Sluggish salty snack sales have prompted questions about whether Ozempic and obesity treatments such as Wegovy and Zepbound are to blame. GLP-1 drugs have been cheered as an effective method to help patients with diabetes and obesity to manage their blood sugar levels, hunger and weight. Patients on these drugs eat less and develop an aversion to snacking. A Morgan Stanley survey conducted last year found people on these drugs cut back on confections by 66% , cookies by 65% and carbonated and sugary drinks by 65%. But investors have become increasingly worried that the growing usage of such drugs could pressure sales for food and beverage companies such as PepsiCo . With brands such as Doritos, Fritos and Lay’s, PepsiCo is the leader of a category that also includes Utz Brands and Campbell Soup’s Cape Cod potato chips. However, a team of Barclays analysts led by Lauren Lieberman recently concluded that investors may be losing unnecessary sleep over these concerns. Specifically, the analysts examined Pepsi’s “Summer of Lay’s” promotion, which lowered prices on an 8-ounce bag of Lay’s potato chips to $2 from $3.50. Lieberman found that the temporary price reduction at Walmart stores drove an increase in both the product’s volume and sales, leading to the conclusion that snack sales were hurt by price pressures for consumers. “All said, the data suggests to us that the primary challenge facing the salty snack category is affordability and arguably not GLP-1s and evolving health & wellness trends as some people might opine,” she wrote in the report. “We think concerns over irrational behavior in salty snacks are overdone and we expect PEP to remain disciplined in its efforts to drive category growth.” PEP 3M mountain Pepsi shares over the past three months. Barclays currently has an overweight rating on shares of PepsiCo. The stock is up about 1% year to date, with shares trending higher over the past two months. TD Cowen analyst Robert Moskow likewise attributed the slowdown in snacking to price sensitivity, noting that the current GLP-1 penetration rate is not significant enough to drive the weakness. “The salty snack category raises prices faster than the rest of the grocery store, so we probably have more work to do to right-size the prices,” he told CNBC in an interview. Moskow added that the return-to-office trend may have also played a role in recent months. “During the pandemic when people went to working 100% at home, the snacking occasions went up as they were closer to their pantries. It’s just very easy to keep dipping in during the day. Naturally, that changes when people go back to either 100% in the office or a hybrid relationship,” he said. GLP-1s may certainly pose a larger concern over the coming years. TD Cowen expects about 15 million users by 2030, based on conservative forecasts. But Moskow added that it is hard to calculate the extent these drugs will reduce sales or pressure profits since current scientific research of drop-off rates of usage and calorie reduction is still lacking. How might companies weather the storm? Still, the increasing use of Novo Nordisk’s Wegovy and Eli Lilly’s Zepbound and a broader shift to products with a healthier image are hurting sentiment throughout the industry. Morgan Stanley downgraded PepsiCo to an equal weight rating from overweight on Friday, citing a weak environment for consumer packaged goods due to GLP-1 pressures and a weak middle- and low-income consumer, among other factors. Analyst Dara Mohsenian noted that PepsiCo has seen market share losses in all of its major product categories, and investments in promotions and increased marketing spending have had a limited payoff. In the third quarter, Frito-Lay year-over-year pricing fell 0.2%, but volume improved by “a modest” 100 basis points from the second quarter, Mohsenian said, citing Nielsen Scanner data. According to Moskow, food and beverage companies need to stay ahead of the trend of rising GLP-1 usage by adapting or repackaging their products to better suit the needs of such consumers. “It’s logical to assume that people on these drugs will be seeking higher-protein solutions to maintain muscle mass. They’ll probably be looking for more ready-to-drink beverages, as opposed to snacks, and I think that’s a function of they’re just easier to get down the digestive tract. There’s also some talk about ready-to-eat or frozen meal solutions that are designed for people on these drugs,” the analyst said.
