If you have heard that new weight loss medications mean you can eat all the junk food you want and still lose weight — you’ve heard wrong. Still, it’s undeniable that a huge shift is underway in how obesity and overweight is being treated by doctors due to a new class of drugs known as GLP-1 agonists. The drugs are more successful in achieving weight loss and appear to have fewer side effects than previous generations of obesity treatments. Their quick adoption is expected to have far-reaching consequences in many economic sectors. One such prediction came Monday from Morgan Stanley analysts who forecasted a 1.3% drop in calorie consumption in the U.S. by 2035. They expect the change will force a response from the food and beverage industry as it works to adapt. “Although the overall impact on US calorie consumption is moderate, the food industry is already contending with soft volume growth stemming from shifting consumer preferences,” wrote analyst Pamela Kaufman, who is one of the report’s authors. Read more As weight loss drug stocks rallied on a landmark study, these stocks were over sold, analysts say This pharma ETF just enjoyed its best week of the year as investors cheer new weight-loss drugs Why this landmark cardiac study means a bigger market for Lilly’s blockbuster weight loss drug This under-the-radar biotech could be the next way to play the obesity drug boom “We believe the food industry will need to address shifting consumer behavior stemming from broader adoption of these drugs, which reduce calorie intake, resulting in lower consumption broadly across food categories, but with more significant effects on unhealthier foods such as confections, baked goods, and salty snacks,” she said. The report cited food companies such as Hostess Brands , Hershey , Campbell and Mondelez as ones that are most at risk. The firm also sees the potential for dwindling crowds at restaurants as consumers cut back on trips to fast-food chains and coffee shops as a result of their new habits. Chains like Cava, Chipotle Mexican Grill and Sweetgreen could fare better as their products include salads and items like chicken grain bowls that are healthier options when people are dining out. The shift in behavior is notable because it will affect a sizeable demographic group that represents a disproportionate share of food consumption, the analysts said. Also, within the impacted categories, Morgan Stanley said the drop in calorie consumption will be greater than the overall decline, possibly in the range of 2.5% to 3%. How the drugs work To better understand why, first look at how the drugs work. Novo Nordisk’s Ozempic and Wegovy and Eli Lilly’s Mounjaro mimic the body’s hormones to slow the passage of food through the digestive system, regulate insulin in the bloodstream and communicate with the brain to reduce food cravings. The result is people taking these drugs feel full longer, and have less of a desire to eat. That makes it easier for them to make good food choices, restrict calorie consumption and lose weight. In fact, some patients taking these medicines say they have to sometimes force themselves to eat due to a lack of appetite. Others on social media have shared accounts that the medicine makes the very thought of drinking a glass of wine or eating a slice of cake utterly unappealing. If they do overindulge, patients have reported severe discomfort and an increase in the gastrointestinal side effects sometimes associated with the medications. These types of patterns were seen in consumer research Morgan Stanley conducted in June and July among 300 patients taking these medicines. Those polled ate fewer meals, developed an aversion to higher fat and sugary foods, and dined out less often, they said. The new behavior resulted in 20% to 30% fewer calories consumed each day, according to the report. The size of the market Morgan Stanley’s biopharma analysts expect the number of people taking anti-obesity medication to grow “nearly fivefold over the next 10 years.” That equates to some 7% of the U.S. population, or about 24 million people, they said. This estimate reflects that a large number of people could benefit from the medication. About 45% of the U.S. population has obesity, and 70% are overweight, according to figures from the Centers for Disease Control and Prevention. But Morgan Stanley isn’t baking in an expectation that hurdles to taking the drugs will be reduced over time. Currently, it expects 40 million people have health insurance plans that would cover the medication. “Manufacturer supply constraints and the evolution of insurance coverage will likely impact broad [anti-obesity medication] accessibility, and this is a key question around use of these mediations,” the analysts said. “It is unclear how insurance coverage will expand over time; it may depend on comorbidity trials (heart failure, sleep apnea). Given the high cost of the drugs, some employers have recently suspended coverage, which could be a risk to greater uptake long term.” The companies have been working to resolve supply constraints and greater access to medication is expected to come as more insurance companies cover it. That could happen as more drugs within this class are approved and force list prices down. Mounjaro, for example, is expected to be approved by the Food and Drug Administration later this year for weight loss. It is currently being sold as a type 2 diabetes treatment. The effort toward greater patient access also took a step forward on Tuesday with the early results of a study from Novo Nordisk that showed a reduction in heart disease and stroke when patients took Wegovy and lost weight. Industry analysts expect that the finding will help convince insurers to cover the drug, which can cost more than $10,000 a year, because it could lower health-care costs over time. Lawmakers also will need to be convinced of this in order for Medicare patients to gain coverage. Right now, the federal program is prohibited from covering obesity medications. Early signs from Walmart Before waving off Morgan Stanley’s prediction as a hypothetical exercise, consider Walmart’s comments during its fiscal first-quarter earnings call in May. The company is the nation’s largest grocer, and it said it was seeing changes in consumer behavior that were pressuring its earnings. “The thing that I will say that’s different this year is it’s not just a shift to food and consumables,” chief financial officer John David Rainey said during the call. “We’ve also seen in there, in the first quarter, a shift to health and wellness more, and part of that is related to these GLP-1 drugs that are to treat diabetes, … we’re certainly seeing an uptick in that. For us, that comes at a lower margin, and so that has some impact on our business as well.” Rainey was referring to the idea that grocery items like fruits and vegetables have a lower profit margin than more discretionary items. Morgan Stanley’s survey showed obesity patients were shopping the perimeter of the grocery store more heavily, with purchases of fresh fruits and vegetables up 46% and poultry and fish up 23%, for example. Consumption of weight-loss management foods such as protein bars and nutritional shakes also grew by 31%, they said. But these consumers cut back on confections (down 66%), carbonated and sugary drinks (down 65%) and cookies (down 65%), they said. Morgan Stanley beverage analysts Dara Mohsenian and Eric Serotta said they see weight loss drugs as “an incremental headwind” but said it is “manageable in magnitude.” One reason they cited is that long-term estimates already reflect a shift in consumption patterns due to health and wellness trends. This is particularly true for alcoholic beverage companies where lower long-term per capita consumption is already projected. The Morgan Stanley survey found 22% of patients completely stopped drinking alcohol and 17% stopped drinking carbonated or sugary drinks once they began treatment with GLP-1 medications. Keurig Dr Pepper, with its coffee business accounting for about 30% of corporate sales, offers some diversification from at-risk beverage categories, Morgan Stanley said. The stock, which is down 5% year to date, is among Morgan Stanley’s top picks. The good news for these food, beverage and restaurant companies is that the changes are likely to be gradual, giving management time to adapt and innovate, the analysts said. Coffee chains offer an idea of how this could play out. Those taking anti-obesity medications may still order a low-calorie coffee or tea, but they will likely cut back on the snacks or indulgent coffee drinks. “We think lost sales from certain customers trading away from sugary options could be offset by beverage innovation for new healthier options (that often lead to higher check). A prime example of this is the recent move to alternative milks, which have become much more popular at [Starbucks ] and often carry an up-charge,” the report said.
