With the emergence of a new generation of weight loss drugs poised to reshape the healthcare industry, the landscape of consumer diets may also be on the cusp of a massive transformation, sending ripples through the food and beverage sectors.
New weight loss drugs known under the acronym of GLP-1, embodied by Novo Nordisk’s Ozempic and Wegovy and Eli Lilly’s Mounjaro, operate primarily by suppressing appetite. While currently designed and approved for type 2 diabetes treatments, these drugs make it easier for patients to reduce their caloric intake, fostering an environment where individuals are more inclined to adopt long-term changes to their diet and exercise habits. Hence, the promising aspect of these drugs lies in their potential to encourage individuals to not only shed excess weight but also to maintain a healthier lifestyle.
These injectable treatments have generated significant investors’ attention due to their remarkable effectiveness in assisting obese individuals in achieving reductions of over 20% of their body weight, while also cutting back the most on foods that are high in sugar and fat such as baked goods, confections, and salty snacks, as well as sugary drinks and alcohol.
The estimated 20-30% reduction in calorie intake is expected to hit a massive patient/consumer pool. In the US alone where two thirds of the population are overweight and almost 50% obese, the GLP-1 “addressable market” is expected to reach close to 30 million people in the next 10 years. This should then represent a significant headwind in the mid and long term for food companies and restaurant chains focused on unhealthy food (snacks, fast food…) as patients adopt new eating habits.
On the positive side, companies specializing in healthy foods and drinks, nutrition supplements and weight management diets could well be primed for additional growth in the years ahead.
Notably, companies active in plant proteins could find a well-needed second wind as patients will look for low-fat, low-calorie food during their medication and, even more importantly, after they quit their medication if they want to maintain a healthy weight. With plant-based meat companies focusing their marketing recently on health benefits and supporting various studies on plant-based meats and related health outcomes, we wouldn’t be surprised to hear more of them in a near future on the fight against obesity.
Likewise, initial studies suggest that patients under medication are exercising more and are likely to keep going to the gym often when they quit in order to preserve their weight loss. This should act as a tailwind for sports nutrition companies Celsius and BellRing, that already boast impressive growth figures (112% and 20% in Q2, respectively). The former is known for its sugar-free energy drinks, while the latter specializes in protein bars and shakes, with a strong emphasis on ‘better-for-you’ options.
Beyond these players, companies such as Simply Good Foods, recognized for its diverse range of health-conscious offerings including protein bars and shakes, and Vital Farms, renowned for its commitment to ethically-sourced, premium-quality dairy products, also look well aligned with the surging demand for responsible and sustainable food choices.
Finally, WW International, that owns the struggling Weight Watchers brand, could also be one of the beneficiaries. The company, in addition to its weight management programs, has expanded its scope into digital health and wellness platforms thanks to a strategic move earlier this year, when it acquired Sequence, a telehealth platform exclusively dedicated to addressing obesity and providing GLP-1 prescriptions. Should it succeed in leveraging its 6-million-member base to drive Sequence subscriber growth, WW would enjoy an attractive turnaround story based on the Sequence dynamics and signs of stabilization/improvement in its core business.
In conclusion, as weight loss drugs herald a shift in consumer behavior, the food and beverage industry will have to respond fast and, notably, to reshape product portfolios toward better-for-you categories. M&A could obviously be the solution, with most of the above-mentioned companies screening as takeover candidates.