A weight loss problem
Running Point and its chief investment officer, Michael Ashley Schulman, CFA were quoted by Reuters— in an article by Granth Vanaik, “Snack-maker Conagra may tweak portions as weight-loss drugs alter appetites” —regarding the effects appetite-suppressing medications may have on consumer product goods (CPG) companies including snack food companies, fashion companies, and quick service restaurants.
Synopsis—Cause-and-effect: Adoption of weightloss drugs like Ozempic and Wegovy will force investors in CPG companies like Conagra, Mondelez, and Nestle to revamp their growth, revenue, and profit forecasts.
Ozempic and Wegovy change demand patterns
Walmart reports that it already sees an impact on high-fat, salty, and sweet food demand from people taking appetite-suppressing medications like the diabetes drug Ozempic, as well as Wegovy, Saxenda, and Victoza, and we are probably still in the early innings of the use and roll out of these effective drugs. It remains to be seen how large the impact will be on consumer product goods (CPG) companies, but it could significantly crimp growth estimates alongside current concerns of inflation, shrinkflation, possible recession, and stretched consumers. The threat of changing consumer behavior has caused a selloff in consumer staples such as soft drinks, alcohol, candy, ice cream, and snack stocks. The selloff is mostly a knee-jerk reaction from Walmart’s comments although broader market declines on worries of higher interest rates and economic slowdown are not helping. Similar investor fears seem to have taken down share prices for Walmart which was recently at record highs; however, it may be a short-term overreaction, especially for retailers like Walmart that could see a sales increase in beauty, clothing, and home goods if people spend less on food.
Companies affected
Companies like Conagra, Nestle, Kellanova, Pepsi, Mars, Mondelez, Kraft Heinz, and General Mills may need to reset their revenue and profit forecasts as more data is gathered and possibly reformulate recipes for changing tastes.
Fast food companies such as McDonalds, Yum! Brands, Jack in The Box, Wendy’s and Domino’s will probably also see slower growth as caloric demand decreases.
Ironically, diet and low-calorie snacks may witness the greatest growth decline as consumers see less need for them.
On the other hand, clothing retailers may very well see an uptick in sales as people that lose weight refashion their wardrobes with new clothes and styles for work, leisure, and sport.
Article excerpts are below:
Adoption of weight-loss drugs could force food companies to reconsider their revenue and profit forecasts, and change recipes, said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.
“It is definitely a concern that the weight-loss drugs will possibly have a significant impact on a lot of packaged consumer goods,” Schulman said.
When diet is wrong, medicine is of no use. When diet is correct, medicine is of no need.
Ayurvedic Proverb
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