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GLP-1 drugs ‘aren’t affecting us’
PepsiCo (PEP) CEO Ramon Laguarta said GLP-1 weight-loss and diabetes drugs such as Ozempic, Wegovy and Mounjaro are not yet having an impact on business.
On the company’s second-quarter earnings call Thursday, Laguarta attributed the weaker sales in the quarter to a shift in consumer behavior, saying consumers have become more value-conscious, “cautious” and “selective” in their purchases.
“I don’t think LPG at this point … has a material impact on our category for sure,” he said. “And we have a lot of panels and a lot of conversations with consumers. It’s not impacting us.”
Pepsi refills the famous vending machine at Pittsburgh Fire Station 27 on May 3, 2022, in Pittsburgh, Pennsylvania. (Justin Merriman/Getty Images for Pepsi) (Justin Merriman via Getty Images)
Demand for GLP-1 drugs has skyrocketed. By 2023, Novo Nordisk’s diabetes and weight-loss drugs — Ozempic, Rybelsus and Wegovy — grossed $21 billion in salesan 89% increase over the previous year. This led some on Wall Street to anticipate an imminent threat for food and beverage companies, consumers should cut back on snack foods, although others have resisted, saying the outlook is not so dire.
Although less than 1% of the US population is currently taking GLP-1 for weight loss, a Morgan Stanley study at the end of 2023 It is projected 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% reduction in national calorie intake, according to the Morgan Stanley report.
With the food category contributes 59% of PepsiCo’s net revenue Last year, the company was able to see the effects of weight-loss drugs in the future, something executives are monitoring.
Weight loss syringes from the brands Wegovy, Ozempic and Mounjaro are sold at a pharmacy in Berlin on July 11, 2024. (Jens Kalaene/picture alliance via Getty Images) (picture alliance via Getty Images)
PepsiCo reported revenue of $22.5 billion in the second trimesterslightly below estimates of $22.59 billion, while earnings beat estimates by $2.28 per share. Impacted by both Quaker Foods Recall and a more value-conscious consumer, the amount of food products sold in the second quarter fell 2% compared to last year.
“We feel the issue is a question of value,” Laguarta said. “It’s not a question of anything else.”
Laguarta explained that the company is facing the effects of inflation and its impact on consumer mindsets.
“I know for many categories, the multi-year inflation that we’ve had to take on because our input costs have gone up has created some perception and some reality in many families that food is expensive,” Laguarta said. “Now that our costs are kind of normalizing, … how do we deploy those resources against what are the best levers to reignite growth? And again, it’s not going to be a blanket approach. It’s going to be a segmented approach.”
“This is not just a PepsiCo problem,” RBC Capital Markets managing director Nik Modi told Yahoo Finance about the inflation toll. “This is a problem for the entire snack industry. And frankly, the entire packaged food industry is under a lot of pressure.”
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Laguarta expressed confidence in Pepsi’s ability to win back customers by delivering value through promotions, pricing, marketing and innovation. “There’s nothing in terms of long-term consumer trends that tells us that this isn’t possible,” Laguarta said.
“As we move into this earnings season, it will become very evident that packaged food companies will have to spend more money than they originally thought to really drive volume in this current environment,” Modi noted.
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