Crushing the food industry, benefiting the clothing industry! "Miracle weight-loss drug" reshaping consumer behavior?

The global frenzy over "miracle weight-loss drugs" has shaken up numerous industries and prompted businesses to rethink their commercial models.

Two new types of weight-loss drugs, Ozempic and Wegovy, launched by Novo Nordisk and Eli Lilly, are said to have the potential to help patients lose 20% of their weight while also reducing the risk of heart attacks or strokes. They are considered the most effective and safest weight-loss drugs ever.

As this miracle weight-loss drug gains acceptance and more people start using it, it may have long-term effects on consumer behavior and impact various industries. Some industries, such as clothing and aviation, may benefit from it, while others, such as snacks and beverages, tobacco, and gaming, may face risks.

Several major US retailers have already issued warnings that weight-loss drugs could impact their business operations, and companies may need to adjust their commercial models to adapt to these changes. This concern has sparked strong reactions in the market, leading to a decline in the S&P consumer sector. The question remains: is this concern a case of being proactive or an overreaction?

Devastating for food and tobacco, positive for clothing and aviation

GLP-1 receptor agonist drugs have long been used to treat diabetes but are now increasingly being used for obesity and weight loss.

Semaglutide, hailed as the "miracle weight-loss drug," mimics the GLP-1 hormone produced in the human body, helping regulate glucose levels and suppress hunger, thereby affecting the body's metabolism and achieving weight loss. Moreover, it can also help alleviate addiction problems such as smoking and alcohol consumption, as well as reduce heart failure.

The impact of semaglutide on industries goes beyond just the pharmaceutical sector. According to analysts at Bank of America, the downstream effects on the market are not yet clear, but in the long run, it could change consumer behavior. Some industries will benefit from this change, while others will face greater risks. The industries that are expected to be affected include: 1) snacks and beverages; 2) dining; 3) tobacco; 4) gaming; 5) clothing; and 6) food retail.

In the dining industry, a survey conducted by Jefferies among GLP-1 users showed that over 40% of respondents said they reduced their dining out frequency. A similar proportion of respondents also said they ordered less food when dining out. Around 70% of respondents said they ate less overall, and a similar proportion said they had an improved understanding of the nutritional value of food.

In addition to food-related industries, the weight-loss effects of GLP-1 may also drive a wardrobe makeover. Bank of America analyst Geoff Meacham suggests that assuming a proportion of 38 million weight-loss drug users (Bank of America's mid-point estimate for 2030) and the assumption of purchasing new clothing, this could result in $50 billion in new clothing spending. In addition, according to a report by Sheila Kahyaoglu, a financial analyst at Jefferies, if the average weight of airline passengers decreases by 10 pounds, United Airlines Holdings could save $80 million per year.

It may be too early to adjust the business model now

As more people accept and use weight loss drugs, American companies are trying to address the issues that arise from this:

How will less greedy and impulsive consumers affect the company's business model?

John Furner, CEO of Walmart US, recently warned that consumer shopping volume has indeed decreased due to the impact of drugs, and calorie consumption has also slightly decreased. However, he added that it is still too early to draw conclusions. Sean Connolly, CEO of Conagra, told investors that the company's scientists are studying this data, and if people's behavioral preferences change, the company may offer smaller portions of food in the coming years.

In the retail and catering industry, most executives remain cautious. Adnan Durrani, CEO of Saffron Road, which produces frozen meals, chicken rolls, and crispy pea snacks, said that the snack industry is talking about things like reducing packaging size, but it is still too early to know how much it will impact consumer behavior. He recalled the olive oil craze of the 1990s, when this fat substitute quickly occupied the food shelves and was subsequently abandoned due to its unpleasant side effects.

Similarly, the Atkins diet, which restricts carbohydrate intake, became popular in the early 21st century and gave rise to a whole category of products, including low-carb tomato sauce, ice cream, and soft drinks. At that time, the donut company Krispy Kreme was hit by this diet, and Interstate Bakeries mentioned the impact of this trend when it filed for bankruptcy in 2004. However, by 2005, the popularity of this diet gradually declined due to a lack of evidence that it could achieve long-term weight loss.

Regarding the impact of GLP-1, usage patterns are another unknown. Analysts point out that about 60% of respondents plan to stop using GLP-1 once they reach their target weight. The question remains whether new dietary habits will continue once the medication habit disappears, and whether weight will rebound once the medication is stopped.

Currently, retail companies face the daunting task of balancing constantly changing data to determine the right strategy. As Durrani said:

We are always going through cycles of new miracle drugs and new miraculous food ingredients. It is still too early to draw conclusions.