The rise of weight-loss drugs is not only shrinking Americans’ waistlines, it could also shrink food corporations’ bottom lines.
Some experts predict that junk food companies, already struggling with a surge in health-conscious customers, could face a tobacco-like demise due to drugs like Ozempic and Wegovy, which reduce cravings and make people feel satiated for longer.
Big banks, such as Morgan Stanley, predict that 24 million people, or seven percent of the U.S. population, will be taking weight-loss drugs by 2035.
An analysis by the bank also predicts that patients prescribed these drugs will consume a quarter of the sweets, confectionery and other junk food they consumed before, cutting billions of dollars from annual income.
And corporations are already scared. A recent analysis found that executives at junk food companies are increasingly talking about drugs with investors.
A survey by Morgan Stanley found that 73 percent of people ate less sweets, which include candy, chocolate and some baked goods.
Like snack makers, major players in the fast food industry, such as McDonald’s, Burger King and Yum Brands, which owns KFC and Taco Bell, could also see a drop in demand.
Morgan Stanley food analyst Pamela Kaufman said in a report: “The food, beverage and restaurant industries could see weaker demand, particularly for unhealthy foods and high-fat, sweet and salty options.
The new class of drugs can lead to a 20 to 30 percent reduction in daily calories, and people tend to eat fewer foods high in sugar and fat, meaning that manufacturers of chips, cookies and products baked goods could be affected, according to the banks. predicting a drop in consumption of up to three percent until 2035.
While any negative impact is likely to be gradual, investors and top executives have already begun to worry.
Reuters’ Breakingviews examined transcripts of corporate presentations, events and earnings calls, which is a conference between a company’s management, financial analysts, media and investors.
It found that in 2022 there were 18 mentions of Wegovy, Ozempic and Mounjaro. So far in 2023, at least one of these drugs has been mentioned on calls 71 times.
Morgan Stanley research found that 73 percent of people taking weight-loss medications ate less sweets, including candy, chocolate and some baked goods.
Seventy percent of people consumed fewer sugary drinks; 69 percent ate fewer cookies; and 67 percent opted for fewer salty snacks.
These drastic reductions could spell trouble for mega-producers of these types of foods, including Cadbury and Oreo producer Mondelez International, Nestlé, which makes Hot Pockets and Häagen-Dazs, and Kraft Heinz, which makes products like Jell-O and Kraft Mac . and cheese.
These companies dominate the global snack market, currently valued at half a trillion dollars, and should prepare for falling demand.
The hotel sector is also being affected. The same survey found that 77 percent of people taking weight-loss medications made fewer trips to fast food establishments and 74 percent ate less at pizzerias.
Like snack makers, major fast-food industry players such as McDonald’s, Burger King and Yum Brands, owner of KFC and Taco Bell, could see a drop in demand, with analysts predicting a drop in sales of between one and two percent by 2035.
While two percent may not seem like much, it amounts to almost $7 billion.
Alcohol will also be affected by the increase in weight loss recipes. Two-thirds of Americans taking these medications report consuming less alcohol and nearly a quarter stopped drinking alcohol altogether.
Banking analysts projected that U.S.-based alcoholic beverage companies face the greatest risk and can expect a two percent decline in consumption by 2035.
The implications of the approval and popularity of weight loss drugs extend beyond the food and beverage industries.
Financial analysts also predict that companies that make products to treat conditions resulting from obesity could also be affected.
Companies that make products for sleep apnea, a condition in which sufferers stop breathing intermittently while sleeping, will likely see a reduction in value because about 70 percent of sufferers are obese.
Additionally, companies that sell joint replacements should also expect their valuations to decline.
And rival weight loss companies, such as WW International, formerly known as Weight Watchers, have seen their shares fall about 70 percent since Wegovy was approved in June 2021. Jenny Craig, a similar company, closed in May after over 40 years due to increasing competition from weight loss drugs.