The snack aisle is seen during a tour of a new Amazon Go store in the Capitol Hill neighborhood of Seattle, Washington, U.S., on Monday, Feb. 24, 2020.Chona Kasinger | Bloomberg | Getty Images
Big Food Pivots to Snacks as Kellogg’s Spins Off Cereal Business and Renames Itself Kellanova
For over a century, Kellogg’s has relied on frosted cornflakes as the foundation of its business. However, the company is making a significant change on Monday by spinning off its cereal business and focusing on its fast-growing snack unit. In line with this restructuring, the company will also change its name to Kellanova.
This move by Kellogg’s is part of a larger trend in the food industry as companies place bigger bets on snacking. Just recently, J.M. Smucker acquired Twinkie maker Hostess Brands for $5.6 billion in an effort to expand its snack portfolio. However, these food companies may face challenges due to the rise of blockbuster obesity and diabetes drugs such as Wegovy and Ozempic, produced by the pharmaceutical industry.
Investors are optimistic about the future of these drugs, but their success could result in slower sales for companies like Kellogg’s, Hershey, Doritos, and Mondelez, who produce popular snack brands. This risk has sparked a shift in focus towards the snack market over the past decade as the rest of the grocery aisles experience stagnating sales, particularly with rising prices.
According to HSBC, the market for savory snacks in the U.S. is projected to grow 6% annually from 2022 to 2027, while sales of sweet snacks are expected to rise by 4.6% annually during the same period. Accenture data shows that roughly three-quarters of consumers plan to snack every day, with millennials and Generation Z driving this trend. These younger generations tend to eat smaller meals closer together, resulting in more opportunities for snacking.
However, the rise of drugs like Ozempic and Wegovy presents potential challenges for the snack industry. These GLP-1 agonist drugs suppress appetite and can lead to aversions to high-sugar and high-fat foods – a category that includes many popular snack brands. In the fourth quarter of 2022 alone, over 9 million prescriptions for these drugs were written in the U.S., and Morgan Stanley estimates that by 2035, around 24 million Americans could be taking GLP-1 drugs.
If this happens, Morgan Stanley predicts a potential 3% decrease in consumption of baked goods and salty snacks, and even more if these new eating habits spread to the households and friends of those using the treatments. This poses a risk to companies such as Kellogg’s successor Kellanova, Hershey, Mondelez, PepsiCo, and General Mills.
However, some industry insiders do not believe the impact will be as significant. Smucker CEO Mark Smucker, after acquiring Hostess Brands, remains confident in the future of sweet snacks and believes that consumers will continue seeking various types of snacks. He points out that GLP-1 drugs like Wegovy and Ozempic are expensive and may not be accessible to everyone due to limited insurance coverage. Additionally, patients need to self-inject the drugs once a week, and their effects diminish if treatment is stopped.
Oliver Wright, senior managing director of Accenture’s consumer goods and services unit, acknowledges the potential of GLP-1 drugs but believes that until a more affordable, enduring-impact formulation is developed, it will be challenging for these drugs to significantly affect the snack industry. Nonetheless, companies in the food sector will need to adapt to changing consumer behavior and incorporate healthier options into their portfolios. PepsiCo and Mondelez have already acquired smaller brands that offer healthier snack alternatives.
Food companies are also investing in research and development to create new formulations that replicate the taste of full-sugar and full-salt versions of their products. Accenture’s Wright predicts that in the near future, there will be a healthy version of popular snacks like Oreo that consumers won’t be able to distinguish from the original.
While the long-term impact of GLP-1 drugs on the snack industry remains uncertain, food companies have time to adjust and innovate. They will need to proactively reshape their portfolios and respond to changes in consumer behavior. Despite the potential challenges, the bet on snacking is expected to continue, driven by the growing snacking habits of millennials and Generation Z.
— Annika Kim Constantino contributed reporting for this story.
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