Weight loss meds like Ozempic and Wegovy are having a social, financial and commercial effect on the population. They were originally approved for treating type 2 diabetes, but they have also been shown to cause modest weight loss in some people. They work by mimicking a natural hormone called GLP-1, which regulates appetite, blood sugar and digestion. While they are not officially weight loss drugs, some people use them as off-label for that purpose, and as the trend explodes, it is having an unanticipated effect on the commercial sector.
Some investors are betting that these medications could lead to seismic shifts not only in the food sector, but in clothing merchandising, and even in the travel and airline industry.
Some companies say they are already noticing a difference in how takers of these drugs shop. A Walmart executive told Bloomberg last week that the giant retailer found people taking GLP-1 drugs such as Ozempic and Wegovy bought slightly less food than other customers. Shares of Mondelez International, maker of popular snacks like Oreos and Ritz crackers, fell 7.7% during the following two days. The Hershey Co. and PepsiCo also saw their stocks slide.
Bank of America analysts projected the effect of the drugs even more broadly, saying in a report last week that by reducing cravings and addictive behaviors, the effect of the drugs could ripple across the markets for tobacco, alcohol and gaming.
Analysts for investment bank Jefferies theorized in relation to the airline industry, reasoning that that if enough overweight adults lost enough pounds on these drugs, they could reduce the weight of an airplane. Assuming the average passenger’s weight dropped by 10 pounds, they estimated a weight savings of 1,790 pounds per flight, which would result in the saving of $80 million in annual fuel costs per airline.
The demand for the weight-loss drugs has been so hot that the two drugmakers who dominate the sector, Novo Nordisk and Eli Lilly, can’t make enough to satisfy patient demand. Health care providers wrote more than 9 million prescriptions of GLP-1 drugs in the last three months of 2022, according to data-analytics firm Trilliant Health. And it is projected that the ultimate size of the market is vastly greater. More than 40 percent of American adults meet the criteria for obesity, according to the Centers for Disease Control and Prevention.
Some restaurant companies are, for now, shrugging off any effects from customers having smaller appetites, pointing out that many diners go out to eat to connect with friends and family.
“We’re going to react to whatever happens, but we don’t think it’s going to be a meaningful impact to us because of the celebratory nature,” Rick Cardenas, chief executive of Darden Restaurants, which includes Olive Garden, said in an earnings call last month. “If it suppresses appetite a little bit, they’re still going to eat.”
The beverage industry may be especially vulnerable to changing consumer behaviors. In a study of 300 obesity drug patients this summer, many reported cutting back considerably on nonalcoholic and alcoholic beverages, with 65 percent consuming fewer sugary carbonated drinks and 62 percent drinking less alcohol, according to recent Morgan Stanley research. Almost a quarter stopped drinking alcohol and almost 20 percent gave up sugary drinks.
Dan Dolev, managing director at Mizuho Securities, predicted on CNBC’s The Exchange last week that the drugs could cause a $25 billion drag on the U.S. restaurant industry by 2025. This, in turn, will reduce sales of restaurant equipment, purchases from wholesale food distributors, staffing and even third-party delivery business.
On an earnings call with investors last week, Conagra chief executive Sean Connolly was asked about how these drugs might affect the food giant’s bottom line. Connolly responded, “If we end up seeing changes in consumer eating patterns, let’s say they go to smaller portions, then . . . we design smaller portions,” he said. “If they switch to different types of nutrients, we evolve the innovation, we switch to different types of nutrients . . . This is the kind of stuff that will happen over five, 10, 15 years, not over the next six months.”
