Transcript
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Speaker 1 (00:00):
Welcome to unpacking the Digital Shelf where we explore brand manufacturing in the digital age.
(00:16):
Hey everyone. Peter Crosby here from the Digital Shelf Institute. When the new class of GLP one drugs like Ozempic and we Govi came onto the market, grocery stocks took a big hit in anticipation that people on these drugs would snack less and pull down unit sales. An overreaction to be sure. But John Carroll, president of Digital commerce and Analytics services at a Costa Group has spent time in CPG boardrooms discussing what the future impact and opportunities of a commercialized version of this drug might look like and shared this point of view. Rob Gonzalez has a low opinion of humanity's ability to let anything stand between them and their Twinkies. And this pre-Thanksgiving OZEMPIC Hot Take podcast episode is the result. John Carroll, welcome back to the podcast. We're so happy to have you here.
Speaker 2 (01:03):
Thanks, Peter. It's great to be with you. Hi Rob. Hey, John.
Speaker 1 (01:08):
So the last time you were here was from your lofty perch as VP and GM of E-commerce at a little company we like to call Coca-Cola. Exactly. Now you speak from a lofty perch as president of digital commerce and analytics services at the Acosta Group, bringing your deep commerce experience to a broader set of brands. So while we were prepping for a 2024 Outlook podcast episode that will air December 18th, you would rob start arguing about the impact the GLP one drugs like Ozempic will have on the CPG industry. And we just couldn't let that topic go to the cutting room floor. So here we are. Let's dive into it on the ozempic Hot Take podcast.
Speaker 2 (01:47):
And we were arguing it wasn't even over a cocktail. I
Speaker 1 (01:50):
Know, I know. Which is, it's a sorrow for my life. But we'll have another one when we're done with this. But why are CPG execs pulling you into their boardrooms to advise them on this shift? What is going on from your perspective?
Speaker 2 (02:06):
So there's a lot of questions on this, obviously, and Acosta, we have over 2,500 clients that we work with. A lot of them are food and beverage clients. And Peter, I think you probably have the stats, but we saw a significant decline in stock value for food and beverage companies over the past several weeks. Now, some of that's recovered based on the stories around Ozempic and the GLP ones. So there was a lot of discussion and many of our clients come to us for strategic advice and we do a lot of research. So we dug into this one. And what's interesting, and if you just take a step back and think about what this is, these are very effective drugs for diabetes. They've been proven to help with diabetics and controlled blood sugar. So really good drug treatment for a very bad disease in our society. One of the side effects that have been found is appetite suppressants. So there's been some research done, and I think this all started with John Ferner at Walmart. He mentioned some data that he had pulled and his team had pulled that showed that people that were on Ozempic were actually consuming less food and beverage products. So the assumption was appetite suppressants. So they're actually buying less snacks and beverages that are full calories. So it's a big question, and I think that's one of the reasons why we saw some of these stock declines.
Speaker 1 (03:30):
Yeah, you'd mentioned that earlier. I just want to drop in some from facts here. This is a quote from a Brian Azi executive editor at Yahoo Finance. Shares of PepsiCo, Coca-Cola, ConAgra, and Campbell Soup have shed an average of 13.5% in the past six months, and the Dow Jones Industrial average in s and p 500 were each down 1% over the same time span, and they attributed that to the proliferation of these weight loss drugs. Now, we've also seen PepsiCo, CEO, Ramon LaGuardia told analysts recently that they're closely watching this, but the impact on his business has been negligible so far that there are a lot of question marks. So that's what we've seen happen in the panic on Wall Street. But what are you thinking about what's happening? So
Speaker 2 (04:25):
We don't see a quick impact to business overall. I mean, there's some other interesting side effects of this drug that are actually being researched right now. Supposedly alcohol cravings go down as well. The insurance companies and their studies right now that are focused on understanding what this has to do with morbidity and declines in morbidity from a heart disease standpoint. So there's definitely a lot going on here right now. The insurance companies are not covering it for the most part. So to get these injections, they're usually a thousand dollars for a four month period. So it's been called the celebrity weight drug right now, and that seems to be kind of the trend that we're seeing from a Hollywood perspective. Now. We don't see this having an immediate impact on the overall business, but we do look towards the future and if say, in the next three years or so, as these drugs become more effective and the drug companies like Eli Lilly start doing things like out of injection into pill form and the insurance companies start covering this, if they've, they're proven to combat morbidities like heart disease, we think there may be some impact here from a calorie consumption standpoint.
(05:33):
But what's really interesting from our point of view, this is not news to the industry from the food and beverage perspective, the food and beverage industry has had to react to this before, whether it's sugar or other additives and food or calorie reduction overall, I think one of the best examples that you see out in the industry is what the beverage companies have done over the past several years, both Coke and Pepsi, from a sugar content and a calorie standpoint. In Coke's case, almost 60% of their total products are either zero calorie or low calorie now. So I do see this, and we see this as a trend that's coming. It's probably more like a two to three year period as it ramps up, especially if the insurance companies start covering it. The question becomes how do the CPG companies react to it? I think we're really good at that. We've got time to think about that. Good quality food, good quality snacks, healthier snacks will continue to be a trend. So I don't see this as a huge impact overall to the industry. I kind of see it somewhere in between.
Speaker 3 (06:29):
Rob. Yeah. Well, I wanted to first start with, I mean, my entire rant is going to be kind of a pessimistic rant on humans. So a regular podcast. A regular podcast, I guess it's just like all the rest of the times I've been on the podcast. But I wanted to anchor on some of the stats that have some of investors thinking that the long-term impact of something like ozempic on society is huge. And so here are the stats here, and I pulled these up from the Center for Disease Control Statistics in the United States. There was, in 1960, there was a 13% obesity rate in the US and 1% severe obesity rate. And in medicine, severe obesity is morbidly obese. Today, the US adult obesity rate is actually not today in 2017. So presumably it would be larger now 41.9%, more than four out of every 10 people, and more than 10% of people are severely obese.
(07:46):
And what's kind of even more disturbing is children who are not currently the targets of the GLP one agonists are the 20% obesity rate nearly for kids, which is, I dunno, really sad now. So that's the market. And so presumably if you're an investor and you're thinking about a company that sells snack food, most products in most categories, there's kind of a power law to the consumption. There's not an average meat eater in the United States. I saw a stat that's been debunked, but it's kind of directionally correct, which is 10% of people are responsible for eating 50% of the beef produced in the country. That kind of works in a lot of areas. If you look at book sales, for example, the top 50 bestsellers in books probably sell more than the next thousand bestsellers combined. So Harry Potter's outselling a thousand books all by itself every single year.
(08:51):
So you've got these power laws of consumption and if an investor and you think, okay, well there's a minority of the population, which is consuming the vast majority of my snack sales. So I love the occasional Oreo, I'm an Oreo fan, but Rob's consumption of Oreos in this model is one 10th or 100th of a power eater of Oreos. And so their fear is that all of a sudden the GLP one drugs get out there, they're mass market drugs, and they're going to be used by the people that are power law consumers of these products, and it's going to disproportionately impact the consumption of the products. Does that make sense? You're not attacking the average consumer, you're attacking the consumers which are disproportionately purchasing and consuming the products. And that can have not like a 1% or 2% decrease in aggregate sales, but potentially a significant double digit percent increase in aggregate sales. John, do you agree with that? Think that's be right.
Speaker 1 (09:59):
Yeah. John, does that resonate with you or,
Speaker 2 (10:03):
Yeah, I think the assumption is probably right. I think that in most categories it's the 80 20% or 80% of the consumption. So I definitely think that Rob is going down a train of thought that I would agree with. Yeah.
Speaker 3 (10:21):
Alright. So now that John agrees with me, we're going to get to, well,
Speaker 2 (10:24):
I said I'm agreeing with the way you're thinking through it. You're framing it up. I'm not sure I agree with everything you say yet.
Speaker 3 (10:33):
Alright, I almost got you. Alright, so then moving on here. There's an interesting next couple of layers. The one layer is that only 75% of Americans have primary care. And this is a problem in general that we do not have a current solution for, but it means that 25% of Americans don't have APCP that they can talk to about these drugs and let alone, I mean right now it's a thousand bucks every four months, but even if it was covered by insurance and a lot cheaper, I mean 25% of people are going to have issues getting them. And then obesity, there's a bunch of studies that show that it tends to, the rates tend to be higher for more impoverished people. So there's an element of the section of the population where these drugs can most help is also the section of the population where they're going to be hardest to actually distribute the drugs to.
(11:29):
So it's a negative fact of society, but it's a positive fact if you're selling snack foods to some of those power users. So that's kind of a reason to maybe be less pessimistic on the stock prices. Where I though get pessimistic about this stuff is how much food consumption and obesity and people, I don't think it's as treatable an issue by a drug. If you look at what predicts whether you're going to be obese, it's actually not whether your parents are obese. It's whether your friends are obese. There's a great study from the New England Journal of Medicine, which is one of the top couple journals on earth for medicine. A person's chances of becoming obese increased by 57% if he or she had a friend who became obese in a given interval. And then here's nature, which the nature is the top dog here, a friend's weight and the social context are shared environmental factors associating with variability and adiposity among biologically related weight discordant siblings. So that means you've got an obese brother or sister and then a non-obese brother or sister. You could tell that it's like you look at the obese brother or sister and their friends are obese and the non-obese brothers sister, their friends are not obese. So there's
Speaker 1 (12:52):
This just for our listeners at home, adiposity refers to body fat and is derived from APO referring to fat. So I was not sure what that meant. So I'm chiming in for the uneducated,
Speaker 3 (13:07):
I think about this and I think people are so dramatically influenced by their environment. And I think about my own behavior. If I'm out with folks and I don't eat french fries, it's not a thing that I eat, but if there's french fries on the table because somebody else ordered those french fries, even if I'm not hungry, I'm going to have a couple of french fries. It's just one of those things. And I'm not doing it because hungry, I'm doing it because man, you got that crunch and you got that oil and you got that salt and it's just sort of, it's got that sensation. I didn't need the fry. I wasn't hungry. I'd already eaten, but I'm going to eat a few fries.
Speaker 1 (13:46):
Rob, I was at dinner with you the other night with our team and you ate a pretty good amount of fries. It was not a couple. Oh yeah.
Speaker 3 (13:56):
I'm a small man who's capable of eating a dramatic amount of fries that they're put in front of me. So John, this is my first statement of pessimism against humanity, which is that if you take somebody who's on this drug who eats a lot of whatever, I'm an Oreo fan. So let's say that you take somebody who just eats a ton of Oreos and you put on this drug, and part of the reason they eat a lot of Oreos is because Oreos are in their environment and their friends eat Oreos. I just don't know that the drug is going to matter that much. What do you think? So are you agreeing with me that you, so I basically think people have no self are influenced by their environment and don't have that type of self-control even if they've got the drug. That's my statement. What do you think? So
Speaker 2 (14:40):
I think first of all, I think it was a dramatic overreaction with the markets. And if you look at Coke stock has recovered PepsiCo stock recovered. By the way, the other interesting thing about the markets, Delta stock actually went up because Delta made a statement that if people way less we'll use less fuel. So there's a really interesting conversation around this. I think, as I said Rob, I think it's somewhere in between. I think if these drugs prove to be safe as they're proving to be safe and they're available to the general population, I think they can be a tool used in kind of a greater overall holistic way to think about weight loss and healthy living and healthy eating. And I think one of the things the industry has done a really good job of over the past several years is listening to consumers and listening to society and trying to develop formulations, different sweetening systems and products, smaller sizes from a product's perspective to really appeal to people so people can still enjoy a snack. So I think that these drugs will be proven to be a part of a total regimen from a holistic standpoint. I don't think they're dramatically going to change the industry overall. And as I said, I think we've got some time to think about this from an innovation platform perspective.
Speaker 3 (16:02):
So this is a point that you made when we were talking offline, is how much innovation the food industry has to respond to consumer demand and changing regulatory environments and things like that. If you look at Koch's portfolio as just one example, their portfolio over the last 25 years has dramatically shifted absolutely away from high calorie, high sugar beverages. And I mean, Coke Zero is one of my favorite products. It's just a fantastic product. And the interesting, interesting part about that is if you look at them today, you wouldn't say, oh my gosh, Coca-Cola, given the shift of their assortment and the shift in the buying behaviors, you would predict, if you look at Coke and all of the other major food and beverage leaders and you look at their product portfolios, you might predict that obesity would have gone down. Hey, we've actually decreased the calorie load of a significant portion of the high calorie snack and beverage and other consumables that people use. And so therefore we should have seen us obesity rate go down. But that's not what happened. So it's like I kind of look at, this is again, Rob is negative on people. You look at all of the great products that these companies are producing, which should help with weight loss. You look at just the sheer scale of the weight loss industry, which is just, I mean, there's so much money made in weight loss products,
Speaker 2 (17:40):
72 billion a year category from a weight loss standpoint. And also at any given time in the us, 45 million people are on a diet.
Speaker 3 (17:51):
And while all this is happening, the obesity rate still goes up. And so there's this piece where you said it's part of maybe an array of strategies that you can use. I just haven't seen any evidence that any of these strategies seem to work. There's a human behavioral thing that's going on that I don't pretend to exactly understand, but at a macro level, it's not like we're not spending money trying to solve the problem. We're spending 72 billion and the problem is getting worse. So I don't know,
Speaker 1 (18:23):
I dunno. But I think there is something about Ozempic and that class of drugs that actually works on, now I'm going to get in a lot of trouble here. I'm not quoting anything, but I believe it works on the chemicals in the brain to actually reduce cravings. And cravings are at the core of a lot of consumption because you build up habits and then you have a craving to have the things that you've gotten accustomed to eating and if those cravings can be reduced. And John talked about that, even with alcohol, that's a little bit different than what a weight loss program is doing, which might be educating you on a better diet or selling you meal plans or things like that. But if you don't actually want to eat this stuff at the same rate or at all, that's a big shift.
Speaker 3 (19:16):
It is. But how powerful is that really? Because it's not like these people are stopping eating and starving. So I'll give you another example here, which is the Prozac revolution. So my wife is a psychiatrist, Prozac, so I know a little bit of the history of this. So Prozac comes out, there are a crazy number of people that are on Prozac in the United States for all kinds of reasons, and the rates of depression, anxiety, and suicide, it's not like it's materially. It's not like a wonder drug that all of a sudden mental health has been solved. We have Prozac and other similar drugs. And so when these drugs are coming out, it's clear that in specific instances they do help people, but they're not a solve for these issues. And I think about Ozempic and I think about weight loss or I think about Prozac and I think about mental health and there's hard work. There's hard work that somebody has to face to make changes in life to change their position. And it's not like a sexy marketing thing to say, look, you need to sleep more. You need to have better discipline about exercise. You need to stop drinking. Or as much as you are or doing as much drugs, you need to spend more time with your loved ones. You should get off social media.
(20:42):
You should cook more meals at home. You should stop ordering Uber Eats for, even though Uber Eats is amazing, it's an incredible service and they make a lot of stuff available to you, maybe you should be Uber Eats salads instead of something else. I don't know. There's a whole bunch of hard work that can improve aspects of your life. And I think I'm just skeptical that you can have a drug that fixes your problems without you putting in a lot of effort and people just don't seem to be doing that.
Speaker 2 (21:12):
And that I think we can all agree on that. You just can't take the magic pill and everything changes. But there are medications that have revolutionized healthcare, like blood pressure, short medications, cholesterol, medications that have changed people's life and longevity. And I think this is one that if proven to be as effective as people and scientists are saying it is, can be part of an overall lifestyle change. And it's hard for some people to lose weight. It's not an easy thing to do. And you're right, Rob, you've got to have exercise in your life. You have to eat healthy foods, you have to watch the consumption of calories that it's all part of the overall menu of things to do to make sure that you get to a healthier lifestyle. At the end of the day, it's not just about looking good and feeling good, it's about health.
(21:57):
So if these continue to be proven effective tools, then I think it's got to be part of an overall lifestyle. And I do think that will need to change and be reflected in industry strategies going forward. So I am kind of in agreement with you, but I think there's somewhere in between here on where this is going to go. And as I said, this is not going to be an overnight thing. This is not going to happen over the next 12 months. This is not like AI coming at you. I think this is going to be a gradual thing. I think the insurance companies are going to have a lot to say about this. There's not many people that can afford a thousand dollars a month to lose the weight
Speaker 1 (22:30):
Per weekly injection. Right now it's
Speaker 2 (22:32):
Weekly for a weekly injection. Exactly. I'm sure, and I'm not a scientist, but I'm sure there's pill forms that they're looking at and some other things. But again, the insurance companies will play a big role in this to see how effective it is if it actually reduces other areas like high
Speaker 1 (22:47):
Blood. Do you guys remember back in the nineties, the RA period? Yeah,
Speaker 2 (22:53):
I was with Proctor and Gamble at that time when they introduced ra. Yeah, yeah.
Speaker 1 (22:57):
It was an ingredient that would make us snack, if I'm putting that correctly. But I remember, and I remember as a marketer thinking, oh my God, what if I had to do that? That you had to put a warning label on there saying that one of the side effects could be anal leakage,
Speaker 2 (23:15):
Which I think it probably was a side effect. I think that's what, it's a really interesting example, Peter, because think about what you just said, fat-free, because back then Fat-free was the big craze
Speaker 1 (23:27):
Now.
Speaker 2 (23:28):
So there's always something
Speaker 1 (23:30):
That, always something,
Speaker 2 (23:31):
There's always something that's changing overall,
Speaker 1 (23:33):
But I can't imagine pushing a product where I need to market it with the side effect of anal leakage. It just made me go, well, I'm glad I'm in the software business.
Speaker 3 (23:41):
So Robin Williams on HB, he had a special back in the nineties where he made a joke about RA and he's like, anal leakage is not a side effect. That's an effect. Yeah,
Speaker 2 (23:56):
Exactly. That is
Speaker 1 (23:57):
An effect. Alright gentlemen, so this is a hot take on the impact of Ozempic on the industry. I think really the purpose is it's right before Thanksgiving, so try not to eat so much is basically,
Speaker 3 (24:10):
But the whole point of Thanksgiving is to overeat. You're allowed to over. We are going to disagree on this one. It's the most American thing in the world to overeat on Thanksgiving. But I do want to respond before you try to close us out here. I know you're trying to, Peter loves humanity and has more faith in them than I do. I do love humanity. He's trying to protect the world from me here. But I do want to respond to one of the last thing that John said, which is if you look at the biggest loser or you look at the gastro bypass surgeries, people by and large regain their weight. Some people don't, but most people do because you need to do lifestyle change. And you made the comparison to statins, and I'm on a statin. I've got a ton of history of cholesterol use.
(24:59):
Statins don't require you to do anything. They reduce the amount of LDL cholesterol that's in your bloodstream and therefore reduce the accumulation of arterial plaque and reduce the risk of cardio events. And they do it without you having, you could keep eating and drinking however you want and the statin still works. So that's why that drug, that's why it's such a miracle drug for heart disease. And I don't know, I'm just, when you take something so multifaceted as obesity and behaviors on consumption, I am just deeply skeptical that even if you made this stuff cheap, that it's going to make that much of a difference. So for me, I'm holding on. I don't worry about the sales of a snack food or beverage company with Ozempic. I think it's going to be a complete non-factor. I do think that these GLP one drugs will sell like hotcakes, just like Prozac has. And I think a ton of people will take them just like they're spending 72 billion a year on the weight loss already. They'll spend 72 billion plus whatever billions these drug companies make. But I don't know, I would put money on the table right now that it doesn't move the needle whatsoever on consumption patterns. So that's my bet. Well,
Speaker 2 (26:25):
Where we definitely can agree and we're aligned is that this is going to be a big category and a big business. It's projected to be a hundred billion a year. I mean, oh yes. Once they put a format together and they bring the price down and there's insurance coverage, I mean, you're going to see a lot of people on this. So there's so
Speaker 3 (26:40):
Much
Speaker 2 (26:40):
Money. So
Speaker 3 (26:41):
For
Speaker 1 (26:41):
Me, I think you're going to see Hostess Twinkies with Ozempic inside.
Speaker 3 (26:45):
I
Speaker 2 (26:45):
Don't know about that.
Speaker 1 (26:49):
Sorry, John, what were you going to close out with? No,
Speaker 2 (26:51):
No, that was my last thought. So I think where we're aligned is that this is going to be a big category and it's going to continue to grow. Now, whether or not it has a major impact on the industry, whether or not it has major impact on people's health is the real key question. Because living a holistic lifestyle that's exercise, eating well and watching your consumption of calories, to me, that is the real secret.
Speaker 3 (27:16):
Yeah, I agree. I hope it has a great impact on society and brings obesity rates down and makes people healthier. Nothing could be better for everybody else. I think it's not going to happen. I think it's going to make drug companies a significant amount of money for sure. The thing that we agree on.
Speaker 2 (27:35):
Yeah, absolutely.
Speaker 1 (27:37):
Well, I'll close that. I was reading an article about patients who have been on this and have experienced the impact, and one of the things that I saw that made it put it in somewhat of the right sort of scale for me is that the main effect of Ozempic is this woman was not hungry as much. It makes food less important. So you never know. I guess we'll see. But in the meantime though, happy Thanksgiving everyone.
Speaker 2 (28:03):
Happy Thanksgiving
Speaker 3 (28:04):
As much as you want.
Speaker 2 (28:06):
Save a Turkey leg for me. Please
Speaker 1 (28:08):
Come back on December 18th because John will be back with us with a full episode on what the heck we should be thinking about on planning in 2024. So we'll talk at you again then. Thanks again to John for bringing the wisdom and future perspective and to Rob for his ongoing lack of faith in humanity. We have more wisdom and lots of faith in humanity@digitalshelfinstitute.org. Go become a member. I have faith that you will. Thanks for being part of our community.
