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Calorie-Cutting Controversy: How GLP-1 Drugs Like Ozempic Stir the Pot in the Food Retail Market

It’s been a rough week for consumer-staple stocks. If you’re wondering why the beverage and snack giants like PepsiCo, Coca-Cola, and even fast-food behemoth McDonald’s are taking a hit, look no further than the rising popularity of GLP-1 drugs.

When we think of healthcare innovations, we don’t usually consider their impact on our dinner tables. But with shares of leading food and drink brands tumbling, it’s clear that the world of pharmaceuticals is sending ripples through the food industry. The big names weren’t the only ones affected; even retail giants like Walmart and Costco felt the sting, dropping by as much as 4% on a recent Friday, oddly enough amidst a broader market uptrend.

So, what’s the deal with these GLP-1 drugs?

GLP-1 agonists, including brands like Ozempic, Wegovy, and Mounjaro, aren’t new to the market. Approved for conditions such as diabetes and obesity, they work by making patients feel full more quickly. The principle is simple: feel fuller faster, eat less, and, consequently, lose weight.

Walmart’s US CEO, John Furner, shed light on this when he mentioned observing a “slight pullback in the overall basket” in correlation with the rise of these drugs. Given that Walmart is a major player in the US food and grocery sector, and has the capability to assess the shopping habits of its pharmacy customers, these observations hold weight (no pun intended).

Recent findings further drive home the point. A Morgan Stanley survey revealed that 77% of 300 patients on GLP-1 drugs reported fewer visits to fast-food joints and a daily calorie intake drop of 20%-30%. And if Bank of America’s predictions hold, this could spell trouble for snack and beverage companies. They suggest that these drugs might reduce addictive consumer behaviors, potentially leading to fewer soda and snack sales. Just think about it: this could be doubly concerning for a company like PepsiCo, a major player in both the soda and snack markets.

But, there’s a silver lining for retailers, albeit a thin one. While retail giants with in-house pharmacies, like Walmart and Costco, could benefit from the sale of GLP-1 prescriptions, it’s worth noting that branded drugs typically have slimmer margins.

Peeking at the stats, about 9 million Americans had jumped on the GLP-1 bandwagon by the close of 2022, according to a Trilliant Health analysis. As the drug becomes more accessible and its uses expand, we can expect that number to grow, especially if insurance coverage becomes more widespread.

All in all, the rise of GLP-1 drugs offers an intriguing narrative for both the pharmaceutical and food sectors. For investors, it underscores the interconnected nature of industries and highlights the need to stay agile in an ever-evolving market landscape.