For over a century, frosted cornflakes have been the cornerstone of Kellogg’s business. However, the company is making a significant change by spinning off its stable cereal business and focusing on its faster-growing snack unit. In fact, Kellogg’s will even be renaming itself Kellanova to reflect this new direction. This move by Kellogg’s is not unique, as other food companies have also been doubling down on snacking. For instance, J.M. Smucker recently acquired Twinkie maker Hostess Brands in a $5.6 billion deal to expand its snack lineup.
The popularity of snacking has surged in recent years, and it is being fueled by the changing eating habits of younger generations, particularly Millennials and Generation Z. These demographics tend to eat smaller meals that are spaced more closely together, leading to increased snacking opportunities. This trend has prompted food companies to invest heavily in developing and marketing snack products to cater to this growing demand.
However, the rise of Big Pharma’s blockbuster obesity and diabetes drugs, Wegovy and Ozempic, poses a potential threat to the snack industry. These drugs, known as GLP-1 agonists, have gained significant traction in the market as prescriptions to help patients lose weight. By mimicking a gut hormone, these drugs suppress appetites and can even lead to aversions to foods high in sugar and fat content – the very types of foods that many snack brands produce.
The success of Wegovy and Ozempic in curbing appetites and promoting weight loss has raised concerns among investors in the snack industry. If the number of patients taking these drugs continues to rise, there is a possibility that consumption of baked goods and salty snacks could decline. Morgan Stanley’s research predicts a potential 3% drop in sales for companies like Hershey, Mondelez, PepsiCo, General Mills, and even Kellogg’s successor, Kellanova.
The widespread adoption of GLP-1 drugs could have a significant impact on the industry. Currently, more than 9 million prescriptions for these medications are written in the U.S. each quarter, with projections suggesting that the number could reach 24 million by 2035. If the new eating habits developed by these drug users extend to their households and friends, the decline in snack consumption could be even more pronounced.
Despite these concerns, not everyone in the industry agrees with the potential threat posed by GLP-1 drugs. Smucker CEO Mark Smucker, for example, believes that there will always be a demand for snack products. He argues that consumers will continue to seek various types of snacks, including sweet ones, regardless of the availability of appetite-suppressing medications. Furthermore, the high cost of these drugs may limit their adoption, particularly among lower-income individuals who over-index in the consumption of indulgent snacks.
While there are valid concerns about the impact of GLP-1 drugs on the snack industry, food companies have time to adapt to shifting consumer behavior. It is likely that the impact of these medications will be gradual, allowing companies to adjust their strategies accordingly. The key to mitigating the potential decline in snack sales lies in innovation and portfolio reshaping efforts.
Many food companies have already made strides towards healthier options, with PepsiCo and Mondelez acquiring smaller brands that specialize in producing healthier snacks. These acquisitions align with the growing consumer demand for healthier alternatives. However, transforming these smaller brands into global powerhouses will take time and require significant investment.
Additionally, food companies are exploring internal research and development efforts to create new formulations that mirror the taste of their full-sugar and salt versions. The goal is to develop healthier alternatives that not only meet consumers’ desires for snacks but also align with their health-conscious lifestyles. Accenture’s senior managing director, Oliver Wright, predicts that within the next decade, we could have a healthy Oreo that is indistinguishable from the original, offering consumers a guilt-free snacking option.
The snack industry is undergoing a transformation as food companies shift their focus towards snacking and away from traditional staples like breakfast cereals. However, the rise of GLP-1 drugs presents a potential challenge to the industry. While there are concerns about the impact of these medications on snack consumption, the industry has opportunities for adaptation and innovation. By investing in healthier alternatives, embracing consumer preferences, and developing new formulations, snack companies can navigate this shifting landscape and continue to thrive in the face of competition from Big Pharma.
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