Will Weight Loss Drugs Mean Losses for CPG Companies?

Ozempic has cut through the clutter of direct-to-consumer pharmaceutical advertising on TV with a simple message: It’s magic. Setting its jingle —“O-O-O-Ozempic!”—to the tune of Pilot’s 1970s hit song, “Magic,” the drug by Danish company Novo Nordisk has turned weight loss management upside down, attracting millions of Americans with the prospect of simply popping pills to mitigate diabetes or to solve dietary challenges they may have been wrestling with for decades.

The boom in popularity of Ozempic and related drugs has created a potential new funding crisis for the American health-care system. More important and immediate for the food and beverage business, Ozempic has stoked anxieties among CPG companies and grocery retailers over detectable declines in sales of snack products.

In the short term at least, dieters and diabetes sufferers are being attracted by the messages of greater freedom and enhanced lifestyles they’re seeing from Ozempic, introduced in 2017; from Wegovy, another drug specifically aimed at diabetics, introduced by Novo Nordisk in 2021; and by Mounjaro, a similar pharmaceutical launched by Eli Lilly last year.

Ozempic and Wegovy are semaglutides, part of a class of glucagon-like peptide-1 receptor agonists, or GLP-1 RA, drugs. They mimic the GLP-1 hormone that humans release in the gut in response to eating. One role of GLP-1 is to prompt the pancreas to produce more insulin, which reduces blood sugar. Mounjaro targets two hormones: GLP-1 and glucose-dependent insulinotropic polypeptide (GIP).

Morgan Stanley now predicts that this new group of weight loss medications will become pharmaceutical blockbusters worth a collective $54 billion by 2030. The Wall Street firm’s analysts are drawing a comparison to the takeoff of high blood pressure medications, which went from a nascent market in the 1980s to a $30 billion one a decade later.

All of this has begun presenting some challenges, and perhaps opportunities, to the CPG business. CEOs are sounding warnings that Americans no longer want to consume junk calories as wantonly as before, potentially flattening snacking sales and profits. But some others are finding hope in the notion that Ozempic will fade into just one among many consumer regimens or even prove to be just another fad in the long cavalcade of failed diet schemes.

Walmart executives set off alarm bells on Wall Street in the fall by saying that America’s largest retailer was already seeing an impact on food shopping demand from people taking the drugs that originally were meant to combat the effects of diabetes. “We definitely do see a slight change compared to the total population,” said John Furner, president and CEO of Walmart U.S. “[It’s] just less units, slightly less calories.”

Chiefs of snacking giants also were taking note. Kellanova CEO Steve Cahillane said the former Kellogg Co. snacks division was studying Ozempic’s potential impact on dietary behaviors so it could respond if needed. “We are by no means complacent,” the chief of the producer of brands including Cheez-It, Pringles, and Rice Krispies, told Bloomberg. Conagra Brands said on a quarterly earnings call that it’s prepared to adapt to potential changes in consumer eating patterns such as a shift to smaller portion sizes.

Soon, as some CPG stock prices shook, Bank of America was weighing in, opining that alcohol, snacking. and nonalcoholic beverage companies were at risk with booming consumer adoption of GLP-1 drugs. “Weight management products (shakes, frozen meals) could also be at risk if their function is no longer relevant,” Bank of America analysts wrote in a note to clients. They added that it’s too early to clearly understand the long-term impact on food consumption for patients who use the drugs.

The challenge to CPG and foodservice companies lies not just in a plateauing of overall calorie intake by GLP-1 patients, it’s also in a potential decline specifically in sales of the product categories weight-challenged individuals tend to eat. Typically, they consume a lot of snacks and nutrient-light foods that are the high-profit staples of the industry.

“Snacking line extensions are where companies make their money in CPG,” notes Cathy Kapica, former head of global nutrition for McDonald’s and now a consultant and CEO of the Awegrin Institute. “It may force CPG companies to reevaluate their product portfolios. A lot of them rely on heritage products that have been around for 150 years, like JELL-O,” made by Kraft Heinz. “Business may have to catch up with the sciences.”

Not every CPG executive is shaking in his or her boots. Nestlé’s outgoing chief financial officer, François-Xavier Roger, played down fears, saying dropout rates for Ozempic use are high and that most of Nestlé’s categories are protected. Hugh Johnston, recently retired PepsiCo chief financial officer, told Bloomberg in the fall that “we don’t detect [reasons for concern] in any of our numbers right now. It’s very early days.”

Indeed, there are reasons for widespread doubts about the long-term staying power of Ozempic-fueled weight loss and, therefore, about the severity of threats to the U.S. snacking business. “These medications have been taking over the imaginations of the media but are not a panacea,” says Julian Mellentin, publisher of New Nutrition Business. “There’s a long history of ‘miracle’ weight loss drugs disappointing. Over the last 30 years there have been five or six miracle drugs for weight loss, and who now remembers Orlistat? Or Rimonabant?”

Skeptics focus on significant issues for the drugs, including the cost of $900 to $1,000 a month for Ozempic, which often is only partially covered by insurers or not covered at all, depending on the level of coverage and the specific condition for which the medication is being prescribed. Walter Willett, professor of epidemiology and nutrition at Harvard T. H. Chan School of Public Health, has warned that the drugs could add 50% to U.S. health-care spending.

Another important consideration is that, if a patient stops taking the drug, there are no leftover effects and the person’s metabolism returns to its pre-GLP-1 state. “The reality is that these injectable weight-loss drugs are ‘forever drugs,’ since once you stop using them, the weight regain begins immediately,” says Barry Sears, author of the Zone Diet book series and an expert on anti-inflammatory nutrition.

Sears is among experts who also fear the as-yet-unknown long-term effects of GLP-1 drugs. “Forty percent of the total weight loss using these drugs is lean body mass coming from vital organs, which can only compromise long-term future health,” he says.

Already, Mellentin reports, “semaglutides are reportedly showing unpleasant side effects for some people,” including nausea, diarrhea, stomach pain, constipation, and vomiting. “No one has any idea what will happen with side effects from here.”ft