In a significant shift in strategy, Kellogg’s is set to spin off its iconic cereal business, which has been a cornerstone for over a century, in favor of its fast-growing snack unit. As part of this transformation, the company will rebrand itself as Kellanova. This move follows J.M. Smucker’s acquisition of Twinkie maker Hostess Brands for $5.6 billion, indicating a broader trend in the food industry toward banking on consumers’ penchant for snacking.
However, while food companies are increasingly placing their bets on the snacking trend, investors are wary of the looming competition from blockbuster obesity and diabetes drugs, such as Wegovy and Ozempic, developed by Big Pharma. Although these pharmaceuticals hold promise for investors, their success could pose a potential threat to the sales of snack giants like Oreos, Doritos, and Hershey’s Kisses.
The food industry’s pivot toward snacking began about a decade ago and has gained momentum as sales in other grocery categories stagnate, particularly with rising prices. According to HSBC, the U.S. savory snacks market is projected to grow by 6% annually from 2022 to 2027, while sweet snacks are expected to see a 4.6% annual sales increase during the same period. Accenture data reveals that around three-quarters of consumers plan to snack daily.
Millennials and Generation Z are the driving force behind this snacking trend, as they tend to eat smaller, more frequent meals, creating numerous snacking occasions throughout the day. Kelsey Olsen, a food and drink analyst at market research firm Mintel, highlights that younger generations snack more frequently compared to older consumers.
Simultaneously, Novo Nordisk’s Ozempic and Wegovy have gained significant traction, largely due to their prescription-based weight loss effects. These drugs, known as GLP-1 agonists, work by suppressing appetites, often leading patients to develop aversions to high-sugar and high-fat foods, including many popular snack brands.
A Trilliant Health report reveals that over 9 million prescriptions for GLP-1 drugs were written in the U.S. in the fourth quarter of 2022. Morgan Stanley estimates that by 2035, as many as 24 million individuals, nearly 7% of the U.S. population, could be taking these drugs.
This surge in the use of GLP-1 drugs could potentially lead to a 3% decline in the consumption of baked goods and salty snacks. This impact may be even more significant if the dietary changes brought about by these treatments extend to the broader households and friends of those taking the drugs, as suggested by Morgan Stanley’s research. Companies like Hershey, Mondelez, PepsiCo, General Mills, and Kellogg’s successor, Kellanova, could be at risk.
However, not everyone in the food industry shares these concerns. Mark Smucker, CEO of J.M. Smucker, remains optimistic about the future of sweet snacks, even in the face of GLP-1 drugs. He asserts that consumers will continue to seek various types of snacks, and projections for sweet snacks remain promising.
One factor working in favor of snack sales is the high cost of GLP-1 drugs, which are priced at approximately $1,000 per month. The expense has led some insurers to opt not to cover these treatments, leaving patients to bear the cost themselves. Additionally, GLP-1 drugs may not be accessible to the consumers who are most likely to indulge in junk food, as RBC analyst Nik Modi suggests that lower-income individuals, who typically consume indulgent snacks, are unlikely to be primary users of these drugs.
Moreover, the requirement for weekly self-injections and the transient nature of the drug’s effects could mitigate the impact on snack sales. Oliver Wright, Senior Managing Director of Accenture’s consumer goods and services unit, believes that until these drugs become more affordable, easily administered, and have a more enduring effect, their influence on snacking habits will be limited.
Even if GLP-1 drugs become more accessible, change in consumer behavior will be gradual, affording food companies time to adapt. They may opt for innovations and portfolio reshaping efforts to align with evolving consumer preferences.
PepsiCo, Mondelez, and other food giants have also ventured into healthier snack brands and invested in research and development to create healthier versions of their popular products. With these innovations and evolving consumer tastes, the food industry is well-prepared to navigate the evolving landscape.
The future may hold a time when consumers won’t discern the difference between a healthy Oreo and the traditional one. Accenture’s Wright predicts that before the decade’s end, such a scenario could become a reality—a testament to the food industry’s adaptability and commitment to meeting evolving consumer demands.
