The rising popularity of GLP-1 drugs, commonly used for diabetes but now gaining traction for weight loss, could have a ripple effect on the food industry, according to a recent note by JP Morgan.
Sold under trade names such as Ozempic, Trulicity, and Exenatide, these drugs are causing a shift in consumer buying habits, particularly in the United States.
JP Morgan's research indicates that people using GLP-1 drugs are purchasing about 8% fewer snack items, soft drinks, and high-carb foods.
On the flip side, sales of prepared meals and indulgent items such as bakery goods and alcohol appear to be benefiting.
The note comes after Walmart said it observed a "slight pullback in overall baskets" among users of these medications. This trend is particularly noteworthy for European food companies, as they derive up to 30-40% of their sales from North America.
JP Morgan estimates that by 2030, there could be a 3% reduction in overall food consumption in North America due to the influence of GLP-1 drugs. For European companies like Unilever PLC (LSE:ULVR), Danone (OTCQX:DANOY) and Nestle S.A. (OTC:NSRGF, VTX:NESN) this translates to a risk factor of less than 0.2% per annum, which is relatively low but still noteworthy.
While the long-term implications of GLP-1 usage remain uncertain, JP Morgan suggests that the sector's long-term growth characteristics should remain intact. The European food industry currently trades at a 57% premium compared to the broader market, indicating investor confidence.
In summary, the rise of GLP-1 drugs for weight loss could bring about subtle yet significant changes in consumer behaviour, affecting both the American and European food industries. However, the impact may be less severe for European companies due to their diverse product portfolios.