Is the Rising Popularity of Weight-Management Drugs Killing the Packaged-Food Industry?
The increasing popularity of weight-management drugs like Ozempic and WeGovy is not only curbing appetites but also impacting growth forecasts for the packaged-food industry. The GLP-1 drugs, which mimic a hormone that signals fullness to the brain, are leading users of diabetes medications to eat less and opt for healthier options. However, this poses a threat to junk food brands that produce high-fat and high-sugar processed foods.
Walmart has already noticed a slight decline in overall purchases among those taking weight-management meds, according to Walmart US CEO John Furner. He noted that people on these medications are consuming fewer calories and purchasing fewer units. Barclays has also warned that the popularity of such drugs could dampen demand for companies like PepsiCo, which produce sugary drinks and snacks.
Not only are junk food and beverage companies at risk, but fast-food chains should also reconsider their menu offerings. A recent Morgan Stanley report revealed that over 70% of individuals taking weight-management drugs visited fast-food restaurants less frequently.
However, it’s important to note that the global supermarket industry is unlikely to be significantly impacted in the short term. These drugs are primarily accessible to the affluent due to factors such as high costs, limited availability, and lack of insurance coverage. Additionally, historical diet trends have shown that although consumer preferences change, the packaged food industry continues to grow.
Implications of Weight-Management Drug Use
RBC analyst Nik Modi highlights that indulgent snacks, often considered junk food, are primarily consumed by lower-income individuals who are unlikely to be the primary users of these medications. Nevertheless, weight-management drugs have the potential to significantly impact various industries:
1. Medical Device Manufacturers
Predictions suggest that weight-management drugs could reduce the need for insulin injections, affecting stocks of insulin delivery system manufacturers like Insulet and Tandem Diabetes Care. Furthermore, GLP-1 drugs might alleviate chronic conditions associated with obesity, leading to lower demand for CPAP machines.
2. Furniture and More
Due to the high out-of-pocket costs of weight-loss drugs, households may reduce spending on discretionary goods like furniture.
3. Beer and Tobacco Producers
Patients taking weight-management drugs have reported a reduced desire to consume alcohol and tobacco. If the use of these drugs becomes widespread, it could have a significant impact on sales for major alcohol and tobacco brands. However, the survival skills of the vice industry, developed over centuries, suggest that revenue loss will not be immediate or easy.
While the rise of weight-management drugs presents potential losers, certain industries could benefit from more Americans seeking to get fit. Drugmakers like Novo Nordisk and Eli Lilly, as well as distributors like CVS, and fitness-related brands like Nike and Planet Fitness, stand to gain from this trend.
Non-Exhaustive List of Potential Losers
The following industries could face challenges if weight-loss medication becomes more prevalent:
- Medical device manufacturers
- Furniture and discretionary goods
- Beer and tobacco producers
Ultimately, the impact of weight-management drugs on the packaged-food industry and other sectors remains to be seen. While these drugs have the potential to disrupt consumer preferences, it is important to recognize that tastes and habits can change, but the packaged-food industry has continually grown and adapted to new trends.
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