- Food companies are betting big on snacks, but the rise of Wegovy, Ozempic and similar drugs could pose a threat to future sales growth.
- Morgan Stanley estimates that the number of patients taking GLP-1 drugs could reach 24 million, or nearly 7% of the U.S. population, by 2035.
- But PepsiCo, Mondelez and other food companies may be able to shift their portfolios before that happens.
The snack aisle is seen during a tour of a new Amazon Go store in the Capitol Hill neighborhood of Seattle, Washington, USA, on Monday, February 24, 2020.
Chona Kasinger | Bloomberg | Getty Images
For more than a century, frosted cereal has been the backbone of Kellogg’s business. That changes on Monday when the company spins off its robust cereal business in favor of its faster-growing snacks division and renames itself Kellanova.
The spinoff comes weeks after another bet that consumers will graze between meals, when JM Smucker bought Twinkie maker Hostess Brands for $5.6 billion to expand its snack offerings.
But the food companies are big Bets on snacks come as investors fear the looming threat of Big Pharma’s blockbuster obesity and diabetes drugs Wegovy and Ozempic. Many investors have high hopes for the future of pharmaceuticals, but their success could mean lower sales for the companies that make Oreos, Doritos and Hershey’s Kisses.
Big Food’s bet on snacks has been around for about a decade and has only strengthened as sales remain stagnant at the rest of its grocery stores, especially as prices rise. The U.S. savory snacks market is expected to grow 6% annually from 2022 to 2027, and sweet snacks sales are expected to grow 4.6%. according to HSBC annually. According to Accenture data, about three-quarters of consumers plan to have a snack every day.
Millennials and Generation Z consumers are driving this trend. Younger generations snack more often than older consumers, said Kelsey Olsen, food and beverage analyst at market research firm Mintel. Millennials and Gen Z consumers tend to eat smaller meals that are closer together, creating more opportunities to snack.
At the same time, Novo Nordisk’s Ozempic and Wegovy have enjoyed a resurgence, fueled by recipes designed to help patients lose weight. The drugs, known as GLP-1 agonists, suppress appetite by mimicking a gut hormone. Some patients even report an aversion to foods higher in sugar and fat – a category that includes many major snack brands.
According to a report from Trilliant Health, more than 9 million prescriptions for these types of medications were filled in the United States in the fourth quarter of 2022.
Morgan Stanley estimates that the number of patients taking GLP-1 drugs could reach 24 million, or nearly 7% of the U.S. population, by 2035.
If so, consumption of baked goods and salty snacks could fall by 3% – or even more if the new eating habits of people using the treatments spread to their wider households and friends, according to the Morgan Stanley study. That puts companies like Hershey, Mondelez, PepsiCo, General Mills and Kellogg’s successor Kellanova at risk.
But not everyone in the industry agrees with this assessment.
Boxes of Ozempic, a semaglutide injection drug used to treat type 2 diabetes and manufactured by Novo Nordisk, are seen at a Rock Canyon pharmacy in Provo, Utah, on May 29, 2023.
George Frey | Portal
After buying Hostess Brands, Smucker CEO Mark Smucker defended the future of Twinkies and Ding Dongs against the threat of GLP-1 drugs.
“There are several ways consumers will continue to snack. …And given that consumers continue to look for all kinds of snacks and sweet snacks will continue to remain on the radar, we believe our forecasts here are solid,” he told analysts on a conference call.
For one thing, GLP-1 drugs like Wegovy and Ozempic are expensive, with a list price of about $1,000 per month. This high price has led some insurers to decide not to cover the treatments.
While some of the nation’s largest insurers, such as CVS’s Aetna, cover prescribing of these drugs, the federal Medicare program, many state Medicaid programs and some commercial insurers do not, leaving patients to foot the bills themselves .
Another factor could be boosting snack sales. Many of the consumers who eat the most junk food probably won’t be able to afford Wegovy or Ozempic.
“Consumption of indulgent salty snacks that would be considered ‘junk food’ is generally skewed too heavily toward lower-income individuals who are unlikely to be the primary users of these drugs,” said RBC analyst Nik Modi on Tuesday in a research note.
Modi wrote that he does not believe the drugs will ultimately be problematic for salty snack makers.
In addition, patients must inject themselves once a week and when they stop the treatments, their effects disappear and usually the weight loss that has occurred over time is reversed.
“This type of drug is super interesting in terms of what it can do, but I think until it comes in a completely different formulation, in a pill or something like that, and something that has lasting effects and of course at a much lower price, I think I.” “It’s going to be difficult,” said Oliver Wright, senior managing director of Accenture’s consumer goods and services division.
Even if the drugs become more affordable and more widely available, change will not happen overnight. Food companies will have time to adapt to changing consumer behavior.
“We recognize that the impact will likely be limited in the short term as drug acceptance will gradually increase over time, but we could see a longer-term impact as drug prevalence increases,” Paula Kaufman of Morgan Stanley wrote in a note to customers. “In addition, we expect companies to adapt to changing consumer behavior through innovation and portfolio transformation efforts.”
That could mean slower sales growth than expected and steps to divest some brands. But Big Food has been making strides toward healthier options anyway. GLP-1 drugs could increase pressure on companies to update their portfolios.
PepsiCo and Mondelez are among the companies that have acquired smaller brands that make healthier snacks. Still, it will take time to develop them into global powerhouses.
Food companies are also looking internally and investing in their research and development teams to develop new recipes that reflect the taste of their full sugar and salt versions.
“My prediction is that before the end of the decade we will have a healthy Oreo that can be put on a plate with an old one and consumers will no longer be able to tell the difference – and that will be a good thing.” said Accenture’s Wright.
— Annika Kim Constantino contributed reporting for this story.