The popularity of new diet drugs from Novo Nordisk and Eli Lilly in the United States has begun to take a toll on the traditional food and beverage industry.
Eastern time on October 5 (Thursday), the two largest beverage giants in the United States, Coca-Cola and Pepsi, fell 4.83% and 5.22%, respectively, and their market value evaporated $11.5 billion and $12.13 billion in one trading day. The move follows a warning from a senior Walmart executive that the new class of diet drugs could lead to a major shake-up in the US food industry after consumers taking GLP-1 agonists such as Ozempic and Wegovy experienced a drop in demand.
According to reports, GLP-1 receptor agonists can not only promote insulin secretion, inhibit glucagon secretion and reduce blood sugar, but also delay gastric emptying, inhibit appetite, and thus lose weight.
However, studies have found that people who use GLP-1 agonists to lose weight have a higher risk of pancreatitis, intestinal obstruction and stomach paralysis. That doesn't seem to have hurt its popularity in the United States, though. On Oct. 7, Musk tweeted "Platform" for weight-loss drugs, saying "it is almost certain that the health risks associated with obesity outweigh the risks of GLP-1 agonists."
Analysts at Morgan Stanley said that as more patients take diet pills, food and beverage manufacturers, restaurants, grocery stores and other sectors in the United States will be affected.
Diet pills are killing America's appetite?
John Furner, president and CEO of Walmart's U.S. operations, said in an interview with Bloomberg on Wednesday (Oct. 4) that the success of GLP-1 receptor agonists such as Ozempic and Wegovy could lead U.S. consumers to spend less on food. "Consumers who take GLP-1 receptor agonists to suppress appetite buy 'fewer units of food and slightly fewer calories' than other consumers."
Bloomberg reported that to better understand how these diet pills are changing consumers' shopping habits, Walmart is using anonymous data from shopper groups to study changes in consumption patterns, which can look at changes in the buying habits of consumers who take diet pills, and can compare these habits with those who do not take diet pills. But Verner said it was too early to draw definitive conclusions about changes in spending habits based on consumers taking appetite suppressants and similar drugs made by Novo Nordisk.
It's worth noting that as recently as August, Walmart said sales of such drugs would boost the company's revenue. Walmart sells GLP-1 drugs through its pharmacies, including Ozempic.
"We continue to expect food, consumables and healthcare sales to increase by one percentage point in the second half of the year, primarily due to the availability of some GLP-1 drugs," Doug McMillon, Walmart's chief executive, said on a conference call with analysts in August. At the time, Walmart CFO John David Rainey also said the GLP-1 drug had other potential positive effects on overall sales. Rainey told CNBC at the time that customers who take diet pills "tend to spend more money with us in general," even though they buy less food.
However, just two months later, the popularity of new diet pills has caused Wal-Mart to completely change its attitude.
The Daily Economic News reporter noted that in addition to Walmart executives, there are indeed more and more ceos and investors talking about the potential impact of the current popular diet drugs on the economy and business. Earlier this week, the ceos of Pringles and Kellanova, the snack company spun off from Kellogg's, both said their companies are studying the potential impact of diet pills like Ozempic on consumers' eating behavior.
Steve Cahillane, Kellanova's chief executive, said: "As with all things that may affect our business, we look at them, study them and take mitigation measures when necessary." Cahilan also said that a pragmatic approach for Kellanova may be to increase penetration in the United States and other markets at the same time, to find consumers who are interested in snack products and can build a certain brand loyalty.
The $1 trillion U.S. food industry may be shaken
The CNBC report said GLP-1 drugs reduce some patients' desire for foods high in sugar or fat, which could put pressure on some brands that have leaned toward snacks in their marketing in recent years. According to Markets Insider, junk food companies, among others, are expected to be potential losers from the diet pill craze, as people increasingly prefer healthier foods.
Analysts have previously expressed similar concerns, saying that the growing popularity and use of weight-loss drugs will have a profound impact on the food and beverage industry, and companies in this field may have to adjust their product portfolios to cope with changing consumer behavior.
In August, a team of 17 Morgan Stanley analysts released a research report saying that food and beverage manufacturers, restaurants, grocery stores and other fields will be affected by diet drugs, because the number of patients who need to take diet drugs is expected to increase to 24 million in the next decade, accounting for nearly 7% of the total population of the United States. About 45 percent of Americans are now considered obese, and 70 percent are overweight, MarketWatch reported.
"Given the direct effect of weight-loss drugs on reducing appetite and calorie intake, azomethane (AOM) intake may drive broad and long-lasting behavioral shifts in a large population, precisely the group that accounts for the highest percentage of food consumption," the report notes.
Morgan Stanley expects high-carbohydrate foods such as fast food and pizza, as well as sweets, snacks, salty snacks, high-sugar drinks and snacks to be most affected by diet pills.
ZeroHedge, a well-known financial blog, also said in an article that Ozempic and Wegovy could cause a restaurant revolution in the United States. In its comfort zone, the American food industry is too lazy to change, assuming that America's obsession with fast food, hamburgers and other carbonated junk food will not change. The food industry in the United States is worth nearly $1 trillion, and any small change in the industry can cause a big shock.
In fact, not only the Coca-Cola and Pepsi mentioned above, but also the stock prices of some well-known fast-food chains in the United States have been hit recently. As of the close on October 6, McDonald's had fallen more than 15% since its all-time high on June 30 this year.
Yum Brands, the owner of KFC and Pizza Hut in the U.S., is down more than 15 percent from its record high set on May 20. On October 6, Yum also hit a new low since November last year.
Or cause intestinal obstruction and other diseases
Wegovy and Ozempic, prescription drugs based on Semaglutide, have been wildly popular with celebrities and regular people alike over the past year.
According to a recent report from Trilliant Health, sales of these appetite suppressants in the United States increased by 300 percent between 2020 and 2022. According to the Daily Mail, citing unsourced data, in the fourth quarter of 2022, more than 9 million prescriptions for weight loss drugs were issued by US health care providers.
In addition, consumption of drugs such as Ozempic and Wegovy is likely to surge as U.S. consumers demand more of them this year. Recent analyses suggest that as many as 15 percent of Americans have tried such drugs.
But while Wegovy and Ozempic have gained popularity, Semaglutide has come under fire for its potential side effects.
Recently, a University of British Columbia study found that people who lost weight using GLP-1 receptor agonists had a higher risk of pancreatitis, intestinal obstruction, and stomach paralysis. In addition, the U.S. Food and Drug Administration (FDA) recently began changing the product label of Ozempic to warn consumers that the drug may cause intestinal obstruction.
Despite this, in the early morning of October 7, Beijing time, Musk also endorsed the diet drug on Twitter (now X), saying that "diet drug Ozempic affected Walmart's food sales this is shocking." While no drug is without side effects, it is almost certain that the health risks associated with obesity outweigh the risks of GLP-1 agonists." As of press time, Musk's tweet has been read more than 14 million times.