U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA FINAL AGENCY DECISION

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1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA Alaskan Pantry, Appellant, v. Case Number: C Retailer Operations Division, Respondent. FINAL AGENCY DECISION The U.S. Department of Agriculture, Food and Nutrition Service (FNS), finds that there is sufficient evidence to support the decision by the Retailer Operations Division to deny the application of Alaskan Pantry (hereinafter Appellant) to participate in the Supplemental Nutrition Assistance Program (SNAP). ISSUE The issue accepted for review is whether the Retailer Operations Division took appropriate action, consistent with 7 CFR 278.1(b)(1), in its administration of the SNAP, when it denied the application of Appellant to participate in SNAP by letter dated February 16, AUTHORITY 7 U.S.C and its implementing regulations at 7 CFR provide that [A] food retailer or wholesale food concern aggrieved by administrative action under 278.1, or may file a written request for review of the administrative action with FNS. CASE CHRONOLOGY In a letter dated February 16, 2017, the Retailer Operations Division informed Appellant that its application to participate as an authorized retailer in SNAP was denied because it did not meet the definition and eligibility requirements of a retail food store established by Federal regulations at 7 CFR 278.1(b)(1). This action was taken because the Retailer Operations Division had determined the Appellant firm was a web-based business with no food inventory and as such failed to meet the definition of an eligible firm. This denial action was based on observations during an onsite store visit on February 13, 2017, as well as information provided on and in 1

2 support of the firm s retailer application. Specifically, the February 16, 2017, letter from the Retailer Operations Division to Appellant states the following, in relevant part: It is the determination of the Food and Nutrition Service that your business does not operate a retail food business within the meaning of the SNAP regulations at Part (definition of Retail Food Store). This firm operates as a web-based business. Orders are taken and paid for on-line. The USDA Food and Nutrition Service does not provide for or offer these type services. Appellant was informed that the firm could not submit a new application to participate in SNAP for a period of six months as provided in 278.1(k)(2). Appellant appealed the Retailer Operations Division decision and requested an administrative review of this action in a request postmarked February 27, The appeal was granted. No subsequent correspondence has been received from Appellant. STANDARD OF REVIEW In appeals of adverse actions, Appellant bears the burden of proving by a preponderance of the evidence that the administrative actions should be reversed. That means Appellant has the burden of providing relevant evidence which a reasonable mind, considering the record as a whole, would accept as sufficient to support a conclusion that the matter asserted is more likely to be true than not true. CONTROLLING LAW The controlling statute in this matter is contained in the Food and Nutrition Act of 2008, as amended, 7 U.S.C and 278 of Title 7 of the Code of Federal Regulations (CFR). Part 278.1(k)(1) establishes the authority upon which the application of any firm to participate in SNAP may be denied if it fails to meet the definition of an eligible firm. 7 CFR states, inter alia that: Retail Food Store means an establishment... that sells food for home preparation and consumption normally displayed in a public area, and either offers for sale, on a continuous basis, a variety of foods in sufficient quantities in each of the four categories of staple foods including perishable foods in at least two such categories (Criterion A)... or has more than 50 percent of its total gross retail sales in staple foods (Criterion B)... Entities that have more than 50 percent of their total gross sales in hot and/or cold prepared, ready-to-eat foods that are intended for immediate consumption, and require no additional preparation, are not eligible for SNAP participation as retail food stores under 278.1(b)(1) of this chapter. 7 CFR defines staple food, in relevant part, as Those food items intended for home preparation and consumption in each of the following food categories: meat, poultry, or fish; bread or cereals; vegetables or fruits; and dairy products.... Accessory food items including, but not limited to, coffee, tea, 2

3 cocoa, carbonated, and uncarbonated drinks, candy, condiments, and spices shall not be considered staple foods for the purpose of determining eligibility of any firm... 7 CFR 278.1(b)(1) reads, in relevant part, The nature and extent of the food business conducted by the applicant (i) Retail food store. (A) An establishment or house-to-house trade route shall normally be considered to have food business of a nature and extent that will effectuate the purposes of the program if it sells food for home preparation and consumption and meets one of the following criteria: Offer for sale, on a continuous basis, a variety of qualifying foods in each of the four categories of staple foods as defined in of this chapter including perishable foods in at least two of the categories (Criterion A); or have more than 50 percent of the total gross retail sales of the establishment... in staple foods (Criterion B). 7 CFR 278.1(b)(1)(ii)(A) provides, in relevant part, that In order for a retail store to qualify for authorization under Criterion A, it must Offer for sale and normally display in a public area, qualifying food items on a continuous basis (emphasis added) evidenced by having, on any given day of operation, no fewer than three different varieties of food items in each of the four staple food categories. 7 CFR 278.1(b)(1)(iv) states, in part, that, Firms that do not meet the eligibility requirements in this section or that do not effectuate the purpose of the SNAP shall not be eligible for program participation. New applicant firms that are found to be ineligible will be denied authorization to participate in the program, and authorized retail food stores found to be ineligible will be withdrawn from program participation. Ineligible firms under this paragraph include, but are not limited to, stores selling only accessory foods, including spices, candy, soft drinks, tea, or coffee; ice cream vendors selling solely ice cream; and specialty doughnut shops or bakeries not selling bread. In addition, firms that are considered to be restaurants, that is, firms that have more than 50 percent of their total gross retail sales in hot and/or cold prepared foods not intended for home preparation and consumption, shall not qualify for participation as retail food stores under Criterion A or B. This includes firms that primarily sell prepared foods that are consumed on the premises or sold for carryout. Such firms may qualify, however, under the special restaurant programs that serve the elderly, disabled, and homeless populations, as set forth in paragraph (d) of this section. 7 CFR 278.1(b)(6) states that, FNS will consider whether the applicant firm is located in an area with significantly limited access to food when the applicant firm fails to meet Criterion A or Criterion B so long as the applicant firm meets all other SNAP authorization requirements. In determining whether to authorize an applicant despite its failure to meet Criterion A and Criterion B, FNS will also consider factors such as, but not limited to, the extent of the applicant firm's stocking deficiencies in meeting Criterion A and Criterion B and whether the store furthers the purposes of the Program. Such considerations will be conducted during the application process as described in paragraph (a) of this section. 3

4 Section 9 of the Food and Nutrition Act of 2008, as amended, states in part, [A] retail food store or wholesale food concern that is denied approval to accept and redeem benefits because the store or concern does not meet criteria for approval... may not, for at least 6 months, submit a new application to participate in the program. STORE BACKGROUND The record reflects that ownership submitted a SNAP application electronically through the FNS web site on November 17, 2016, to participate as a retailer in the SNAP. This application estimated that staple foods accounted for 70 percent of the firm s total retail sales, accessory other food items showed an estimate of 30 percent of the firm s total retail sales, and nonfood items accounted for zero percent of retail sales. The application question asking if the business sold any non-food items or hot foods was marked no. Documentation was submitted by Appellant to Retailer Operations during the application process in support of the application. APPELLANT S CONTENTIONS In the request for administrative review, Appellant has stated as its position in the matter the following: Alaskan Sales was formed two years ago to help reduce the cost of obtaining goods in rural Alaska. This is a wholesale company that sells directly to village retailers. The owner has seen how difficult it is for families in this high cost/low income region. Although Alaskan Sales has made progress in reducing costs, these savings that are then passed on to retailers often goes toward greater profit for them rather than being passed along to the consumer. Alaskan Pantry was created in response to this need as a way for people to purchase products directly. The business has an agreement with its grocery supplier to purchase at wholesale prices, but the business does not charge standard retail markups (generally percent) instead using a 15 percent markup. The business is located at the Anchorage International Airport working alongside a company, 7 U.S.C (b)(6) & (b)(7)(c), that has a contract with the State of Alaska to stock and ship WIC mail order vendor approved goods to rural Alaskans who cannot get these items from their local stores. Their model is very similar to what Alaskan Pantry is doing and the business has their support to help Alaskan Pantry succeed; The decision to deny was apparently based on the belief that retailers who accept online orders are categorically ineligible to accept SNAP payments. However, the owner was unable to locate any regulations making them ineligible to accept SNAP, particularly when the need for alternative food delivery systems in rural Alaska is great. Instead, authorizing a retailer seems to turn entirely on whether the applicant s participation will further the purposes of the program 7 CFR 278.1(b). An eligible retail food store is not required to be a place where people can only buy in-person. Rather, any establishment... shall normally be considered to have food business of a nature and extent that will effectuate the purposes of the program if it sells food for home preparation and consumption and meets certain more specific criteria about what the establishment sales [sic] not where or how it sells it 7 CFR 278.1(b)(1). A retailer is presumed qualified if it satisfies either Criterion A or Criterion B, but these requirements are not mandatory. 4

5 Rather, they create a presumption that any retailer who satisfies them will be approved to accept SNAP. A retailer that does not meet these specific thresholds may still be approved if the retailer is located in an area with significantly limited access to food 7 CFR 278.1(b)(6). Alaskan Pantry meets the most important test because allowing it to accept SNAP would further the purposes of the program 7 CFR 278.1(b). The business provides delivery services in an area with significantly limited access to food 7 CFR 278.1(b)(6). Therefore, even if Alaskan Pantry does not technically satisfy Criterion A or Criterion B, the Department could nevertheless authorize it as a SNAP retailer. Authorizing the business would very much serve the program s goals as the people who would benefit most from Alaskan Pantry s services are precisely the same ones who rely the most on SNAP to supplement their subsistence diets. Our customers are nearly all rural Alaskans, most of them Native Alaskans, many of whom live a largely subsistence lifestyle. A huge percentage of their diet comes from hunting and much of their income is spent on the needed tools such as fuel and ammunition. However, these meat heavy diets must be supplemented with grains, fruits, and vegetables that simply do not grow or are made in rural Alaskan communities. Such items must be shipped in from outside the community, nearly always by plane since these communities are not on roads. There is almost always only one general store, if there is one at all, so the prices are very high as a result of both shipping and the lack of competition. In addition to raising the cost of living, these high prices prevent SNAP benefits from going as far as they otherwise might. Alaskan Pantry s service would further the purposes of SNAP by providing the kind of perishable and non-perishable grocery items that are essential for well-rounded diets and not available to members of modest means living in rural communities. All of the grocery items offered are "food for home preparation and consumption 7 CFR 278.1(b)(1). Grocery offerings include fresh, frozen, packaged, and canned foods sold directly to consumers for home preparation and consumption. No prepared, warm, restaurant-style meals are sold. Alaskan Pantry also satisfies the qualifying foods standard of offering qualifying food items on a continuous basis, perishable staple food items in at least three categories, and a variety of staple food items within each category. Regulations suggest, but do not require keeping a certain amount of stock on hand to demonstrate that this standard is achieved. Regulations state that normally these stocks will be displayed in a public area, but it does not require such a display. Alaskan Pantry s direct sale system therefore satisfies this requirement since it offers via its public web site and telephone service well over seven different varieties of food items, including at least one variety of perishable food, in three of the four staple categories and can sell well over three units of these items at any given time and on a continuous basis. The only way that Alaskan Pantry fails to offer nearly the exact same items as most other major grocery stores is that the perishable goods selection is comparatively limited, but this is a function of the business model. The business delivers staple food items to rural Alaska via mail and other shipping options that make selling some perishables impracticable. The high cost of perishable items is a reality of life in rural Alaska and in order to provide customers with the most cost-effective options, Alaskan Pantry offers primarily non-perishable staple foods. The business model also keeps it from needing to maintain a traditional storefront with stocked shelves by providing a way for rural Alaskans to have low-cost groceries delivered directly to their homes. The fact that Alaskan Pantry does not keep a large inventory in a stocked storefront does not take away 5

6 from the benefits provided to low income customers. It would therefore not serve the purpose of the regulation or the SNAP program to deny the SNAP retailer application based on nothing more than not keeping a large storefront and not having the variety of perishable goods that other grocery retailers may have. Nor is it necessary to deny the application since even a failure to meet Criterion A or Criterion B can be excused where doing so would further the goals of the program. The business sells a wide array of products in addition to staple foods and does not negate the fact that Alaskan Pantry is in the business of selling groceries to consumers; and, Given the unique circumstances in Alaska and the difficulty many low-income families face acquiring wholesome low cost groceries, it is hoped that this denial will be reconsidered based on the need in the market served and Appellant s ability to serve this need in an efficient, low cost manner. Additionally, another online retailer providing groceries to rural Alaskans called 7 U.S.C (b)(6) & (b)(7)(c) has been approved for SNAP sales suggesting that a retailer primarily providing online or direct sales in not categorically excluded from SNAP. This company s catalog states it can accept SNAP benefits for online orders and it also does not have a retail storefront. Given the similarities between the two businesses there seems to be no reason why Alaskan Sales [sic] should be treated any differently from 7 U.S.C (b)(6) & (b)(7)(c) if the only reason given for rejecting the application is Alaskan Pantry s reliance on web-based sales. Appellant submitted two posters for 7 U.S.C (b)(6) & (b)(7)(c) showing their products and that they accept SNAP as well as a photograph of a warehouse interior. The preceding may represent a summary of Appellant s contentions in this matter. However, in reaching a decision, full attention and consideration has been given to all contentions presented, including any not specifically recapitulated or specifically referenced herein. ANALYSIS AND FINDINGS With regards to Appellant s contentions above, the authorization of a business to participate in SNAP must be in accord with the Act, as amended, and regulations. These requirements of law cannot be waived. Thus, it is important to clarify for the record that the purpose of this review is to either validate or to invalidate the earlier decision of the Retailer Operations Division, and that it is limited to what circumstances existed at the time of the denial action by the Retailer Operations Division. On the day of the FNS store visit, the evidence supported that the business is not a retail food store and firms that are not retail food stores are not eligible to participate in SNAP. The FNS store visit conducted on February 13, 2017, shows that Alaskan Pantry is a web-based shopping service with orders being taken and paid for on-line and that the business consists of a desk in the offices of Alaskan Sales LLC. The business does not carry any food stock in inventory, but instead purchases food items on a case-by-case basis as orders are received and therefore does not meet the definition of a retail food store as specified in Federal Regulations at 7 CFR 271.2(1) or 7 CFR 278.1(b)(1). Federal Regulations at 7 CFR 278.1(k)(1) require the denial of applications for SNAP retailer authorization by firms that do not meet the definition of 6

7 a retail food store. While SNAP regulations at Section 278.1(b)(6) state that FNS will consider whether the applicant firm is located in an area with significantly limited access to food when the applicant firm fails to meet Criterion A or Criterion B so long as the applicant firm meets all other SNAP authorization requirements, this provision only applies to retail food stores and does not include those businesses that operate strictly as shopping services. Also, the need for access provision is new and is not scheduled to become effective until later this year. Additionally, a review of the Appellant business s web site shows that it offers a variety of ineligible non-food items such as household items, clothing, electronics, lubricants, pet products, and batteries to list just a few that are not mentioned in the applicable sections of the firm s November 16, 2016, SNAP retailer application. With regard to Appellant s contention concerning 7 U.S.C (b)(6) & (b)(7)(c), no ruling will be rendered as the scope of this review is limited solely to the factors pertaining to the denial of SNAP retailer authorization of Alaskan Pantry. Therefore, Appellant s contention regarding the other firm cannot be used to reverse the decision of Retailer Operations Division. Section 9 of the Food and Nutrition Act of 2008, as amended, states in part, [a] retail food store or wholesale food concern that is denied approval to accept and redeem benefits because the store or concern does not meet criteria for approval... may not, for at least 6 months, submit a new application to participate in the program. There is no agency discretion to impose a sanction less than six months when a firm does not meet the aforementioned eligibility requirements for authorization. Therefore, requests for a second store visit may not be granted. CONCLUSION After review of the pertinent documentation, and based on the discussion above, the initial decision by Retailer Operations Division to deny the application of Appellant to participate in the SNAP for a period of six months from the effective date of denial is sustained. RIGHTS AND REMEDIES Applicable rights to a judicial review of this decision are set forth in 7 U.S.C and 7 CFR If a judicial review is desired, the complaint must be filed in the U.S. District Court for the district in which Appellant s owner resides, is engaged in business, or in any court of record of the State having competent jurisdiction. This complaint, naming the United States as the defendant, must be filed within thirty (30) days of receipt of this decision. Under the Freedom of Information Act, we are releasing this information in a redacted format as appropriate. FNS will protect, to the extent provided by law, personal information that could constitute an unwarranted invasion of privacy ROBERT T. DEEGAN April 17, 2017 Administrative Review Officer 7