Kellanova bets on snacking as Ozempic, Wegovy take off

For more than a century, frosted cornflakes have been the backbone of Kellogg’s business. That will change on Monday, when the company spins off its stable cereal business in favor of its fast-growing snack division and changes its name to Keranova.

The spinoff comes weeks after JM Smucker’s new bet that consumers will eat between meals, when it acquired Twinkie maker Hostess Brands for $5.6 billion to expand its snack lineup. It was done later.

However, major food companies Bets on snacking come as investors worry about the looming danger of Big Pharma’s blockbuster obesity and diabetes drugs Wigoby and Ozempic. While many investors have high hopes for the drug’s future, its success could mean weaker sales for the company that makes Oreos, Doritos and Hershey’s Kisses.

Big Food’s bet on snacks began about a decade ago, but it’s only accelerated as sales in other grocery aisles stagnate and prices, especially, rise. The US savory snacks market is expected to grow by 6% annually from 2022 to 2027, and sweet snack sales are expected to increase by 4.6%. every year during that period, according to HSBC. About three-quarters of consumers plan to snack every day, according to Accenture data.

Millennials and Gen Z consumers are fueling this trend. Younger generations snack more than older consumers, said Kelsey Olsen, a food and beverage analyst at market research firm Mintel. Millennials and Gen Z consumers tend to eat smaller meals more frequently and are eating more snacks.

At the same time, Novo Nordisk’s Ozempic and Wigoby gained popularity, boosting prescriptions to help patients lose weight. This drug, known as a GLP-1 agonist, suppresses appetite by mimicking gut hormones. Some patients report an increased aversion to foods high in sugar and fat, a category that includes many major snack brands.

More than 9 million prescriptions for these drugs were written in the U.S. in the fourth quarter of 2022, according to a report from Trilliant Health.

Morgan Stanley estimates that the number of patients taking GLP-1 drugs could reach 24 million by 2035, or nearly 7% of the U.S. population.

In that case, consumption of baked goods and salty snacks could fall by 3%, according to Morgan Stanley research, and people using the treatment’s new eating habits spread to a wider range of households and friends. There is a possibility that the number of cases will decrease further. This puts companies like Hershey, Mondelez, PepsiCo, General Mills, and Kellogg’s successor, Kelanova, at risk.

But not everyone in the industry agrees with that assessment.

After acquiring Hostess Brands, Smucker CEO Mark Smucker protected the future of Twinkies and Ding Dongs from the threat of GLP-1 drugs.

“There are multiple ways that consumers will continue to snack.…And our predictions are reasonable given that consumers will continue to seek snacks of all kinds and that sweet snacks will continue to be prominent. We believe that,” he told analysts on a conference call.

As an example, GLP-1 drugs such as Wegovy and Ozempic are expensive, with a list price of about $1,000 per month. Due to this high cost, some insurance companies have decided not to cover the cost of treatment.

While some of the nation’s largest insurance companies, such as CVS Aetna, cover prescriptions for these drugs, the federal Medicare program, many state Medicaid programs, and some private insurers do not, so you may have to pay more for your bill. The patient is to receive the book himself.

Another factor could be working in favor of snack sales. Many consumers who eat a lot of junk food won’t be able to afford Wegovy or Ozempic.

“The consumption of indulgent, salty snacks that are considered ‘junk food’ is generally overrepresented among lower-income groups. Lower-income groups are likely not the primary users of these drugs.”

Prime Minister Modi wrote that he did not think the drug would ultimately become a problem for manufacturers of salty snacks.

In addition, patients must inject themselves once a week, and once treatment is discontinued, the effects disappear, and any weight loss that occurs over time usually disappears as well.

“This type of drug is very interesting in terms of what it can do, but it’s a fundamentally different formulation, a pill or something like that, with a lasting effect and obviously at a much lower price point. I’m not thinking about it until there’s a.’That’s going to be difficult,” said Oliver Wright, senior managing director of consumer products and services at Accenture.

Change won’t happen overnight, even as drugs become more affordable and more widely adopted. Food companies will need time to adapt to changes in consumer behavior.

“We recognize that the short-term impact is likely to be limited, given that the drug’s prevalence will increase gradually over time,” Morgan Stanley’s Paula Kaufman said in a note to clients. “However, we may see long-term effects as the prevalence of drugs increases.” “Furthermore, we expect companies to adapt to changes in consumer behavior through innovation and portfolio restructuring efforts.”

This could mean slower-than-expected sales growth and a move to sell some brands. But Big Food continues to move toward healthier options anyway. GLP-1 drugs could put further pressure on companies to update their portfolios.

PepsiCo and Mondelez are among the companies that have acquired smaller brands that make healthier snacks. Still, it will take time to develop them into a global power.

Food companies are also investing in in-house research and development teams to develop new formulations that mimic the taste of whole sugar and salt.

“My prediction is that by the end of the decade, there will be healthy Oreos that are okay to put on a plate with old Oreos and consumers won’t be able to tell them apart, and that’s a good thing.” said Accenture’s Wright.

— Annika Kim Constantino contributed reporting to this article.