Is the 'Ozempic phenomenon' a threat to the food industry?
The surging demand for weight-control drugs, prominently Ozempic, is not only aiding countless individuals in shedding excess pounds but is also noticeably tempering growth projections for the packaged food sector. What's even more striking is the speed at which this transformation is occurring. Indeed, the food industry is now exploring how these medications might potentially reshape the future of food consumption in Canada, with potential consequences for the way Canadians eat in the coming years.
Let's begin by discussing the medication itself. Referred to as GLP-1 drugs, these pharmaceuticals mimic a hormone that signals fullness to the brain, encouraging individuals, including those already taking diabetes medications, to eat less and make more health-conscious dietary choices. Originally developed to manage Type 2 diabetes, many now regard them as a miraculous solution for weight loss, actively seeking insights from their healthcare providers. The demand for these drugs, fueled in part by the millions of TikTok viewers, has resulted in shortages. With the exception of Ozempic, Health Canada has approved very few similar drugs, like Rybelsus, which can be taken orally. Unless individuals have insurance coverage, the cost of these treatments can range from $600 to well over a thousand dollars per month.
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According to data from Statistics Canada, in 2021, approximately 29% of Canadian adults aged 18 and above were categorized as obese, with an additional 36% falling into the overweight category. While the prevalence of overweight adults remained relatively stable between 2015 and 2020, there was a notable increase of approximately three percentage points in the prevalence of obese adults during the same period. This translates to roughly one-third of the Canadian population grappling with weight-related issues. Given these statistics, it's no surprise that interest in these treatments is on the rise.
The food industry is starting to take notice of this shifting landscape. Just last week, a Walmart executive disclosed to Bloomberg that the retail giant observed that individuals using GLP-1-type drugs like Ozempic tend to purchase slightly fewer groceries than other customers. As a result, Mondelez International, renowned for its popular snacks such as Oreos and Ritz crackers, experienced a 7.7% drop in its shares over the following two days.
PepsiCo also weighed in on this matter last week while reporting its financial results. Although PepsiCo demonstrated robust financial performance in the most recent quarter, it has cast doubts on the prevailing notion of a potential market downturn driven by Ozempic. The traditionally resilient PepsiCo stock has, however, suffered a significant decline of almost 13% over the past six months, mirroring broader sell-offs within the food industry. Shares of Mondelez, the maker of Chips Ahoy! Oreo cookies and Cadbury are down almost 12% in the last 6 months. Nestle shares, the largest agribusiness in the world, are also down 8%, just in the last 6 months. These declines have ignited discussions on Wall Street regarding the implications of the growing prevalence of new weight-loss medications.
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This situation leads us to question whether the profitability of the food and snack industry is fundamentally intertwined with a consumer base grappling with excess weight. This question inevitably raises ethical and moral concerns. Undoubtedly, with share prices being impacted by these developments, these companies risk being seen as purveyors of unhealthy foods if consumers start losing weight.
Should the “Ozempic phenomenon” become a reality, it could pose a significant challenge for consumer product and goods companies. Their task would be to transition from being viewed solely as providers of convenient food to being recognized as solution providers for individuals on a weight-loss journey in a potentially leaner marketplace.
In the initial stages of introducing weight-loss drugs, factors such as adoption protocols, regulatory hurdles, and associated costs are likely to constrain their widespread use. Time will be the ultimate judge. However, it is clear that these drugs are creating apprehension among many in the food industry and among shareholders.
