27 October 2023

Will weight-loss drugs hamper Coke, Pepsi, and other Big Food firms?

USA | It’s a worry. In recent weeks the share prices of Coca-Cola, PepsiCo, Mondelez International, and Constellation Brands, as well as of retailers like Walmart and Costco, have fallen. This came after anonymised data by Walmart had shown that US shoppers, who bought weight-loss drugs, also purchased less food.

The latest killjoys threatening the food, beverage and restaurant industries are not another dietary fad, but injectable medicines, such as Wegovy, approved in 2021 as an anti-obesity drug, and Ozempic and Mounjaro, anti-diabetes drugs used off-label for weight loss. These so-called “skinny pen injections” reproduce a feeling of fullness and suppress appetite.

Demand for these drugs is already exceeding supply. According to the Economist, there are shortages of Wegovy and Ozempic, leading some pharmacists to make copycat versions.

The potential for disruption is huge

About 70 percent of Americans are obese or overweight. In the EU it is 53 percent. By 2035 it is estimated that half the world will be obese or overweight. Not just overstretched health services would benefit from people consuming fewer calories, airlines too could cut their fuel bills if average passenger weights came down.

If these drugs prove effective, they could have negative impact on a variety of industries, from kidney dialysis kit-makers, to retailers and Big Food firms.

PepsiCo addresses concerns

On 10 October, PepsiCo’s CEO, Ramon Laguarta, played down the impact, saying that these drugs were on Pepsi’s radar but were not expected to affect any of the long-term trends boosting its snacks business, such as urbanisation, busy lives, and a growing middle class.

His comments came after Walmart’s US boss, John Furner, told Bloomberg News on 5 October that people taking appetite suppressant medications are buying “less units, slightly less calories”. Anonymised data showed that shoppers, who bought weight loss drugs like Wegovy at Walmart’s pharmacies, were buying less food at its stores.

Beverage consumption affected too

Analysts already raised the alarm that consumer trends may change as weight-loss drugs gain in popularity. Recent research (September 2023) by Morgan Stanley, a bank, paints a worrying scenario. Obesity drug patients reported cutting back considerably on both non-alcoholic and alcoholic beverages. 65 percent of patients said they were consuming fewer sugary soft drinks and 62 percent said they were drinking less alcohol.

Nearly a quarter stopped drinking alcohol entirely and nearly 20 percent gave up sugary drinks. Analysts see US focused alcohol companies facing the most exposure from increased obesity medicine usage and expect a roughly 2 percent drop in consumption by 2035.

“While the drop in beverage consumption is meaningful, companies should be able to manage the risk over time by shifting, for example, to low- or no-calorie offerings,” Morgan Stanley analysts said.

Current projections lack hard data

For now, most of the projections are based on guesswork. “More painstaking analysis has to include calculations not just of absolute obesity numbers, but of who is and is not eligible for insurance [Wegovy costs more than USD 16,000 a year], people’s willingness to submit to treatment, the impact if the drugs have side-effects, the drop-out rates and the risk of regaining weight once off the drugs,” The Economist commented.

Investors need to think long-term

So why the stock market swoon? According to The Economist, the best answer is that current conditions may be worse than the food and beverage industries like to admit. PepsiCo’s third-quarter sales and profits beat analysts’ expectations, but mostly thanks to higher prices. Volumes fell 2.5 percent compared with a year ago. Perhaps food and beverage companies have overexploited their pricing power already?

Brauwelt International Newsletter

Newsletter archive and information

Mandatory field