Ozempic isn't the existential threat food companies think it is — yet

• Food companies fear soaring Ozempic sales could hurt their bottom lines.
• But their fears of weight-loss drugs have snowballed without much evidence, yet.
• An analyst told Insider that the food industry won't see a material impact in the near term.

Executives at America's biggest food companies can't stop talking about Ozempic. But beyond the chatter, the impact these drugs will have on sales is still unclear.

To be sure, sales of these weight-loss drugs have exploded. Novo Nordisk, the maker of semaglutide or GLP-1 products, including Ozempic and Wegovy, reported about $5 billion in North American sales in the first six months of 2023.

And early data suggests that Ozempic sales will have some impact on the food industry. But any impact will be far enough down the road that these companies have time to prepare, analysts say.

How a weight-loss fad become a risk factor for food brands

The buzzy weight-loss drugs were initially developed to manage diabetes but exploded in popularity thanks to their ability to suppress appetite and curb cravings. Soon, celebrities and influencers were promoting the drug, which the drug maker says can help patients lose 15% of body weight with a weekly shot.

At first, some companies like Walmart touted the benefits of selling weight-loss products in their pharmacies. In an August earnings call, CEO Doug McMillon told investors the company expects health and wellness sales to grow in the second half of the year, "primarily due to the popularity of some GLP-1 drugs," he said.

But now, companies are entering a more skeptical phase. As the drugs' popularity continues to grow, will people eat less of their food?

"The narrative's kind of shifting," CFRA analyst Arun Sundaram told Insider. "The sales of these drugs are still doing pretty well, but now 'what's the impact on the food industry?'"

In September, Morgan Stanley reported that weight-loss medications could have long-term effects on the food industry if consumers eat less and choose more nutritious products. The analysts estimated that 7% of the US population will be taking the drugs by 2035. The report mentioned demand could soften, in particular for "unhealthier foods and high-fat, sweet and salty options" like snacks and soft drinks.

Investors want to know how the drugs will affect profits for companies that rely on food sales, and executives are increasingly addressing those concerns.

Walmart's John Furner told Bloomberg that US operations have sold fewer units to shoppers taking Ozempic. Steve Cahillane of Kellanova, manufacturer of Cheez-It, Pringles, and Rice Krispies Treats, told the news outlet that the snacking company is studying how the weight-loss drugs will affect dietary behaviors. Smucker's CEO told the Wall Street Journal he's monitoring research. His company recently agreed to acquire Twinkies maker Hostess.

Data from Alphasense showed that mentions of "Ozempic" in consumer product earning calls, company documents, and related news have gone up 228% in the last 90 days. Mentions of "GLP-1" have increased 99%.

Too early to call, but 'a bit overblown'

A recent study on weight loss drug takers from Jefferies found the impact was greatest on women, people over the age of 60, and on Fast Food, Pizza, and delivery and takeout. But they concluded the population percentage was small today and would remain small for various reasons.

Ultimately, they say, "food demand shall endure."

If Ozempic's influence on the food industry is a dinner party, some analysts and executives have arrived before the hors d'oeuvres have been set out.

"This is not going to have a material impact on the food industry in the next six months to one year," Sundaram said. "In our opinion, the concerns are a bit overblown."

So companies have time to react.

For example, if consumers begin to prefer smaller portions, food companies have time to adjust their package sizes, and restaurants have time to modify their menus. Some companies are already shrinking portion sizes due to inflation.

"The food industry overall, will continue to evolve and innovate," Sundaram said.

Besides, many food trends we expected to upend the industry completely didn't quite pan out.

Cheesecake Factory president David M. Gordon likened Ozempic fears to the worries his industry had when restaurants had to put calorie counts on menus.

"We have to put calories on the menu, list the amount of calories on the menu starting 10 years ago," he said during a Piper Saunder conference in September. "And people would ask the same question: do you think people's behaviors are going to change? Well, desserts are now 17% of sales versus 14% back then. "

The newest weight-loss trend is one to watch but not cause for worry, Sundaram said.

"This is not an existential threat to the food industry," he said. "It's something to keep an eye on over the longer term."