Newsletter | Big Food and Big Insurance Face Down the GLP-1 Threat

If you want to put your ear to the heartbeat of American consumption, take a listen to Walmart’s earnings calls, where the retailer tells Wall Street how the past quarter has gone financially. There was one such call this week, and CEO Doug McMillon said something intriguing: “We're feeling some margin pressure from growth in GLP-1 drugs, so we're pleased to see general merchandise sales be positive.”

To those not attuned to the particular vernacular of how CEOs talk to Wall Street, this seems pretty opaque, even benign. But thankfully there were some translators listening in, including Quartz’s Francisco Velasquez. McMillon was acknowledging - not for the first time - that GLP-1 drugs are measurably changing how Americans buy food, and what they spend money on in general. “For Walmart, [the GLP-1 boom] is creating a ripple effect across product categories, according to its third quarter earnings report,” Velasquez noted. “As a result, OTC weight loss supplements, protein shakes, and diet snacks could see slower sales as consumers opt for the latest “wonder drug” instead.”

This isn’t entirely surprising. Since the GLP-1 boom began in 2020 or so, with the increase in prescriptions of Ozempic for things beyond its approved indication of diabetes treatment - obesity and weight loss, specifically - there’s been speculation that as millions of Americans (and others!) began taking these drugs, they would shift their consumption patterns away from food, especially snack foods. But it’s quite something to actually hear the CEO of Walmart acknowledge that this shift is happening and tangible on that company’s bottom line.

Not surprisingly, food companies have known this is coming for a long while now, and they’ve been trying to plan and prepare. But just how they would react - just what they might do to counteract their loosening hold on the American belly - has been anybody’s guess. If they’re in the consumption business, and Americans taking GLP-1s consume less (often a lot less), and more and more Americans are taking GLP-1s, well, how really do you Powerpoint your way around the math?

We got part of the answer this last week in an absorbing cover story in the New York Times Magazine, titled: “Ozempic Could Crush the Junk Food Industry. But It Is Fighting Back.”

The article, by Tomas Weber, had us enthralled for three reasons. First, it was a deep dive into Mattson Foods, a food development company based in Foster City, California. As it happens, we (well, Thomas) has visited Mattson many times over the years, and is chummy with Steve Gundrum, Mattson’s former CEO (and present Chief AI Officer). It’s the place that invented foods for Pizza Hut, Starbucks, and dozens of other companies. They are geniuses at concocting things we cannot resist.

And things we cannot resist is another reason Weber’s article is worth reading, because it does a great job explaining just how sophisticated the science of food has gotten. “Scientists can engineer fats to melt at precisely the right temperature in the mouth, sparking the release of dopamine while creating an impression of “vanishing caloric density.” A Cheeto, disintegrating innocently on the tongue, tells us it contains fewer calories than it does.”

Also: even though the number of calories consumed by the average American has been stable for 25 years, what’s changed is how those calories are packaged. “As emerging research shows, when we eat unprocessed or minimally processed foods, our gut bacteria consume as much as 22 percent of the energy. With ultraprocessed products, our bodies soak up all 100 percent of the calories.”

Gulp, indeed.

But the real payoff in the article is how it details how Big Food (that is, massive food conglomerates like PepsiCo and General Mills and Conagra) is trying to use that science to counteract the GLP-1 boom. It turns out that GLP-1s might just turn off our cravings for highly processed foods; they might flick off the dopamine switch that rewards us when we can’t eat just one. That has been Big Food’s secret weapon for decades now, and so disarmed they’re searching for something else that might get us to buy… something else. 

What that looks like sounds more like real food, but it also sounds like food engineered to please us in different ways. More colors, more citrus, smaller portions, higher quality. We’ll see what Mattson comes up with soon (on the shelves at Walmart, no doubt). 

One reason this matters is because there was also news recently that obesity rates are still at record levels in the US - and climbing. This from a recent Lancet study from our friends at the Institute for Health Metrics and Evaluation that somewhat contradicts research from earlier this year that showed obesity rates had plateaued. Well, maybe not: the IHME study projects that more than 250 million Americans will be overweight or obese by 2050. Today, a staggering 75% of American adults are overweight or obese - a number that will cross 81% in 25 years.

It just boggles the mind to think that, if current trends continue, less than 20% of American adults would be at a healthy weight. And that’s why “if current trends continue” is such a revealing phrase. Because given the arrival of GLP-1s, should we really expect current trends to continue? One of the things holding back a massive boom in prescribing has been the cost of the drugs, which are expensive for individuals and potentially ruinous for insurance companies. But we’ve been through this before, with expensive Hep C cures most recently. What happened then was that those high prices were heavily negotiated, and then the insurers - and the healthcare system in general - digested the costs (sorry). The difference with GLP-1s, of course, is that these are only “cures” for obesity while people take the drugs. Stop taking them and most people (though not all!) gain the weight back. So it’s a (ahem) harder pill to swallow (we know, not a pill).

So far, many insurance companies have been hesitant to cover GLP-1s for patients who are obese (while paying for those with diabetes). Those policies have begun inviting legal challenges, and there are potentially massive savings in downstream costs for insurers in fewer cases of diabetes, or orthopedic surgeries, or other side effects of obesity. 

Prediction: A lot of this will get sorted out in 2025, as Trump’s CMS reckons with the issue and the math pencils out for private insurers. Hopefully, it will mean more people having healthy options, pharmacological or otherwise.

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