The slump in salty snack sales has raised questions about whether obesity drugs like Ozempic, Wegobee and Zepbound are to blame. GLP-1 drugs have been hailed as an effective way for diabetes and obesity patients to manage their blood sugar, hunger and weight. Patients taking these drugs eat less and avoid snacking. A Morgan Stanley survey conducted last year found that people taking these drugs cut back on sweets by 66%, cookies by 65% and sodas and sugary drinks by 65%. But investors are increasingly concerned that the increased use of these drugs will hurt sales for food and beverage companies like PepsiCo. PepsiCo, with brands like Doritos, Fritos and Lay’s, is a leader in a category that also includes Utz Brands and Campbell Soup’s Cape Cod potato chips. But a team of Barclays analysts led by Lauren Lieberman recently concluded that investors may not be losing sleep over these concerns unnecessarily. Specifically, the analysts examined Pepsi’s “Summer of Lay’s” promotion, in which an 8-ounce bag of Lay’s potato chips was reduced in price from $3.50 to $2. Lieberman found that the temporary price reduction at Walmart stores prompted both volume and sales growth for the product, leading them to conclude that snack sales were hurt by price pressures on consumers. “Ultimately, the data suggests that the primary challenge facing the salty snacks category is affordability, not GLP-1 or evolving health & wellness trends as some have suggested,” Lieberman wrote in the report. “Concerns about irrational behavior in salty snacks are overdone, and we expect PEP to remain disciplined in its efforts to drive category growth.” PEP 3M has added a mountain of Pepsi shares over the past three months. Barclays currently rates PepsiCo shares overweight. The stock is up about 1% year to date, and shares have been trending higher over the past two months. TD Cowen analyst Robert Moskow also attributed the snacking slowdown to price sensitivity, noting that current GLP-1 penetration is not large enough to drive the weakness. “The salty snacks category has increased in price faster than other items in the grocery store, so they will have to work harder to right-price,” he said in an interview with CNBC. Moskow added that the trend of returning to the office may also have played a role in recent months. “During the pandemic, when people went 100% remote, they were closer to their pantries, so they snacked more. It’s very easy to continue snacking during the day. Of course, that changes when people go back to 100% office work or hybrid relationships,” he said. GLP-1 will no doubt be a big concern in the coming years. TD Cowen expects availability to about 15 million users by 2030, based on conservative projections. But Moskow added that it’s hard to calculate how much these drugs will reduce sales and squeeze profits, since current scientific studies on discontinuation rates and calorie reduction are still lacking. How will companies weather this storm? That said, rising use of Novo Nordisk’s Wegobee and Eli Lilly’s Zepbound, as well as a broader shift to healthier-imaged products, have soured sentiment across the industry. Morgan Stanley downgraded PepsiCo to equal weight from overweight on Friday, citing a weak consumer packaged goods environment, driven by GLP-1 pressures and weakness among lower- and middle-income consumers. Analyst Dara Mohsenian noted that PepsiCo has lost market share in all major product categories, and investments in promotion and increased marketing spending have only produced limited results. Citing Nielsen Scanner data, Mohsenian said Frito-Lay’s prices fell 0.2% year over year in the third quarter, but sales volumes “modestly” increased 100 basis points from the second quarter. Mohsenian said food and beverage companies need to get ahead of the trend toward increased GLP-1 use by reformulating or repackaging their products to meet the needs of these consumers. “It makes sense that people taking these medications will want high-protein solutions to maintain muscle mass. They will want ready-to-drink beverages, not snacks, because they are easier to reach the digestive tract. There’s also been a lot of talk about ready-to-eat or frozen meal solutions designed for people taking these medications,” he said.
Is Ozempic to blame for slowdown in salty snack sales? Here’s the verdict
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