PepsiCo (PEP) CEO Ramon Laguarta said GLP-1 drugs for weight loss and diabetes, such as Ozempic, Wegobee, and Maunjaro, have not yet impacted the business.
During the company’s second-quarter earnings call on Thursday, Laguarta attributed the quarter’s weaker sales to changes in consumer behavior, saying consumers are becoming more value-conscious and “careful” and “conservative” with their purchases.
“We don’t see the GLP having a significant impact on our sector at this point,” he said. “We have a lot of panels and we have a lot of conversations with consumers. It’s not affecting us in any way.”
Pepsi refills its famous vending machine at Fire Station 27 in Pittsburgh, Pennsylvania on May 3, 2022. (Justin Merriman/Getty Images, Courtesy of Pepsi) (Justin Merriman via Getty Images)
Demand for GLP-1 drugs is surging: Novo Nordisk’s diabetes and weight-loss drugs (Ozempic, Ryversus and Wegovy) are expected to generate $21 billion in sales in 2023, up 89% from the previous year. That has some on Wall Street predicting a looming threat to food and beverage companies as consumers cut back on salty snacks, but others counter that the outlook isn’t as bleak.
Currently, less than 1% of the U.S. population takes GLP-1 for weight loss, but a Morgan Stanley study in late 2023 predicted that 25 to 50 million Americans could be taking these drugs by 2030. The projected increase in GLP-1 use could lead to a 1% to 3% decrease in the nation’s caloric intake, according to the Morgan Stanley report.
The food division accounted for 59% of PepsiCo’s net sales last year, and weight-loss drugs, which company executives are closely watching, could have a positive effect in the future.
Wegovy, Ozempic and Mounjaro brand weight loss syringes are displayed at a pharmacy in Berlin on July 11, 2024. (Jens Kalaene/picture alliance via Getty Images) (picture alliance via Getty Images)
PepsiCo reported second-quarter sales of $22.5 billion, slightly below the $22.59 billion estimate, but earnings of $2.28 per share beat expectations. Food volume sales fell 2% year over year in the second quarter, hurt by both the Quaker Foods recall and increased consumer cost consciousness.
“We believe this is a question of values,” Laguarta said, “not anything else.”
Laguarta explained that the company is facing the impact of inflation and its effect on consumer mindset.
“We know that in many sectors, having to deal with inflation for years due to rising input costs has created a perception and a reality for many households that food is expensive,” Laguarta said. “Now that costs are normalizing, how do we allocate those resources against the best levers to reignite growth? Again, it’s not going to be a blanket approach. It’s going to be a segmented approach.”
“This isn’t just about PepsiCo,” Nik Mody, managing director at RBC Capital Markets, told Yahoo Finance about the impact of inflation. “This is about the entire snack industry. And, frankly, the entire packaged foods industry is under a lot of pressure.”
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Laguarta expressed confidence in Pepsi’s ability to win back customers by providing value through promotions, pricing, marketing and innovation. “There’s nothing in the long-term consumer trends that would suggest we can’t do that,” he said.
“As the earnings season progresses, it will become clear that packaged food companies will have to inject more capital than they initially thought in the current environment to actually grow volumes,” Modi said.
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