The snack aisle is seen during a tour of a latest Amazon Go store within the Capitol Hill neighborhood of Seattle, Washington, U.S., on Monday, Feb. 24, 2020.
Chona Kasinger | Bloomberg | Getty Images
For greater than a century, frosted cornflakes have been the backbone of Kellogg’s business. That changes Monday, when the corporate will spin off its stable cereal business in favor of its faster-growing snack unit and rename itself Kellanova.
The spinoff comes weeks after one other wager that customers will graze between meals, when J.M. Smucker bought Twinkie maker Hostess Brands for $5.6 billion in a bid to expand its snack lineup.
But food firms’ major bets on snacking come as investors fear the looming danger of Big Pharma’s blockbuster obesity and diabetes drugs Wegovy and Ozempic. Many investors have high hopes for the pharmaceuticals’ future, but their success could mean slower sales for the businesses that produce Oreos, Doritos and Hershey’s Kisses.
Big Food’s bet on snacking began roughly a decade ago, and it’s only accelerated as the remaining of the grocery aisles see sales stagnate, particularly as prices rise. The U.S. marketplace for savory snacks is anticipated to grow 6% annually from 2022 through 2027, and sweet snacks’ sales are expected to rise 4.6% annually during that point, in keeping with HSBC. Roughly three-quarters of consumers plan to snack daily, in keeping with Accenture data.
Millennials and Generation Z consumers are fueling the trend. Younger generations snack more often than older consumers, said Kelsey Olsen, food and drinks analyst for market research firm Mintel. Millennials and Gen-Z consumers are inclined to eat smaller meals which might be closer together, creating more occasions to grab a snack.
At the identical time, Novo Nordisk’s Ozempic and Wegovy have taken off, fueled by prescriptions to assist patients shed weight. The drugs, referred to as GLP-1 agonists, suppress appetites by mimicking a gut hormone. Some patients even report developing aversions to foods with higher sugar and fat content — a category that features many big snack brands.
Greater than 9 million prescriptions for these kinds of medicine were written within the U.S. within the fourth quarter of 2022, in keeping with a Trilliant Health report.
Morgan Stanley estimates that the variety of patients taking GLP-1 drugs could reach 24 million, or nearly 7% of the U.S. population, by 2035.
In that case, consumption of baked goods and salty snacks could fall 3% — or much more if the brand new eating habits of the people using the treatments extend to their broader households and friends, in keeping with Morgan Stanley’s research. That puts firms like Hershey, Mondelez, PepsiCo, General Mills and Kellogg’s successor Kellanova in danger.
But not everyone within the industry agrees with that assessment.
Weight reduction drug uptake might be slow
Boxes of Ozempic, a semaglutide injection drug used for treating type 2 diabetes and made by Novo Nordisk, is seen at a Rock Canyon Pharmacy in Provo, Utah, May 29, 2023.
George Frey | Reuters
After buying Hostess Brands, Smucker CEO Mark Smucker defended the long run of Twinkies and Ding Dongs against the specter of GLP-1 drugs.
“There are multiple ways that customers will proceed to snack. … And provided that consumers are going to proceed to hunt all various kinds of snacks, and sweet snacks are going to proceed to be on the radar, we view that our projections listed below are sound,” he told analysts on a conference call.
For one, GLP-1 drugs like Wegovy and Ozempic are expensive, with a listing price of roughly $1,000 a month. That prime price has led some insurers to determine to not cover the treatments.
While a few of the nation’s largest insurers, like CVS’s Aetna, cover prescriptions of those drugs, the federal Medicare program, many state Medicaid programs and a few business insurers don’t, leaving patients to choose up the bills themselves.
One other factor could work within the favor of snack sales. Most of the consumers who eat essentially the most junk food likely won’t have the ability to afford Wegovy or Ozempic.
“Consumption of indulgent salty snacks that will be considered ‘junk food’ generally over-indexes toward lower-income individuals, who’re unlikely to be these drugs’ primary users, ” RBC analyst Nik Modi said in a research note Tuesday.
Modi wrote that he doesn’t imagine the drugs will ultimately be problematic for the manufacturers of salty snacks.
What’s more, patients need to inject themselves once per week, and in the event that they stop taking the treatments, their effects disappear, often erasing any weight reduction that had occurred over time.
“This kind of drug is super interesting in what it might do, but I feel until it is available in a radically different formulation, in a pill or something like that, and something that has enduring impact and clearly the much cheaper price point, I feel it’ll be tricky,” said Oliver Wright, senior managing director of Accenture’s consumer goods and services unit.
Even when the drugs turn into more cost-effective and are more widely adopted, the change won’t occur overnight. Food firms may have time to regulate to shifting consumer behavior.
“We acknowledge that the impact within the near term is prone to be limited given drug adoption will grow progressively over time, but we could see a longer-term impact as drug prevalence increases,” Morgan Stanley’s Paula Kaufman wrote in a note to clients. “Furthermore, we expect firms to adapt to changes in consumer behavior through innovation and portfolio reshaping efforts.”
That will mean slower sales growth than expected and moves to divest some brands. But Big Food has been making strides toward healthier options anyway. GLP-1 drugs could just put more pressure on firms to update their portfolios.
PepsiCo and Mondelez are amongst the businesses which have snapped up smaller brands that make healthier snacks. Still, growing them into global powerhouses will take time.
Food firms are also looking internally, investing of their research and development teams to create latest formulations that mirror the taste of their full-sugar and salt versions.
“My prediction is, before the tip of the last decade, we may have a healthy Oreo that could be placed on a plate with an old one, and consumers won’t have the ability to inform them apart — and that might be a very good thing,” Accenture’s Wright said.
— Annika Kim Constantino contributed reporting for this story.
