The surge in demand for appetite-suppressing anti-obesity medications like Novo Nordisk’s Wegovy is generating opportunities for food manufacturers, despite initial concerns in the market.
When Walmart recently reported a slight decline in food consumption among individuals using such medications, it triggered a sell-off in shares of companies like Nestle, the world’s largest packaged food producer.
Investors are suggesting that the market’s reaction might be an overreaction, as they believe people are extrapolating long-term changes in consumer habits.
Wegovy has already achieved remarkable success in the United States and is now expanding into European markets like Norway, Denmark, and Germany, raising concerns in the consumer and retail sector about potential impacts on food sales.
Kiran Aziz, Head of Responsible Investments at Norway’s largest pension fund KLP, acknowledges the potential for significant changes in the food and beverage industry and other health-related stocks within the obesity sector due to Novo’s breakthrough.
However, she emphasizes the need to focus on supermarkets, where thinner margins could lead to more significant profitability challenges.
Nestle is already working on products that complement weight loss drugs like Wegovy, potentially including supplements to counteract the loss of lean muscle mass and rapid weight regain.
These initiatives, combined with the drug’s limited availability due to high demand, have convinced some investors that these “miracle drugs” may not pose a long-term threat to the industry.
The initial market reaction to this new class of weight-loss drugs draws parallels to early excitement about the metaverse, which has since waned as companies and investors realize that changing behavior takes time.
Lower socioeconomic groups, who are more likely to struggle with obesity, face barriers due to the cost of these medications, making affordability and realizing positive downstream impacts a slow process.
While some food manufacturers remain concerned, others see potential opportunities. Companies heavily reliant on “junk food” or restaurants lacking healthier alternatives may be at greater risk.
Brian Frank, Portfolio Manager of the Frank Value fund, is open to building stakes in stocks affected by Wegovy-related developments, taking advantage of potential market discounts.
However, the adoption of appetite-suppressing drugs appears to be primarily a U.S.-driven trend, with different dynamics in other regions, such as emerging countries with wealthier and more mobile middle classes favoring snacking and convenience foods.
In conclusion, the impact of weight loss drugs on the food industry remains uncertain, with diverse opinions among investors.
While some see opportunities and discounts in affected stocks, others remain cautious about the long-term perception of these medications and their effects on consumer behavior.