Walmart's Vulnerability to SNAP Cuts and GLP-1 Shifts: A Cautionary Tale for Investors

Walmart's dominance in retail is under strain as two critical headwinds—declining Supplemental Nutrition Assistance Program (SNAP) benefits and the rise of GLP-1 appetite-suppressant drugs—threaten its core revenue streams. While the retailer has deployed strategies to offset these risks, including e-commerce expansion and pharmacy growth, the near-term financial and operational pressures may outweigh the long-term opportunities. Investors should proceed with caution until Walmart proves its ability to navigate these dual challenges.

SNAP Dependency: A Structural Weakness

Walmart derives a significant portion of its grocery sales from SNAP recipients, who account for 24–25.5% of total CPG and general merchandise spend on essential goods. This reliance is underscored by its leadership in SNAP-linked grocery sales (25.5% market share) and its ability to attract frequent, cost-conscious shoppers. However, SNAP benefit levels have been in decline since 2023, with a 8.5% drop in March 2023 compared to prior-year levels.

The FY2025 adjustments introduced regional variations, including a reduction in Hawaii's maximum allotment and minimal increases elsewhere. With proposed legislative changes, such as expanding work requirements for SNAP eligibility to age 64, the risk of further cuts looms large. For Walmart, this means a direct threat to its $2,290 annual grocery spend per SNAP household, a critical revenue source.

GLP-1 Drugs: A Silent Erosion of Sales

The rise of GLP-1 medications like Ozempic and Wegovy is reshaping consumer behavior in ways that disadvantage Walmart's traditional strengths. A Cornell University study found that GLP-1 users reduced their grocery basket sizes by 6% within six months of use, with declines concentrated in snacks, sweets, and processed foods—categories that account for $15 billion in Walmart's annual sales.

While Walmart's pharmacy division has seen mid-teens growth driven by GLP-1 prescriptions, the economics are precarious. These drugs are costly to stock, insurers reimburse poorly, and manufacturers like Novo Nordisk control supply. Pharmacy revenues alone cannot offset the lost grocery sales, especially as GLP-1 adoption could hit 7% of the U.S. population by 2035, potentially slashing calorie purchases by 20–30% annually.

Strategic Responses: A Mixed Picture

Walmart's countermeasures—e-commerce densification, automation, and health-focused product lines—show promise but face execution hurdles:

1. E-Commerce & Automation: Walmart's U.S. e-commerce turned profitable in Q1 2026, driven by same-day delivery networks and 4,600 superstores covering 93% of households. However, reveals limited upside, as investors remain skeptical of sustained margin improvements amid rising automation costs.

2. Retail Media & Ads: Walmart Connect's ad revenue surged 50% in Q1 2026, leveraging CTV inventory and high-margin private-label campaigns. This is a bright spot, but ad revenue remains a small fraction of total sales.

3. Health-Focused Product Shifts: Expanding “GLP-1-friendly” options like high-protein snacks and fresh produce aligns with trends but may compress margins, as fresh goods require higher inventory turnover and storage costs.

Valuation Risks: Near-Term Pressures Outweigh Long-Term Bets

While Walmart's strategies address structural risks, the timeline for returns is uncertain. The SNAP-dependent customer base is price-sensitive and less likely to shift to higher-margin e-commerce or premium products. Meanwhile, GLP-1's impact on calorie consumption could permanently reduce demand for Walmart's core grocery categories.

Analysts estimate that SNAP cuts and GLP-1-driven declines could erode $1.2–1.5 billion in annual revenue by 2026. Walmart's 14.8% growth in Walmart+ memberships and cost-saving automation may partially offset this, but the stock's forward P/E of 15x (versus a 5-year average of 14x) already reflects optimism.

Investment Thesis: Proceed with Caution

The risks to Walmart's valuation are material. Investors should:
- Avoid overvaluation: The stock's current multiple assumes execution perfection in automation and e-commerce, which is far from guaranteed.
- Monitor SNAP policy: Legislative changes could accelerate benefit cuts, compounding the impact on Walmart's low-income customer base.
- Track GLP-1 adoption rates: A faster-than-expected rise in usage could amplify sales declines in snacks and processed foods.

For now, Walmart's exposure to these dual risks justifies a hold rating, with a preference for investors to wait for clearer signs of margin stabilization and revenue diversification. The retailer's long-term prospects hinge on its ability to transform itself from a volume-driven grocer into a data-driven, premium-focused omnichannel leader—a transition that remains unproven.

In conclusion, Walmart's strategic challenges are as vast as its market footprint. Until it demonstrates resilience against SNAP cuts and GLP-1-driven consumer shifts, caution is the prudent stance for investors.