8, 2004, WIC state agencies could not replace WIC-only vendors  that departed the program with new WIC-only vendors during much of  fiscal year 2005.
section_title: Despite Recent Growth, WIC-Only Vendors Represent a Fraction of All WIC Vendors
paragraphs: Notwithstanding the increase in the number of WIC-only vendors in recent  years, WIC-only vendors have remained a fraction of total WIC vendors.  Nationally, the share of all WIC vendors accounted for by WIC-only  vendors increased from approximately 1 percent in 1999 to about 3  percent in 2004 (see fig. 4). During the same period, the number of regular  WIC vendors in operation at any point changed only slightly, from 43,712  in 1999 to 43,463 in 2004. However, in California, Texas, and Florida, WIC- only vendors have accounted for a larger proportion of all WIC vendors  than in the nation as a whole. At the same time, these three states were  home to nearly one-third of all WIC participants nationwide.
section_title: WIC-Only Vendors Had the Smaller Share of the WIC Market in 2004 but Redeemed about Twice the Average Monthly Amount per Vendor as Regular WIC Vendors
paragraphs: Nationally, as their numbers might suggest, WIC-only vendors had the  smaller share of the WIC market during an average month in 2004, but on a  store-by-store basis, they redeemed about twice as much as regular WIC  vendors. Whereas regular WIC vendors accounted for 94 percent of  business in the WIC market, or about $784 million on an average monthly  basis in 2004, WIC-only vendors redeemed about $47 million, or 6 percent  of all WIC redemptions. However, WIC-only vendors nationwide  redeemed nearly $40,000 per vendor during an average month that year,  about twice the average monthly amount from WIC as regular WIC  vendors that participated in the program (see fig. 5).
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. For example,  a WIC-only vendor that serves a far greater number of WIC participants  than a regular WIC vendor would tend to have higher redemptions for the  same WIC items even if both vendors’ prices for those items were  comparable.
At the state level, the three states with the most WIC-only vendors also  produced the majority of total WIC-only vendor business volume during an  average month in 2004. Though the average monthly redemptions per WIC- only vendor in California, Texas, and Florida fell below the high of nearly  $64,000 per vendor in Oklahoma, the three states accounted for 90 percent  of all WIC-only redemptions during that period (see fig. 6).
section_title: WIC-Only Vendors and Regular WIC Vendors’ Business and Marketing Practices Differ in Their Approach to Customer Service and Price
paragraphs: 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. These differences in customer base also  affected decisions on where to locate stores and how to advertise. WIC- only stores tended to locate near WIC clinics, while regular WIC vendors  considered their broader customer base when choosing locations. Also,  WIC-only vendors used community-based media and word-of-mouth to  advertise, while regular WIC vendors were more likely to use mass media.  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.
subsections: section_title: WIC-Only Vendors Emphasized Customer Service, while Regular WIC Vendors Focused on Price
paragraphs: WIC-only vendors employed a business model that allowed them to  emphasize customer service for program participants rather than price,  while regular WIC vendors focused on attracting a broader customer base  by offering competitive prices. These differences have likely evolved  because WIC shoppers need not be price sensitive. WIC-only vendors  attracted WIC participants, who were not price sensitive, by emphasizing  customer service. Because WIC participants were not price sensitive, they  responded to non-price inducements, like service, which they valued. As a  result, they might take advantage of the service offered by WIC-only  vendors, even if their prices were somewhat higher. In comparison,  regular WIC vendors more often used price reductions to appeal to a  broad customer base, most of whom were price-sensitive shoppers,  according to WIC state agency officials.
Although WIC-only vendors did not compete on the basis of price, WIC- only vendors did compete with other WIC-only and regular WIC vendors  on the basis of customer service, a central feature of their business model,  according to WIC state officials. WIC-only vendors typically organized  their stores in ways that emphasized service to their WIC participant  customers. Because WIC-only vendors stocked only WIC-approved items  (see fig. 7), they eliminated the need for WIC participants to identify WIC- eligible foods. Moreover, WIC-only vendors often kept food behind a  counter, and employees gathered and bagged the WIC items customers  requested, according to most WIC state agency officials we interviewed  and our observations during site visits. (see fig. 8) As a result, customers  did not need to spend time finding products in store aisles or face the risk  or stigma of selecting an unauthorized food item and creating a delay in  the checkout line.  Several state officials thought that this feature of WIC- only vendors’ business model was a prime attraction for WIC participants.
Some state officials told us they believe the customer service features of  WIC-only vendors’ business model, together with their use of only one or  two checkout points, their limited customer floor area, and their location  in low-income neighborhoods, would reduce their operating expenses.  However, we were unable to obtain the data needed to confirm these  views.
Few WIC-only vendors used price-based incentives such as buy-one-get- one-free specials, sale items, or discount cards to attract WIC customers.   Because WIC participants purchase items with vouchers and are not price  sensitive, price discounts would not induce them to go to a store with  lower prices.  However, for this same reason, WIC-only vendors would not  risk losing WIC customers, even if their prices were higher.
In the past, WIC-only vendors also have given away food and non-food  items, called incentives, to attract customers. For example, WIC-only  vendors gave away strollers and diapers in California and North Carolina,  cash in Arkansas, and gift certificates in Georgia, according to WIC state  agency officials. Because WIC-only vendors’ main source of revenue was  the WIC benefit, paid for by the WIC program, offering such incentives  raised concerns about the use of federal funds. However, several WIC  state agency officials noted that the use of incentives by WIC-only vendors  has decreased as a result of rule changes required by the Child Nutrition  and WIC Reauthorization Act of 2004.  In fact, the WIC state officials we  spoke with in California, North Carolina, and Arkansas said that WIC-only  vendors no longer give away most of the items they provided in the past.  None of the WIC-only vendors we observed on our site visits provided  such incentives, with the exception of one in California that gave  customers a small amount of free produce for purchasing a certain  quantity of food items.
In contrast to WIC-only vendors, the retail grocers that we define as  regular WIC vendors targeted the population at large and did not focus on  customer service, according to WIC state agency officials.  Regular WIC  vendors served WIC participants, but their largest group of customers was  non-WIC consumers, who are price sensitive.  For the most part, regular  WIC vendors targeted their business practices on their non-WIC customers  and set prices in response to this group.  The regular WIC vendors we  observed on our site visits provided examples of their business practices  that contrast with those of WIC-only vendors. Of the 12 regular WIC  vendors we visited, none gathered the WIC food items listed on the  voucher for WIC customers and only 3 had food items authorized by the  WIC program placed together on an aisle shelf to assist participants in  finding the items on their vouchers.  Having to search store aisles and  shelves for the correct food type, brand, and size listed on their voucher  can make shopping for WIC food items at regular WIC vendors challenging  or uncomfortable for WIC participants.
WIC state officials told us that regular WIC vendors’ marketing practices  are price-based, that is, they competed in the market based on price and  their competitors’ behavior. Regular WIC vendors commonly use buy-one- get-one-free specials, sale items, discount cards, and other price-based  incentives to attract a broad client base that is price sensitive. Since the  rule changes required by the Child Nutrition and WIC Reauthorization Act  of 2004, regular WIC vendors, who have sources of revenue other than  federal funds from their broad customer base, continue to provide higher- priced incentives to attract customers, according to several of the WIC  state agency officials and WIC vendor employees whom we interviewed.
Despite these differences, WIC-only vendors and regular WIC vendors  used some similar business or marketing practices that did not involve  price-based incentives. For example, both employed checkout staff who  spoke one or more languages other than English, according to the majority  of WIC state agency officials interviewed, a practice we observed on our  site visits. In addition, both vendor types in several states organized  community outreach activities, ranging from baby clothes exchanges to  barbecues.
section_title: WIC-Only Vendors Tend to Locate near WIC Clinics; Regular WIC Vendors Base Location Decisions on Their Broader Customer Base
paragraphs: WIC-only vendors are often located in places readily accessible to WIC  participants. All WIC state agency officials we interviewed stated that  WIC-only vendors tend to locate their stores as close to WIC clinics as  possible (see fig. 9), and several officials indicated that WIC-only vendors  may also operate in low-income neighborhoods—geographic areas that  are often one and the same.
In contrast, WIC state agency officials told us that regular WIC vendors  typically make their location decisions based on their entire customer  population, not just WIC participants.  While WIC state agencies consider  participant access when authorizing regular WIC vendors, they need not  ensure that the vendor will be located near a WIC clinic.
section_title: WIC-Only Vendors Used Community-Based Media to Advertise; Regular WIC Vendors Use Mass Media
paragraphs: WIC-only vendors generally advertise with publicity flyers, word-of-mouth,  and community-based media. WIC officials in all seven states reported that  WIC-only vendors tend to use publicity flyers to publicize their stores;  figure 10 presents an example of this type of advertisement. Further, word- of-mouth is the most important advertising practice for some WIC-only  vendors. In addition to using flyers and word-of-mouth, some WIC-only  vendors in Alabama, Florida, and North Carolina advertise in local  newspapers, and a few WIC-only vendors in California and North Carolina  promote their stores via radio.
In addition, most of the WIC-only vendors we visited post signs indicating  that they accept vouchers. In California, the majority of the WIC-only  vendors we visited post signs indicating that the stores accept vouchers. In  Texas and Florida, several stores have replaced the name of the store in  the marquee over the front door with statements such as “WIC Checks  Accepted Here” (see fig. 11).
In contrast to WIC-only vendors, which used community-based media,  regular WIC vendors typically advertised to a broad client base through  mass media such as newspapers, television, radio, and billboards,  according to most WIC agency officials and regular WIC vendor employees  interviewed.  However, most of the regular WIC vendors that we visited do  not post signs indicating that they participate in the WIC program, even  though most WIC state agency officials whom we interviewed said that  they provide regular WIC vendors with a state-authorized sign indicating  that the store accepts vouchers.
section_title: Officials Told Us That WIC- Only and Regular WIC Vendors Lower Food- Purchasing Costs by Buying in Volume, although the Effect on Retail Food Prices Is Unclear
paragraphs: Although their marketing and advertising practices differ, WIC state  officials told us that WIC-only and regular WIC vendors use similar food- purchasing practices.  Wholesalers tend to offer WIC-only and regular WIC  vendors lower prices for higher volume purchases, according to a majority  of WIC state agency officials interviewed. Some vendors have lowered  food-purchasing costs by expanding the number of outlets they operate or  forming consortia to buy in greater volume. For example, one WIC-only  vendor in California operates a chain of 49 outlets. A few WIC-only chains  in California and Florida have become wholesalers themselves because  they are large enough to purchase food directly from manufacturers. WIC  state agency officials in two states indicated that WIC vendors increase the  amount of food purchased by forming a consortium with other vendors.  For example, several WIC-only vendors in Florida purchase food  collectively to earn volume discounts from wholesalers.
In contrast to WIC vendors that form consortia or are large enough to  purchase independently from wholesalers or manufacturers, some small  WIC vendors—including both WIC-only and regular WIC vendors— purchase food for resale from other retail sources. The small WIC vendors  may not have the room to store large amounts of goods or may not be able  to buy on credit from wholesalers. Although several WIC state agency  officials said that buying from other retailers leads to higher costs, a few  officials noted that WIC vendors with a small purchasing capacity may in  fact pay less by buying food from other large retailers, such as Wal-Mart or  Costco, instead of from wholesalers.
Even though WIC vendors can reduce their average food-purchasing costs  by buying food in greater volume, existing data did not permit us to  determine the relationship between food-purchasing costs and retail food  prices. The retail price for food items reflects numerous store-operating  expenses in addition to the cost of buying food for resale—such as  employee salaries, rent, and insurance—and a decrease in average food- purchasing costs over time does not necessarily result in a reduction in  other business costs.
section_title: 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
paragraphs: 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.  These changes would have occurred because the average value of all food  vouchers redeemed by WIC-only vendors in 2004 was higher than the  average value of all food vouchers redeemed at regular WIC vendors.  However, even though the change would be a similar 3 percent of 2004  levels across all three states, the reasons for the size of the change differ  among the states, depending on WIC-only vendors’ market share and the  difference in WIC-only and regular WIC vendors’ average voucher value.  Because the average value of all food vouchers we calculated did not  specify either the price or quantity of individual items that make up the  voucher, we could not determine whether the prices for individual items at  WIC-only vendors were higher than at regular WIC vendors. At a minimum,  data on both the price a vendor charges for individual food items and the  quantity purchased by participants are needed to make price comparisons.
subsections: section_title: If WIC-Only Vendors’ Market Share Had Doubled in 2004 and Program Expenditures Were Held Constant, We Estimated That Program Participation Would Have Decreased by About 136,000 WIC Participants
paragraphs: The number of participants that could have been served would have  decreased if the WIC-only vendors’ market share increased while holding  total WIC food expenditures constant at 2004 levels, according to our first  scenario.
As shown in table 2, if redemptions at WIC-only vendors had doubled in  each state, the decrease in the number of participants that could be served  would be 136,202, or about 3 percent of 2004 levels for the three states.
Because the average value of all food vouchers redeemed by WIC-only  vendors in all three states in 2004 was higher than the average value of all  food vouchers redeemed by regular WIC vendors, more funds would have  been needed to reimburse WIC-only vendors than regular WIC vendors for  the same number of vouchers. As a result, when the number of food  vouchers redeemed by WIC-only vendors increased and program  expenditures were held constant in our scenario estimate, fewer food  vouchers could be issued and fewer participants could be served. This  constraint was reflected in our analysis by a reduction in the number of  vouchers redeemed by regular WIC vendors.
section_title: The Reasons for the Size of the Decrease in Program Participation Differ among the Three States
paragraphs: Even though the size of the decrease in program participation would be a  similar 3 percent of 2004 levels across all three states, the reasons for the  size of the decrease differ among the states. Two key factors would affect  the size of the decrease in each state: (1) the size of WIC-only vendors’  share of the total WIC vendor market and (2) the difference between the  average value of food vouchers redeemed by WIC-only and by regular WIC  vendors. As shown in table 3, in California, WIC-only vendors’ market  share was 41.46 percent in 2004, and the difference in the average value of  food vouchers redeemed by WIC-only and regular WIC vendors was $0.87.  Because WIC-only vendors’ market share is 41 percent in California,  doubling their market share means that WIC-only vendors would account  for most of the WIC market in that state.
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. The difference between the average  value of food vouchers redeemed at WIC-only and regular WIC vendors in  2004, however, was higher than in California—$9.83 in Texas and $4.42 in  Florida. Therefore, although WIC-only vendors accounted for a larger  portion of the WIC vendor market in California than in Texas and Florida,  the smaller difference in WIC-only and regular WIC vendors’ food voucher  values would have helped counteract the overall effect of an increase in  California WIC-only vendors’ market share. Conversely, the smaller market  share held by WIC-only stores in Texas and Florida would have partially  offset the overall effect of the larger difference in average food voucher  value in those two states.
We acknowledge that we could have increased the market share held by  WIC-only vendors in Texas and Florida in 2004 further in our scenario  analysis.  However, our analysis is based on the relative market shares and  the corresponding differences in average food voucher values in 2004.   Over time, the differences in average food voucher values as well as the  market share held by WIC-only vendors could increase or decrease with  corresponding implications for program resources.
section_title: If WIC-Only Vendors’ Market Share Had Doubled and Program Expenditures Were Not Held Constant, Program Expenditures Would Have Increased About $50 Million
paragraphs: Program expenditures would increase if the market share of WIC-only  vendors grew and all else remained the same, including the overall number  of food vouchers redeemed by both WIC-only and regular WIC vendors in  2004. As shown in table 4, if redemptions at WIC-only stores doubled in  each state, program expenditures would increase by about $50 million, or  3 percent above the three states’ 2004 levels. As discussed previously, the  size of WIC-only vendors’ share of t See appendix IV for the range of  vouchers in California, Texas, and Florida that we analyzed. The total WIC  vendor market and the difference between the average value of food  vouchers redeemed by WIC-only and by regular WIC vendors in part  explain why the changes for the three states are similar.
section_title: Data Limitations Prevented Us from More Fully Analyzing the Effects of WIC-Only Vendors on WIC Program Participation and Expenditures
paragraphs: Although our two scenario estimates are based on the best available data  concerning WIC-only vendors’ contributions to expenditures and  participation, they are illustrative only and have limitations. Because food  item price data and quantities of food items purchased were not available,  we were unable to construct analyses that would have isolated the effect  of actual prices charged by WIC-only and regular vendors on program  expenditures or participation. For example, some food vouchers in our  data were composed of a single item, but most of them contained multiple  food items, such as milk, cheese, and cereal. Because most of the  vouchers contained several types of WIC food and allowable quantities for  each food item, the value of an individual voucher was not the price a  vendor charged for an individual food item. The value of an individual food  voucher was the sum of the price of each food item on the voucher times  the quantity purchased. As a result, the difference in value between WIC- only and regular WIC vouchers could be due to differences in prices for  individual items or differences in the quantities redeemed or both. For  example, if some participant customers of regular WIC vendors select only  a portion of the food items on a voucher, regular WIC vendors’ average  redemption value would be lower than WIC-only vendors’, if their WIC  customers received all of the items on the voucher.  As a result, without  these data, we could not attribute with certainty the changes in WIC  program participation and expenditures we identified to WIC-only  vendors’ prices.
section_title: Conclusions
paragraphs: The growth in the number of WIC-only vendors in recent years, combined  with our finding that individual WIC-only vendors generally had more than  twice the business volume of regular WIC vendors in an average month in  2004, suggest that WIC-only vendors’ share of the WIC retail market was  increasing before the 2004 legislation.  Although in some states the number  of WIC-only vendors has not grown, in others the number has grown  quickly and the future effect of the new cost containment requirements on  this growth is not known. Our scenario analyses suggest that continued  WIC-only vendor growth could have resulted in either fewer participants  being served or higher program costs. Moreover, given the current  program model that focuses on ensuring participants receive prescribed  foods without having to consider the costs of the commodities,  participants would likely continue to take advantage of the customer  service and convenient location offered by WIC-only vendors, even if  prices are higher.
The lack of price and quantity data needed to explain the higher monthly  average redemptions of WIC-only vendors and the higher average value of  vouchers redeemed by WIC-only vendors leaves important questions  unanswered. We could not determine how WIC-only and regular WIC  vendors’ prices differ. Our study was a first attempt to develop a national  picture of WIC-only vendors, to inform policy initiatives and practice.  However, absent a systematic analysis of vendor-level data, it is difficult to  determine with more certainty how changes in market share between WIC- only and regular WIC vendors would affect WIC program expenditures.
The lack of price and quantity data on WIC food purchases also has  broader program implications. Although WIC state agencies have used  routine and high-risk vendor monitoring and voucher review to promote  accountability, for the most part they authorize and reimburse their WIC- only and regular WIC vendors without knowing precisely which prescribed  foods were purchased and in what quantities, what price the program was  being charged for food, and whether participants were receiving the whole  food package or only part of it. Collecting these data under the current  system would be costly and burdensome to states. Under the new interim  rule, WIC state agencies are required to collect vendors’ shelf price data  but not the actual price charged the program or the quantity purchased.  However, two recent developments in the WIC program—the  implementation of electronic benefits transfer and the redesign of the WIC  food package to include fruit and vegetables—may lead to changes in the  WIC voucher and present WIC state agencies the opportunity to collect  price and quantity data during the WIC transaction in a cost-effective way.   This information could be used to determine whether the prices that both  WIC-only and regular WIC vendors charge the program are reasonable and  to analyze the effects of WIC vendors’ prices on program expenditures  with greater certainty.
section_title: Recommendation for Executive Action
paragraphs: To assist WIC state agencies in more effectively monitoring WIC vendors’  redemption practices, in implementing the new cost containment  requirements, and in analyzing program expenditures, we recommend that  the Secretary of Agriculture require, if collection of more detailed  information on WIC food purchases is cost-effective through EBT  implementation, that WIC state agencies collect data on both the price and  the quantity of each WIC food item purchased, especially in each state that  authorizes WIC-only vendors.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the U.S. Department of Agriculture  for review and comment. On June 14 and 16, 2005, FNS officials provided  us with their oral comments. The officials generally agreed that our  methodology was reasonable, given data constraints, and did not dispute  our findings on the recent growth of WIC-only vendors, the business  model differences between WIC-only and regular WIC vendors, and the  likely effect on the WIC program of further growth of WIC-only vendors’  market share based on 2004 data. However, they raised several concerns.  They asked us to make clear that the 2004 data we used to determine the  growth in the number of WIC-only vendors preceded the current  moratorium on approving new WIC-only vendors, and the data we used to  calculate the effect of additional growth on the program were gathered  before the full implementation of new cost containment provisions. These  provisions, enacted when the program was reauthorized in 2004, are  intended to help ensure that the program pays competitive prices to all  authorized vendors. We incorporated additional references to these recent  changes where appropriate.
FNS officials also commented on our finding that although the average  value of all vouchers redeemed by WIC-only vendors in our three states in  2004 was higher than that of vouchers redeemed by regular WIC vendors  in these states, we could not determine with certainty whether prices  charged by WIC-only vendors are higher than those charged by regular  WIC vendors because we could not disaggregate price from quantity at the  level of purchase. Officials acknowledged the ongoing challenges in  collecting these data for foods provided under the WIC program. However,  they expressed concern that this finding would be misinterpreted to mean  there is no price difference between WIC-only and regular WIC vendors,  and our finding on the likely effect on the program of continued growth of  WIC-only vendors under 2004 conditions would be overlooked. We made  some minor technical revisions to our report wording to clarify our  findings and the limitations of available data on prices charged by WIC  vendors.
Further, in the draft these officials read, we recommended that FNS  consider conducting a small-scale study to better understand how WIC- only vendor prices and operations contribute to program expenditures.  Officials did not believe this study would be necessary or cost-effective  because of the difficulty in collecting price and quantity data on WIC  purchases under the current paper-based system, and because program  regulations already require monitoring of shelf prices and redemption data  as a component of their vendor management. We understand that USDA  has limited funds available for research, with multiple demands on these  funds.  Since the cornerstones of the new legislative requirements are that  prices at above-50-percent vendors should be competitive with those  charged by regular vendors and that vendors that derive more than 50  percent of their revenue from WIC food instruments do not result in higher  food costs to the program than do other vendors, officials are hopeful that  the new cost containment provisions will ensure the program pays  competitive prices to all vendors. However, the cost containment  provisions are complex and entail significant changes for some states. We  believe it is important for FNS to closely monitor implementation of cost  containment provisions to help ensure that program costs are in fact  contained as intended. Moreover, as long as the program is structured so  that participants need not pay attention to price, and given the current  lack of available information on whether participants are actually  receiving their prescribed foods and at what price, we believe FNS should  proactively take advantage of all cost-effective ways of gathering data that  will help contain costs and ensure the program is meeting its overall goals.  In response, we have removed our recommendation for further study and  further clarified our recommendation for additional data collection on the  price and quantity of WIC food items purchased under a new EBT system.
FNS also made additional technical comments, which we have  incorporated where appropriate.
As arranged with your office, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after the  date of this letter. At that time, we will send copies to the Secretary of  Agriculture, relevant congressional committees, and other interested  parties. We also will make copies available to others upon request. In  addition, the report will be made available at no charge on the GAO Web  site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-7215 or fagnonic@gao.gov. Contact points for our Office of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff that made major contributions to this report are  listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: This appendix discusses in detail our methodology for determining  whether the vendors authorized by the Special Supplemental Nutrition  Program for Women, Infants and Children (WIC) that are known as WIC- only vendors contribute more to WIC program expenditures than do  regular WIC vendors. The study was framed around three questions: (1)  what is known about WIC-only vendors’ growth and their share of the WIC  market in recent years? (2) To what extent do the business and marketing  practices of WIC-only and regular WIC vendors differ?(3) What would  WIC-only vendors’ contribution to WIC program expenditures have been if  their market share increased?
subsections: section_title: Scope
paragraphs: Because existing research on WIC-only vendors consisted of a few single- state studies or analyses of a small number of individual states, we sought  to develop a national picture. To ensure comparability of costs and  business practices, we focused on the WIC retail vendor market, excluding  Mississippi, which operates a direct distribution system, and Vermont,  which uses a home food delivery system. To prevent potential duplication  of data, we limited the study to the geographically contiguous states,  omitting the 32 Indian Tribal Organizations that authorize many of same  vendors authorized by the geographic WIC state agencies in which they  reside. Given the large size of the WIC retail vendor population, we used  existing data sources for our national-level analyses of WIC-only vendors’  growth and market share. Because WIC food instrument and redemption  systems are unique to each state, we focused our analyses of WIC-only  vendors’ contribution to program expenditures at the state level,  concentrating on California, Texas, and Florida, the states that authorize  84 percent of WIC-only vendors. To examine WIC-only and regular WIC  vendors’ business and marketing practices, we relied on the experience of  WIC state agency officials who have managed a substantial number of  WIC-only vendors, including officials from seven states that had  authorized 10 or more WIC-only vendors in fiscal year 2004.
section_title: Methodology
paragraphs: We used separate sources of data for each study question, including  national-level administrative data for the entire WIC vendor population,  state-level administrative data for every WIC food instrument redeemed in  fiscal year 2004, telephone interviews with WIC state agency directors and  vendor management staff, and on-site observations and interviews at WIC- only and regular WIC vendor establishments. Before deciding to use the  administrative data, we conducted a thorough data reliability assessment  of each data base, including a review of the data collection and reporting  system that produced the data, guidance on variable definitions and  measures provided to entities that reported the data, and steps the Food  and Nutrition Service (FNS) or the WIC state agencies took to ensure data  reliability. Once we received the administrative data files, GAO’s  methodologists conducted electronic tests to check for the accuracy and  completeness of individual data elements. We discuss our testing  procedures and steps we took to mitigate any data limitations below, as  part of the methodology for each study question. On the basis of these  efforts, we believe the data are sufficiently reliable for our purposes. We  conducted a descriptive analysis of WIC-only vendors’ growth and market  share, a scenario analysis of WIC-only vendors’ potential contribution to  WIC program expenditures, and a comparative analysis of WIC-only and  regular WIC vendors’ business and marketing practices.
subsections: section_title: Procedures for Analyzing WIC-Only Vendors’ Growth and Market Share
paragraphs: To determine what is known about WIC-only vendors in recent years, we  gathered various federal and other data sources. We collected copies of  FNS’s The Integrity Profile (TIP) for federal fiscal years 1999 through 2004.  TIP is a database that includes information on all vendors authorized to  provide food benefits under the WIC program at any point during a fiscal  year. For each vendor entry, TIP identifies vendor type, location, and WIC  redemption amounts, among other data. TIP data is provided by 90 WIC  state agencies, representing all 50 states, the District of Columbia, Indian  Tribal Organizations (ITOs), and U.S. territories. WIC state agencies  submit electronic data to FNS on an annual basis in accordance with  instructions provided by FNS. To complement information provided by  TIP, we conducted a literature search to compile a list of all research  conducted on WIC-only vendors in recent years, but found that few such  studies exist. As a result, our analysis focused largely on TIP.
subsections: section_title: Data Collection
paragraphs: As one step in our data reliability assessment process, we evaluated the  integrity of TIP data. This procedure revealed two primary limitations.  First, TIP does not report the actual date when a vendor enters or exits the  WIC program; rather, it only indicates whether a vendor was authorized by  a WIC state agency at any point during a fiscal year. As a result, TIP likely  overstates the number of vendors in operation on any given date. For  example, the number of WIC vendors in operation on the first day of a  particular fiscal year—October 1—is probably less than the number  reported by TIP for the same fiscal year, as TIP includes all WIC vendors  for that fiscal year that were authorized as of October 1, in addition to all  vendors that entered the program after that date. Thus, we could not  calculate a percentage-based growth rate from year to year using TIP.  Instead, we could only calculate the total number of WIC vendors of a  specific type in operation for at least 1 day during a particular fiscal year.
The second limitation we identified was that national TIP redemption data  did not meet GAO’s data reliability standards, based upon information  provided by FNS. Although FNS had requested that WIC state agencies  submit average monthly redemption data for all WIC vendors during fiscal  years 1999-2003, FNS officials determined subsequently that not all WIC  state agencies had followed these instructions. FNS officials concluded  that some WIC state agencies had submitted redemption data in formats  other than average monthly amounts, such as annual or quarterly figures,  but they were uncertain about the time period used by any particular WIC  state agency in reporting redemption data. In recognition of this problem,  for fiscal year 2004, FNS requested that WIC state agencies specify the  time period that their redemption figures covered when submitting TIP  data. FNS then annualized all redemption figures not submitted as annual  amounts by multiplying the figures that were other than annual by the  appropriate number of months. However, this process may have resulted  in overstated redemption figures for certain WIC vendors in fiscal year  2004, as FNS annualized the redemption figures for all WIC vendors that  did not have annual redemption amounts—including those vendors that  were not authorized to participate in WIC for the entire fiscal year. As a  result of these issues, we determined that we could not use FNS’s national  TIP data to report trends in redemption amounts over time, or to calculate  average annual redemption amounts by vendor type for any particular  fiscal year. However, because FNS had requested that WIC state agencies  specify the time period used in reporting redemption data for fiscal year  2004, we concluded that we could use the original state data files from that  year to calculate average monthly redemption figures.
We converted redemption figures for all WIC-only and regular WIC  vendors with valid redemption data into average monthly redemption  amounts for any state that reported redemptions in a form other than  monthly (see table 5 for these other time periods reported by states to FNS  for fiscal year 2004). For example, for any state that reported redemption  amounts using quarterly figures, we divided each WIC vendor’s  redemption total by three to create an average monthly figure. In  converting redemption amounts, we excluded vendors that were not  authorized to participate in the WIC program but that were sometimes  included in the state files. When such vendors appeared, they were clearly  identified as being unauthorized.
In addition to eliminating specific analysis procedures due to data  reliability issues, we narrowed the focus of our analyses to certain  geographic areas and WIC vendor types. Because TIP includes data from  ITOs and U.S. territories in addition to the 50 states and the District of  Columbia, some WIC vendors may have been listed in more than one state  agency TIP file. For example, both a state and an ITO located within that  state may have authorized, and thus included in their data file submitted to  FNS, the same WIC vendor. To eliminate these potential data-reporting  redundancies, our analysis of TIP focused exclusively on the 50 states and  the District of Columbia. Concerning our vendor focus, TIP includes some  vendor types and additional food delivery systems that are not directly  comparable to WIC-only vendors. The noncomparable vendor types  include military commissaries, usually located on military installations,  and pharmacies, which often only provide infant formula and WIC-eligible  medical foods. In addition, some state agencies authorize other food  delivery systems, such as home food delivery and direct distribution. We  eliminated from our analysis these noncomparable vendors and alternate  food delivery systems, and defined our total WIC vendor population as  consisting entirely of WIC-only vendors and regular WIC vendors.
section_title: Data Analysis
paragraphs: Our findings are the result of two primary analyses. First, we generated  frequency statistics concerning the number and location of WIC-only  vendors and regular WIC vendors for fiscal years 1999 through 2004, and  used geographic information system (GIS) software to map the location of  WIC-only vendors in fiscal year 2004. Second, using the original state data  we received from FNS’s regional offices for fiscal year 2004, we analyzed  average monthly WIC redemption amounts by vendor type, both nationally  and by state.
section_title: Procedures for Determining the Extent to Which WIC-Only and Regular WIC Vendors’ Business and Marketing Practices Differ
paragraphs: To identify WIC-only and regular WIC vendors’ business and marketing  practices, we used two data collection strategies: group telephone  interviews with WIC state agency directors, vendor management staff, and  local agency staff that participate in vendor monitoring in selected states,  and site visits to three of the states selected for telephone interviews. We  developed criteria and selected states and officials for the telephone  interviews and the site visits.
subsections: section_title: Sample Selection
paragraphs: Because we were relying on WIC state officials’ experience managing their  WIC-only and regular WIC vendors to identify their business and  marketing practices, we selected states for the telephone interviews that  had authorized a substantial number of WIC-only vendors and specified 10  as the minimum number of vendors. Using TIP data for fiscal year 2004 to  determine the number of vendors in operation, we selected states that had  at least 10 WIC-only vendors that year. During fiscal year 2004, the number  of WIC-only vendors in the 16 states that authorized them varied from 1 to  715, but eight states—California, Texas, Florida, North Carolina, Arkansas,  Alabama, Georgia, and Louisiana—had 10 or more. We treated Puerto Rico  as a separate case and, because of Hurricane Katrina, excluded Louisiana,  leaving seven states for interviews. To select telephone interview  respondents, we asked the WIC state agency director to identify staff who  had observed WIC-only and regular WIC vendors’ business and marketing  practices directly through representative monitoring and compliance  investigations.
To ensure that we visited establishments with a range of key  characteristics, we selected states for site visits from among those with  the greatest number of WIC-only vendors—California, Texas, and Florida.  We selected vendor establishments to visit in consultation with the WIC  state agency director. Our selection criteria included urban and rural  locations, years in operation, food price range, and vendor size, measured  by WIC redemption volume. The California and Texas WIC state agencies  provided us with a list of vendors from which we chose vendors according  to our selection criteria. The Florida WIC state agency provided us with a  list of vendors that met our criteria. We visited four WIC-only and four  regular WIC vendors in each of the three states.
section_title: Data Collection
paragraphs: We developed an interview guide with a standard set of questions for the  telephone interviews and data collection instruments for the site visits. As  a first step, we compiled a list of business and marketing practices from an  interview with WIC state agency directors and vendor managers;  interviews with representatives of vendor associations, such as the  National Grocers Association, the Gulf Coast Retailers Association, and  the California Independent Grocers Association; and existing studies of  WIC-only vendors. These practices include selling shelf space to  manufacturers; location of stores near clinics or military bases; advertising  methods such as announcing weekly specials in newspaper ads or placing  flyers on windshields in parking lots; incentives offered to participants at  no cost, such as strollers, diapers, and bicycles; reduced price offers, such  as buy one item, get one free; and transportation for participants to and  from the vendor’s establishment. For the telephone interviews, we  converted the list of practices to a separate set of questions about WIC- only and regular WIC vendors. The site visit data collection instruments  covered the same topics as the telephone instrument to permit  comparisons of the information provided by WIC state agency staff and  our observations of vendor establishments and interviews with store  managers. However, the site visit instrument was designed with fixed- response questions in a checklist format to facilitate completion during  observation. To complement the observational and interview data, we  obtained digital cameras and, with the WIC vendors’ permission, took  interior and exterior photographs of the vendor establishments we visited.
section_title: Data Analysis
paragraphs: For all of the seven states we interviewed by telephone, we prepared a  state-level table that synthesized the interview responses separately by  vendor type and key business and marketing practice categories. We also  prepared summary tables that further aggregated the business and  marketing practice data within vendor type for each state. We used the  summary tables to make cross-state comparisons. For the site visit  interview responses, we created a matrix to summarize key findings on  store characteristics, illustrative price data, and selected business and  marketing practices.
section_title: Scenario Analyses of WIC- Only Vendors’ Contribution to WIC Program Expenditures, if Their Market Share Increases
paragraphs: In order to assess WIC-only vendors’ contribution to WIC program food  expenditures, if their market share increased, we developed two  scenarios, based on available data for 2004 (the latest data available). In  these scenarios we asked:    Scenario 1: What would have happened to the number of food  vouchers that could have been issued and the number of WIC  participants that could have been served in 2004, if we increased the  number of food vouchers redeemed at WIC-only vendors while holding  program food expenditures constant at fiscal year 2004 levels?
Scenario 2: What would have happened to program food expenditures  in 2004 if we increased the number of food vouchers redeemed at WIC- only vendors while program expenditures were not held constant and  the number of food vouchers issued to program participants remained  at the 2004 level?
subsections: section_title: Data Collection
paragraphs: We obtained copies of administrative data files from WIC state agencies’  management information systems in California, Texas, and Florida. These  data included information on every food voucher that had actually been  redeemed—that is, submitted for payment and paid—in these states. The  unit of measure in our data was the value of a redeemed food voucher, and  the data consisted of values for more than 100 million vouchers.
Using these data, we could determine the actual number of food vouchers  redeemed at WIC-only and regular WIC vendors for each of the three  states, as well as the average value of all food vouchers redeemed at WIC- only and regular WIC vendors in each state. For example, figure 12 depicts  the information available on three representative food vouchers and how  we combined the values for these individual vouchers (e.g., $17.95, $13.07,  and $12.55) to determine the average value of all vouchers redeemed (e.g.,  $14.52). We did this for all vouchers for WIC-only and regular WIC vendors  in California, Texas, and Florida.
Even though we were able to calculate the average value of all redeemed  food vouchers for WIC-only and regular WIC vendors, we were not able to  determine whether prices for individual food items were higher at WIC- only vendors than at regular WIC vendors. In order to answer that type of  detailed question, we would have needed additional information that was  not available because of the way data are collected by the states.  Specifically, we would have needed the price of the individual food items  listed on the voucher and the quantity of each food item purchased, in  addition to the total redeemed value. Figure 13 shows hypothetical  vouchers from two vendors that include the type of information that  would have been needed for such an analysis. It specifies that 2 gallons of  milk were purchased at $3.57 per gallon for a total expenditure of $7.14.  However, the data files we received did not contain either the price or the  quantity purchased for individual vouchers.
Without information on the quantity and price of the items on food  vouchers, WIC participants would not know the value of the items they  received and could not be price sensitive. WIC agencies would also not be  able to determine the prices of the items they redeemed or whether  participants received the total quantity of products specified on the  voucher. Without this information, it is difficult to know why average  redemption values differ.
Figure 13 illustrates why it is important to know the quantity actually  redeemed by the participant. For example, as shown in voucher 1 in the  figure, the participant received the full quantity of food specified on the  voucher. The average value of all items is $17.95. In voucher 2, the average  value of the voucher at $14.00 is less expensive. The participant, however,  did not buy eggs or cheese and did not receive the full quantity of food  specified on the voucher. If the voucher represents a prescription designed  to fulfill shortfalls in the participant’s nutritional needs, the partial  fulfillment suggests that although the average value of voucher 2 is less  than in voucher 1, the actual delivery of the food has not been achieved.
Voucher 2 in figure 13 also demonstrates why it is necessary to know the  price of individual items on the voucher. Without this information, it is not  possible to know whether the prices at one vendor are higher than prices  at another vendor. In voucher 2, the total value of the voucher is less than  in voucher 1, yet the price charged for a gallon of milk is significantly  higher. Use of the average value of the voucher of $14.00 clearly does not  prove that prices at the second vendor are less than prices at the first  vendor with the higher average value of $17.95.
In addition, it is important to collect the actual price of the sales  transaction—collected at the point of sale—rather than a shelf price. This  is because the price listed on the shelf may not be the actual price of the  transaction. For example, if milk is being sold as a loss leader at the  vendor represented by voucher 1, it is possible that the price on the shelf  is actually $7.00 per gallon even though the price on the voucher is $3.57  per gallon.
We also would have needed information on such things as the size and  location of stores to further determine why prices and average values may  have varied between WIC-only and regular WIC vendors in the states.
section_title: The model
paragraphs: 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. Conversely, the number of  vouchers redeemed by regular WIC vendors (q) equaled 40,745,000, the  average value of vouchers redeemed (x) equaled $12.28. Total WIC  program food expenditures for California for fiscal year 2004 (F ) equaled  $880,096,000. These data can be used in the formula to obtain the  following:  3) (28,866,000* $13.15) + (40,745,000 * $12.28) = $880,096,000In the first scenario, we wanted to see how participation would change in  California, Texas, and Florida in 2004 if the number of vouchers redeemed  at WIC-only vendors increased while holding total WIC program food  expenditures constant at 2004 levels. We did this by increasing the number  of vouchers redeemed at WIC-only vendors in the states in 2004 by a  hypothetical 10, 20, 30, 50, and 100 percent. Because we increased the  number of food vouchers redeemed at WIC-only vendors, and do not allow  total WIC program food expenditures to increase, the total number of  vouchers for WIC-only and regular WIC vendors that can be issued  depends, in part, on whether the average value of redeemed vouchers is  higher for WIC-only vendors. If the average value is higher, fewer food  vouchers could be issued under this scenario and thus fewer participants  could be served. This would be reflected in our scenario by a reduction in  the number of vouchers redeemed by regular WIC vendors. We calculated  this change in the number of vouchers redeemed by regular WIC vendors  by using equation 2a, which is equation 2 transformed. We calculated the  number of vouchers that would have been redeemed at regular WIC  vendors q for each hypothetical increase. All else was held constant at  2004 levels.  2a.) q = ((F xw/)/x ) + q x = F          q x  = (F x)           q  = ((F - q x)/x  ) scenario results for California are presented in table 7. In the case of a 100  percent increase in WIC-only vendor redemptions, we increased the  number of WIC-only redemptions from the actual value in 2004— 28,866,000 by a hypothetical 100 percent to 57,732,000. The resulting  number of redemptions for regular WIC vendors, as calculated in formula  2a, decreased from the 2004 value of 40,745,000 to 9,827,000. All else—the  average value of redeemed vouchers for WIC-only ($13.15) and regular  WIC vendors ($12.28), as well as total WIC program food expenditures  ($880,096,000)—is held constant.
This decline in the number of vouchers redeemed at regular WIC vendors  results from the restriction in the analysis of keeping total WIC program  food expenditures constant at 2004 levels. This decline occurs because  according to our calculations based on all food vouchers for the state, the  average value of food vouchers redeemed at WIC-only vendors is  somewhat higher than the average value at regular WIC vendors.
section_title: Calculating the Number of Participants
paragraphs: We calculated the number of participants who might be affected by the  change in the scenario. We did this by adding together the number of  vouchers redeemed at WIC-only and regular WIC vendors in 2004 and  under each hypothetical increase in the scenario for each of the three  states. For example, in California, a total of 69,611,000 vouchers were  redeemed in 2004 (table 6). As shown in table 7, for a doubling in the  number of vouchers redeemed by WIC-only vendors, we estimated a total  of 67,560,000 vouchers.
In the absence of more specific information on participation, we simply  divided the total number of vouchers redeemed by the average number of  vouchers redeemed per participant for each of the states. For example, in  California we estimated 32.69 vouchers per participant. We used that  information to estimate that there were 2,130,000 participants in 2004,  (69,611,000 / 32.69). Conversely, as shown in table 8, if the redemptions of  vouchers by WIC-only vendors doubled, we estimated that 2,067,000  participants (67,559,000 / 32.69) would be affected.
As shown in table 8, in California, the difference between the number of  participants in 2004 and the estimated number of participants if WIC-only  vendor redemptions increased 100 percent (2,067,000-2,130,000) indicated  a decline of 63,000 participants that could be served. In California, this  represented about 3 percent of the number of participants in 2004, ((63,000  / 2,130,000)*100).
In the second scenario, we wanted to see how expenditures that had been  held constant in the previous scenario would have to change in order to  maintain the level of program participation constant at 2004 levels when  the market share of WIC-only vendors increased. As in the previous  scenario, we increased the number of redeemed food vouchers for WIC- only vendors (q) by a hypothetical 10, 20, 50, and 100 percent. While  keeping the total number of vouchers redeemed constant at 2004 levels,  we again used equation 2a to calculate the number of redeemed vouchers  for regular WIC vendors (q). We allowed total expenditures to increase  (FWIC-only vendors account for a much smaller share of the WIC market in  Texas and Florida than in California. In Texas, for example a doubling of  the WIC-only vendors’ market share would result in an increase in the  number of food vouchers redeemed from 1.8 million to 3.6 million—with  the number of food vouchers redeemed at regular WIC vendors decreasing  from 20.9 million to 18.3 million.
For Florida, the doubling of WIC-only vendors’ market share would result  in an increase in the number of food vouchers redeemed from 1.6 million  to 3.1 million—with the number of food vouchers redeemed at regular  WIC vendors decreasing from 10.6 million to 8.7 million.
In all the states, the average value of vouchers redeemed at WIC-only  vendors was higher than the average value of vouchers redeemed at  regular WIC vendors. The value for California was calculated as $13.15,  while the value for regular WIC was $12.28, with a difference of $0.87  between the two types of vendors. In Texas, the average value of vouchers  redeemed at WIC-only vendors was calculated to be $31.55, while the  value for regular WIC vendors was $21.72—a difference of $9.83. In  Florida, WIC-only voucher redemptions averaged $22.92 in value, while the  value for regular WIC was $18.50—a difference of $4.42. In addition,  according to our analysis, the average value of vouchers redeemed at  regular WIC vendors was lowest in California, at $12.28, followed by  Florida at $18.50 and Texas at $21.72. The difference in the average value  of vouchers redeemed should be treated with a great deal of caution.   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. As described earlier, the data represent the average value of the  vouchers, not prices for specific food items. These data do not enable us  to make price comparisons between the two types of vendors. In addition,  this analysis does not allow us to determine why the average values in  vouchers redeemed may be higher. To do that, we would need enough  data on the costs vendors incurred in obtaining the food items as well as  an understanding of the factors affecting those costs, such as store size,  store location, marketing conditions and business practices, and any other  factors affecting food item prices, to identify the factors affecting voucher  values.
The results of our calculation of the decline in the number of participants  due to the increase in WIC-only vendors’ market share are presented in  table 10. The number of redemptions as reported to us by each of the  states was 33 per participant in California, 16 in Texas, and 18 in Florida.  The decline in the number of participants ranged from less than 1 percent  for a 10 percent increase in the number or redemptions at WIC-only  vendors to about 3 percent for a 100 percent increase.
The results of our analysis for scenario 2 are shown in table 11.  Expenditures for WIC-only vendors in California increased from $380  million for a 10 percent increase to $759 million for a doubling of their  market share. Expenditures changed by $2.5 million for the 10 percent  increase to $25 million for a 100 percent increase in WIC-only market  share.
In Texas, program food expenditures in the scenario increased from $1.8  million to $17.8 million, while expenditures increased from $689,000 to  $6.9 million in Florida. In all three states the increase represented from  less than 1 percent to about 3 percent of 2004 values.
section_title: Limitations
paragraphs: The scenarios presented are based on the best data available at the time of  the analysis. The results, however, are illustrative and leave unanswered  some fundamental questions, including whether WIC-only vendors charge  higher prices for food items and if so why the prices would be higher and  what is the overall effect on total program food expenditures and  participation. In order to more fully answer these questions, we would  have to know more about the actual prices and quantities of individual  food items on the redemption vouchers. Any price comparison would have  to be for similar products of similar quantity and quality. In addition, we  would also have to know the factors that may be influencing prices. This  would include such things as the costs for obtaining the product, as well  as the difference between that cost and price. In addition, even if price  differences exist, certain factors affecting the store’s costs—the size of the  store, the location of the store, and the general market structure in which  the store operates—may help explain the price differences. In the case of  the WIC market, the role of the program itself cannot be ignored; for  example, that participants are not price sensitive. Thus to fully understand  the price difference between WIC-only and regular WIC vendors, we would  need not only additional data but a different framework of analysis that  would allow us to hold various factors constant while changing others.  This type of detailed analysis would require significant resources to gather  the data and, in addition, would probably be limited in scale to cover local  rather than national WIC markets.
section_title: Appendix II: Number of WIC-Only Vendors, Fiscal Years 1999-2004
section_title: Appendix III: Average Monthly Redemptions per WIC-Only Vendor by State in Fiscal Year 2004
paragraphs: The figure below shows the average monthly redemptions per WIC-only  vendor and the number of these vendors in the 15 states (including the  District of Columbia) with them in fiscal year 2004.
section_title: Appendix IV: WIC Vouchers Most Frequently Used at WIC-Only and Regular WIC Vendors in California, Texas and Florida
paragraphs: The figures below show the most frequently used vouchers for WIC-only  and WIC regular vendors as well as the state total. We defined “most  frequently” used as those that accounted for more than 1 percent of the  total. The figures indicate that both WIC-only and regular vendors are  redeeming the same type of vouchers.
section_title: Appendix V: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Kay Brown,(Assistant Director), Sara Edmondson, (AIC), Carol Bray,  Casey Hanewall, Avani Locke, Luann Moy, Jennifer Popovic, Mark  Ramage, Tovah Rom, and Dan Schwimer also made significant  contributions to this report.