Doug McMillon, Walmart’s chief executive, said in an August earnings call that GLP-1 drugs — which it sells through its pharmacy — were helping to propel its business. The drugs have helped lift its sales but not profits, according to Bank of America, because brand-name drugs have lower profit margins.
Other corporate leaders are projecting a sunny optimism as they field questions about how GLP-1s will affect their prospects. Steven Wood Presley, chief executive of Nestle’s North American unit, said at a Barclays conference last month that the company was “clearly watching” the impact of GLP-1 drugs, adding that they would create an opportunity for its Lean Cuisine meals.
“That kind of meal is exactly what you’d end up eating on these kind of drugs,” Presley said, according to a transcript compiled by S&P Global Market Intelligence.
Bank of America analysts extrapolated the effect of the drugs even more broadly, saying in a report last week that by reducing cravings and addictive behaviors, the effect of the drugs could ripple across the markets for tobacco, alcohol and gaming.
Analysts for investment bank Jefferies theorized that if enough overweight adults lost enough pounds on these drugs, they could reduce the weight of an airplane. Assuming the average passenger’s weight dropped by 10 pounds, they estimated a weight savings of 1,790 pounds per flight, which would result in the saving of $80 million in annual fuel costs per airline.
There is still much that isn’t well understood about GLP-1 drugs, named for the naturally occurring gut hormone they mimic, including the long-term effects of taking them. Many executives say it is still too early to calculate any long-term effect.
Drugs like Ozempic, Wegovy and Mounjaro slow the stomach’s emptying, causing people to feel more full and eat less. People who are obese can lose 15 to 20 percent of their weight on these appetite-suppressing drugs.
The demand for the weight-loss drugs has been so hot that the two drugmakers who dominate the sector, Novo Nordisk and Eli Lilly, can’t make enough to satisfy patient demand. Health care providers wrote more than 9 million prescriptions of GLP-1 drugs in the last three months of 2022, according to data-analytics firm Trilliant Health.
The ultimate size of the market, however, is vastly greater. More than 40 percent of American adults meet the criteria for obesity, according to the Centers for Disease Control and Prevention. Drugmakers are racing to develop even more powerful weight-loss drugs and pill versions of the injectable medicine, with some analysts estimating that they could become the largest class of pharmaceuticals in the industry.
Yet these projections aren’t a sure bet. Many insurance companies cover Ozempic and Mounjaro for diabetes, the purpose for which the Food and Drug Administration approved them, but not for weight loss. With list prices ranging from more than $900 to $1300 a month, the drugs can be difficult for many patients to afford.
They also come with side effects that can be unpleasant, such as nausea and diarrhea. A recent study found that almost 70 percent of patients who had taken Wegovy and an older weight-loss drug, Saxenda, had stopped taking the medications, without saying why.
Some restaurant companies have shrugged off any effects from customers having smaller appetites, pointing out that many diners go out to eat to connect with friends and family.
“We’re going to react to whatever happens, but we don’t think it’s going to be a meaningful impact to us because of the celebratory nature,” Rick Cardenas, chief executive of Darden Restaurants, which includes Olive Garden, said in an earnings call last month. “If it suppresses appetite a little bit, they’re still going to eat.”
The beverage industry may be especially vulnerable to changing consumer behaviors. In a study of 300 obesity drug patients this summer, many reported cutting back considerably on nonalcoholic and alcoholic beverages, with 65 percent consuming fewer sugary carbonated drinks and 62 percent drinking less alcohol, according to recent Morgan Stanley research. Almost a quarter stopped drinking alcohol and almost 20 percent gave up sugary drinks.
Morgan Stanley anticipates about 7 percent of American adults, or around 24 million people, will be on these new drugs by 2035, with a 1.3 percent reduction in U.S. calorie consumption overall — but not all calories are created equally. Barclays strategists have said these drugs pose a significant threat to fast food, while Morgan Stanley expects a huge surge in the sale of fresh fruits and vegetables.
Dan Dolev, managing director at Mizuho Securities, predicted on CNBC’s The Exchange last week that the drugs could cause a $25 billion drag on the U.S. restaurant industry by 2025. This, in turn, will reduce sales of restaurant equipment, purchases from wholesale food distributors, staffing and even third-party delivery business.
On an earnings call with investors last week, Conagra chief executive Sean Connolly was asked about how these drugs might affect the food giant’s bottom line. Connolly responded that the company will evolve along with its consumers — but he didn’t anticipate the need for change that soon.
“If we end up seeing changes in consumer eating patterns, let’s say they go to smaller portions, then … we design smaller portions,” he said. “If they switch to different types of nutrients, we evolve the innovation, we switch to different types of nutrients … This is the kind of stuff that will happen over five, 10, 15 years, not over the next six months.”
