Obesity drugs sound a bit extreme...
Or GLP-1 receptor agonists to give them their proper, less catchy, name. The drugs work by mimicking hormones in the body to help regulate blood sugar levels and also suppress a person’s appetite. Brands include Wegovy, Mounjaro, and Zepbound, but you’ll likely be most familiar with the brand Ozempic, which has quickly become the weight-loss drug du jour among celebrities and the general public at large (but soon to get smaller).
Weight loss drugs are not new, what’s the big deal about these ones?
This new wave of hunger-suppressing weight-loss drugs are a big deal. Recent research from Morgan Stanley estimates that 24 million people - or 7% of the US population - will be taking these drugs by 2035 and that the global market for obesity drugs is now expected to reach $105bn by 2030, up from an earlier forecast of $77bn, and could reach as much as $144bn.
OK, that’s a lot of people losing weight. What’s this got to do with restaurants?
Earlier this year, a survey by Morgan Stanley found that 63% of people on Ozempic are ordering less food while dining out than they were before they used the drug. More than 60% of people using the drug also said they spend less on take out and food deliveries. The study by the bank also found that Ozempic users are cutting back the most on foods high in sugar and fat, reducing their consumption of confections, sugary drinks and baked goods by as much as two-thirds. As more people in the US use obesity drugs, Morgan Stanley predicts that overall consumption of carbonated soft drinks, baked goods and salty snacks may fall up to 3% by 2035.
Bad news for the US confectionery and snacks sector then?
Yes, but potentially also for restaurants in the US and also this side of The Pond. In a recent article in the Daily Mail, Nima Safaei, the founder of London restaurants 40 Dean Street and 64 Old Compton Street said that he was seeing an impact of the drug in that his customers were ordering less food. “We’ve definitely noticed a shift in how people are dining with us. More customers are coming in just for drinks or ordering a couple of starters to share, and we’re seeing fewer three-course meals,” he told the paper. Possibly more concerning for restaurants is that nearly a quarter of people taking weight-loss drugs say they have stopped drinking alcohol completely, according to Morgan Stanley’s research, which is also not good for restaurants. One person unlikely to be happy about such a trend is The Yellow Bittern’s Hugh Corcoran, who recently hit out at customers for sharing food and not drinking wine - Ozempic users will not be top of his customer wish list.
Should the industry be worried then?
Morgan Stanley’s analysts say that healthier restaurants are positioned well to handle the shift in consumer spending but that less healthy fast-food restaurants will face increased pressure, with sales growth forecast to fall between 1% to 2% at these restaurant groups. That said, analysts believe the rise in the use of these drugs do not pose an ‘existential risk’ to the industry but did speak of ‘manageable long-term pressure’. “Restaurants are never just about the food. They sell convenience, in the case of limited service, or an experience, in the case of full service,” says Brian Harbour, equity analyst at Morgan Stanley. “But they could face declining sales in the medium term,” he cautions.
What can restaurants do?
The most obvious approach would be to ensure restaurant menus contain a good selection of healthy dishes for those on the drug wanting to go out to eat but not undo all their previous efforts. In the case of 40 Dean Street and 64 Old Compton Street, Nima told the Daily Mail he was considering creating smaller sized portions to accommodate these new dining trends. Restaurants that can successfully do both these things might find themselves on a better footing than some of the large fast-food giants, and could benefit as a result,
So, it’s not all bad news then?
No. And the popularity of Ozempic could be even better news for other industries. One such one is the airline industry, where lighter passengers (and a resulting smaller on-board food and drink offer) might allow planes to use less fuel. In fact, a recent report found that if passengers were just 10 pounds lighter a carrier such as United Airlines could save as much as $80m a year on fuel costs.