Business

On june 29th America’s Supreme Court ended 45 years of affirmative action in university admissions. The decision did not change the laws which govern companies’ hiring and firing decisions. But it did put wind in the sails of those who think efforts by firms to increase the racial diversity of their workforces have already stepped beyond the rules. Bosses and their lawyers have since scrambled to make sense of the judgment’s implications. One big law firm, Morrison Foerster, wrote a memo to clients after the ruling, counselling them to ensure their diversity policies do not create “unlawful preferences”.The firm is now alleged to have ignored its own advice. In August American Alliance for Equal Rights (AAER), an organisation run by Edward Blum, the activist who brought affirmative action to the Supreme Court, sued Morrison Foerster. AAER alleges that one of the firm’s programmes for law students, a highly prized fellowship open only to applicants from “underrepresented” groups, illegally discriminates on the basis of race. Days later the law firm broadened the requirements of its fellowship in online advertisements.Morrison Foerster is not alone. In the most recent quarter chatter about diversity on big American firms’ earnings calls dropped by more than a third, compared with the same period last year, according to data from Bloomberg. Annual general meetings have lost their revolutionary zeal: support for proposals on social issues declined this year, and companies faced a record number of “anti-woke” proposals. Haranguing from progressives has eased ever since Joe Biden replaced the race-baiting Donald Trump in the White House in 2021. And bosses, confronted by higher interest rates, labour unrest and souring geopolitics, hardly need a lawsuit over their hiring practices.Companies are, then, less vocal about their diversity, equity and inclusion (DEI) initiatives, a brew of policies aimed at making workforce demography reflect more closely that of the country as a whole. Such policies are under their sternest scrutiny yet. But a closer examination suggests that they are not disavowing such schemes. For all the remonstrations, DEI is not about to die.Although the idea of DEI has been around for years, it gained prominence after the murder in May 2020 of George Floyd, an unarmed black man, by the police in Minneapolis. This outrage led to anti-racist protests across America, and to a gasp of condemnation from C-suites. DEI became the toast of boardrooms, shareholder meetings and employee town halls. Firms rushed to disclose more details about the composition of their workforce and set public targets for the ethnic and gender mix of their workers and managers. Bosses shelled out on “racial equity audits”, where a law firm tells a company how racist it is. Wannabe chief executives studying for an MBA at the University of Pennsylvania’s prestigious Wharton School could major in DEI studies. A survey of several big economies in May by EY, a consultancy, found that 73% of 18-to-26-year-olds would prefer to work at a firm that cares about DEI.image: The EconomistRussell Reynolds, a headhunter, found that by 2022 three-quarters of big firms in the S&P 500 index had a “chief diversity officer”. More than half of large businesses link bosses’ compensation to hitting DEI targets. According to McKinsey, a consultancy, 82% of Fortune 200 firms have a formal diversity programme for choosing their suppliers. Since 2020 around seven in ten new appointments to the boards of S&P 500 companies have been “diverse”, which is to say not straight white men (see chart 1). That is up from 50% in 2018 and 38% in 2013, according to Spencer Stuart, another recruiter (see chart 2). By the end of this year, firms listed on the Nasdaq exchange are required to nominate, or explain why they have not nominated, at least one “diverse” director (rising to two over the next few years).image: The EconomistThree years on from Floyd’s killing DEI initiatives are facing challenges on two fronts. The first, as illustrated by Morrison Foerster’s predicament, is legal. Racial discrimination cases have long worried companies’ general counsels. On September 28th America’s Equal Employment Opportunity Commission sued Tesla, a carmaker, over alleged harassment of its black employees. Today cases alleging that DEI initiatives are guilty of “reverse discrimination” are as likely to keep executives awake at night. On September 30th, for example, an appeals court granted AAER’s request to block a venture-capital programme open only to firms owned by black women, overturning a lower-court ruling last month that went against Mr Blum’s organisation.Mr Blum foresees “a renewed enthusiasm to end these racial quotas”. America First Legal, which is run by a former adviser to Mr Trump, has filed complaints against more than a dozen big American companies. Two weeks after the Supreme Court ruling ended affirmative action at universities, Republican attorneys-general from 13 states penned a letter to the chief executives of America’s 100 biggest firms, chastising companies including Microsoft and Goldman Sachs for their DEI initiatives and threatening “serious legal consequences”.Ishan Bhabha of Jenner and Block, a law firm, says that the DEI schemes most likely to face such consequences involve setting quotas. The more specific a firm’s DEI targets, and the more explicitly they are linked to executives’ compensation, the bigger the risk that they look like a quota. Many companies’ targets do look quite specific. A recent study by Atinuke Adediran of Fordham University analysed hundreds of DEI policies. It found that those which aim to achieve goals by a certain date (as when State Street, a financial firm, vowed in 2020 to triple its “Black and Latinx leadership” over three years) outnumber those which lack a clear time horizon (Procter & Gamble, a consumer-goods giant, says it wants “40% representation of multicultural employees” at every management level).The threat of lawsuits may lead companies to adapt their DEI policies rather than ditch them, not least by giving general counsels a greater say in crafting them. And any legal challenges will anyway take years to rumble through America’s courts. In the meantime, observes Esther Lander of Akin Gump, a law firm, companies are insisting in public that they will not allow the anti-DEI backlash to thwart their efforts, even if they are “quietly wondering whether any of their initiatives are problematic”.Another challenge is a slowing economy, which might be expected to have a more immediate effect on companies’ diversity programmes. In leaner times shareholders usually prioritise profits above all else. Employees, including young ones who profess to caring about DEI, may also put material concerns ahead of moral ones if the job market tightens.There is some evidence of trimming in DEI-land. Data from Revelio Labs, a workplace-data firm, show that hiring for roles administering DEI programmes at S&P 500 firms has slowed by half since last year. Churn among workers in such roles, both voluntary and involuntary, is around twice what it is for other positions. Other executives are feeling the pinch, too. This year uncertain “macroeconomic conditions” led Alphabet, Google’s parent company, to slash the “ESG bonus” it awarded senior staff by 50%, to (a still juicy) $775,000 apiece. Half of the bonus scheme’s potential payout is related to meeting the firm’s DEI goals (as laid out in its 115-page “diversity annual report”).This belt-tightening does not, however, amount to a fundamental rethink of DEI policies. One big reason is that corporate America has persuaded itself that diversity is a driver of profits. Many firms invoke a series of studies by McKinsey, which found that companies with greater ethnic, racial and gender diversity are likelier than less diverse ones to enjoy higher profits than their industry average.The reality is more complicated. McKinsey acknowledges that “correlation does not equal causation” and that “greater gender and ethnic diversity in corporate leadership doesn’t automatically translate into more profit”. Plenty of scholars who have looked for a causal link have failed to find one. Nonetheless, that did not stop 69 of America’s biggest firms from submitting a brief defending affirmative action to the Supreme Court, which stipulated that “racial and ethnic diversity enhance business performance”. In support, they argued that racially diverse teams make “better decisions”. The HR Policy Association, an organisation which represents human-resources professionals, said in its own friend-of-the-court submission that it was not aware of any credible argument that commitments to diversity “should not be vigorously pursued”. The rest of America Inc seems to agree. ■ More

Sphere Entertainment’s stock soared Monday.
The move follows the company’s newest venue opening in Las Vegas over the weekend, with a performance from U2.
The venue plans to host live concerts and sporting events.

The Sphere is seen during its opening night with the U2:UV Achtung Baby Live concert at the Venetian Resort in Las Vegas on Sept. 29, 2023.
Tayfun Coskun | Anadolu Agency | Getty Images

Sphere Entertainment shares soared 11% Monday following the successful opening weekend of the company’s new Las Vegas venue.
The entertainment and media company, a pet project of New York Knicks owner James Dolan, paired its venue opening with a performance from rock band U2 on both Saturday and Sunday night. The Sphere plans to host live concerts and sporting events.

Fans took to social media to share their excitement at the performances, which appeared to have a big turnout.
Sphere calls itself a “next-generation entertainment medium” that aims to bring a fresh take to live entertainment, fit with a futuristic dome-shaped arena and wall-to-wall video screens. The Las Vegas venue is the company’s first opening.
The company has also announced plans to build another Sphere in London, pending approvals.
The company’s market cap sits at about $1.4 billion. More

All drugmakers of the first 10 medicines selected for Medicare drug price negotiations have agreed to participate in the price talks.
President Joe Biden’s Inflation Reduction Act empowered Medicare to negotiate drug prices for the first time in the program’s six-decade history. 
The lengthy negotiation process won’t end until August 2024, with reduced prices going into effect in January 2026.

A pharmacist holds a bottle of the drug Eliquis, made by Pfizer Pharmaceuticals, at a pharmacy in Provo, Utah, January 9, 2020.
George Frey | Reuters

All drugmakers of the first 10 medicines selected for Medicare drug price negotiations have agreed to participate in the talks, even after many of them sued to halt the process last month.
The companies confirmed their participation in separate statements to CNBC. The Centers for Medicare & Medicaid Services did not immediately respond to a request to confirm that all drugmakers agreed to the talks.

President Joe Biden’s Inflation Reduction Act, which passed last year, empowered Medicare to negotiate drug prices for the first time in the program’s six-decade history. The lengthy negotiation process won’t end until August 2024, with reduced prices going into effect in January 2026.
Sunday was the deadline for all 10 pharmaceutical companies to sign an agreement to engage in the negotiations, which aim to make costly medications more affordable for older Americans.
Monday, meanwhile, is the deadline for those companies to submit economic and market information on their drugs, including research and development costs and sales and revenue data. 
Here are the 10 drugs and the companies that manufacture them: 

Eliquis, made by Bristol Myers Squibb, is used to prevent blood clotting, to reduce the risk of stroke.
Jardiance, made by Boehringer Ingelheim, is used to lower blood sugar for people with Type 2 diabetes. 
Xarelto, made by Johnson & Johnson, is used to prevent blood clotting, to reduce the risk of stroke.
Januvia, made by Merck, is used to lower blood sugar for people with Type 2 diabetes.
Farxiga, made by AstraZeneca, is used to treat Type 2 diabetes.
Entresto, made by Novartis, is used to treat certain types of heart failure.
Enbrel, made by Amgen, is used to treat rheumatoid arthritis. 
Imbruvica, made by AbbVie, is used to treat different types of blood cancers. 
Stelara, made by J&J subsidiary Janssen, is used to treat Crohn’s disease.
Fiasp and NovoLog, made by Novo Nordisk, are insulins.

Many of the drugmakers contend that they had no real choice but to participate in the negotiations, specifically due to the penalties they could face if they choose not to.

If drugmakers decline to engage in the negotiations, they could be forced to pay an excise tax of up to 95% of their medication’s U.S. sales or to pull all of their products from the Medicare and Medicaid markets, according to CMS.
“We have no choice other than to sign the ‘agreement.’ If we did not sign, we’d be required to pay impossibly high penalties unless we withdraw all of our medicines from Medicare and Medicaid. That is not a real choice,” a spokesperson for Bristol Myers Squibb told CNBC ahead of the Sunday deadline.
That statement echoes the arguments outlined in at least nine separate lawsuits drugmakers filed against the Biden administration in recent months seeking to declare the negotiations unconstitutional.
The pharmaceutical industry also argues that the process will threaten revenue growth, profits and drug innovation.
However, analysts expect minimal financial losses for companies, at least initially, since most of the drugs selected already face upcoming patent expirations that will likely weigh on revenue.

What happens next?

This fall, CMS will host one meeting with all 10 companies so they can provide context for the data they submitted by Monday. 
CMS will also host listening sessions with consumer and patient organizations to obtain information the agency can use to develop its initial price offers for the selected drugs. 
CMS will then make an initial price offer to manufacturers in February, and the companies have a month to accept or make a counteroffer. 
The negotiations will end in August, with agreed-upon prices published on Sept. 1, 2024. The reduced prices won’t go into effect until Jan. 1, 2026.
After the initial round of talks, CMS can negotiate prices for another 15 drugs for 2027 and an additional 15 in 2028. The number rises to 20 negotiated medications a year starting in 2029 and beyond.
CMS will only select Medicare Part D drugs for the medicines covered by the first two years of negotiations. It will add more specialized drugs covered by Medicare Part B, which are typically administered by doctors, in 2028. 
The drug price talks are expected to save Medicare an estimated $98.5 billion over a decade, according to the Congressional Budget Office. 
The negotiations are also anticipated to save money for people enrolled in Medicare, who take an average of four to five prescription drugs a month and increasingly face out-of-pocket costs that many struggle to afford.  More

Late -night hosts return to TV lineups Monday as the Writers Guild of America members vote on a tentative deal with studios.
Meanwhile, striking actors are resuming negotiations with the Alliance of Motion Picture and Television Producers.
Expectations are that talks will move quickly, but production may not resume as fast.

Host Seth Meyers during Corrections on April 7, 2023.
Lloyd Barrell | Nbcuniversal | Getty Images

Now that the Hollywood writers’ strike is over, late-night hosts are preparing their first opening monologues since May, and actors are going back to the negotiating table with studios.
After nearly 150 days on the picket lines, the Writers Guild of America struck a tentative deal with the Alliance of Motion Picture and Television Producers last week, allowing writers to return to work and striking actors to start up their negotiations. WGA membership is currently in the process of voting on the contract, with expectations that ratification will come late next week.

The first people to return are late-night heavyweights Jimmy Fallon, Jimmy Kimmel, Seth Meyers and Stephen Colbert on Monday, followed by John Oliver, host of “Last Week Tonight,” on Sunday.
Meyers, host of “Late Night with Seth Meyers,” spent much of his pre-strike shows commenting on former President Donald Trump’s compounding legal problems. He noted that his first show back will be an hourlong “Closer Look” segment, a recap of news items.
“I’m so excited to be back, but I didn’t pay attention to the news at all the last five months … I hope I didn’t miss like three indictments,” Meyers joked on “Today” Monday.
The WGA secured pay increases in each of the next three years, artificial intelligence restrictions and a new residual system for streaming based on viewership. The guild also negotiated higher contribution rates to health benefits and pensions, as well as a guaranteed number of writers in writers rooms for television shows.
Now it’s the Screen Actors Guild-American Federation of Television and Radio Artists’ turn.

The actors guild begins its negotiations with the likes of Disney, Paramount, Universal and Warner Bros. Discovery on Monday.
SAG-AFTRA is looking to improve wages, working conditions and health and pension benefits, as well as establish guardrails for the use of AI in future television and film productions. Additionally, the union is seeking more transparency from streaming services about viewership so that residual payments can be made equitable to linear TV. The guild is also looking to standardize the self-tape process.
Industry players expect the negotiations will be quick, with the WGA deal as a template.

Not so fast

Still, even if a tentative agreement is reached in the next few weeks, Hollywood will be slow to restart production on films and television shows. Not only will SAG-AFTRA members need to vote on the new contract, which could take a week or more, but there will be a scramble to gather crews and cast back to their respective sets.
In a situation that would be similar to the return from pandemic restrictions, productions will be competing for studio space, locations and talent schedules. This could become increasingly tricky as the holiday season approaches, a time when production typically slows down.
In addition, productions that were shooting internationally during the strike, like Warner Bros.’ “Beetlejuice 2,” Universal’s “Wicked,” and Disney and Marvel’s “Deadpool 3,” may need to wait for those crews to wrap up projects before returning to work on U.S.-based productions.

Timothee Chalamet and Rebecca Ferguson star in Denis Villeneuve’s adaptation of “Dune.”
Warner Bros.

Some studios have already indicated they will wait until next year to resume production. This means that post-production processes will also be delayed — including, editing and special effects. It’s unclear what impact that could have on the release calendar for upcoming film and TV shows.
Already, Warner Bros. and Legendary Entertainment’s “Dune: Part Two” fled to 2024 as did Sony’s “Kraven the Hunter” and “Ghosbusters: Afterlife” sequel.
And much of the reason “Dune: Part Two” departed the calendar was because its cast could not promote the film during the strike. Once SAG-AFTRA makes a deal with the AMPTP, those stars will be able to return to late-night shows to drum up interest for films.
That could be particularly important for Academy Award hopefuls set for release later this year.
In the meantime, late-night hosts will look elsewhere for guests. Meyers said viewers can expect to see politicians, journalists and authors as guests on the show until actors are permitted to promote their upcoming projects.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal is a member of the Alliance of Motion Picture and Television Producers. NBCUniversal is the distributor of “Wicked” and “The Late Show with Seth Meyers.” More

The FCC announced its first penalty regarding space debris in a settlement with Dish Network.
Dish admitted it was liable for failing to properly dispose of the EchoStar-7 broadcast communications satellite and agreed to pay a fee of $150,000.
The FCC called the agreement “a breakthrough settlement” in the increasingly concerning realm of space debris.

Signage is seen at the headquarters of the Federal Communications Commission in Washington, D.C.
Andrew Kelly | Reuters

The Federal Communications Commission announced a settlement with Dish Network on Monday in the regulator’s first penalty related to space debris.
Dish admitted it was liable for failing to properly dispose of the EchoStar-7 broadcast communications satellite, and agreed to pay a fee of $150,000, the FCC said. The FCC called the agreement “a breakthrough settlement” in the increasingly concerning realm of space debris, brought on by governments and companies launching satellites into orbit at an unprecedented rate.

“As satellite operations become more prevalent and the space economy accelerates, we must be certain that operators comply with their commitments,” FCC Enforcement Bureau Chief Loyaan Egal said in a statement.

Sign up here to receive weekly editions of CNBC’s Investing in Space newsletter.

Dish launched the EchoStar-7 satellite in 2002 and planned to remove it from service in May 2022. But a few months before then, Dish found the satellite did not have enough fuel remaining to navigate to a disposal location.
The company had previously agreed to an “orbital debris mitigation plan” with the FCC to relocate the satellite. Instead of retiring the satellite 300 kilometers away from where it was operating in geostationary orbit, Dish retired the satellite about 122 kilometers away, “well short of the disposal orbit,” the FCC noted.
Dish did not immediately respond to CNBC’s request for comment on the settlement. More

The average total time spent in a drive-thru lane shrank 29 seconds this year.
Wait times to order were 25 seconds shorter, as the average number of cars in line to place their order fell from 2.76 to 1.27.
Restaurant companies such as McDonald’s and Chick-fil-A are working to speed up service and reduce errors.

Chick-fil-A had the slowest average drive-thru experience in 2022, but the highest customer satisfaction.
Jeff Greenberg | Universal Images Group | Getty Images

Fast-food drive-thru lanes are speeding up as fewer customers choose to order their meals and milkshakes sitting in their car, according to an annual study by Intouch Insight released Monday.
The average total time spent in a drive-thru lane shrank 29 seconds this year. Wait times to order were 25 seconds shorter, as the average number of cars in line to place orders fell from 2.76 to 1.27.

The Intouch Insight study was based on visits to nearly 1,500 locations of Arby’s, Burger King, Carl’s Jr., Chick-fil-A, Dunkin’, Hardee’s, KFC, McDonald’s, Taco Bell and Wendy’s. Mystery shoppers ordered from the drive-thru lanes during a range of times between June and July.
Taco Bell, KFC and Carl’s Jr. had the fastest overall times for their drive-thru lanes. But Chick-fil-A, McDonald’s and Wendy’s bested all three chains when their longer average total times were divided by the number of cars in line. In other words, Carl’s Jr and Yum Brands’ Taco Bell and KFC were only speedier because their drive-thru lanes weren’t as popular.
But across the board, drive-thru lanes have waned in demand since the Covid-19 pandemic began. At that time, customers shifted from ordering inside to ordering from their cars. The trend continued even as fast-food restaurants reopened their dining rooms.
But the surge in popularity put pressure on workers to assemble orders quickly and accurately, and fast-food chains had to come up with solutions such as curbside pickup for mobile orders to address the problem. Despite those efforts, this year’s total drive-thru times still lag 2019 times by 15 seconds.
Many diners have now shifted to ordering online or using self-order kiosks inside restaurants.

Even as drive-thru visits stabilize, restaurant companies such as McDonald’s and Chick-fil-A are still working to speed up service and reduce errors. Some are testing artificial intelligence software to take orders or are building new locations with as many as four drive-thru lanes.
Intouch Insight’s mystery shoppers visited two special restaurants this year: a McDonald’s test restaurant outside of Fort Worth, Texas, with an order-ahead lane and a drive-thru lane, along with a Taco Bell location in Brooklyn Park, Minnesota, with one traditional drive-thru lane and three additional lanes reserved for delivery drivers and customers who ordered ahead.
Both locations’ service times outperformed their broader brands’ times by roughly a minute. The Taco Bell restaurant also outperformed on order accuracy with a score of 88%, versus the chain’s rate of 85%. But the McDonald’s test location fell short with an accuracy score of 80%, well below the chain’s rate of 88%. More

Rivian Automotive on Monday reported record third-quarter electric vehicle deliveries and said it remains on track to produce 52,000 EVs in 2023.
Rivian produced 16,304 vehicles during the third quarter, all at its factory in Normal, Illinois.
Rivian took several steps earlier this year to reduce spending and bolster its balance sheet, including a 6% staff reduction in February and a $1.3 billion sale of convertible notes in March.

The Rivian name is shown on one of the company’s new electric SUV vehicles in San Diego, California, Dec. 16, 2022.
Mike Blake | Reuters

Rivian Automotive on Monday reported record third-quarter electric vehicle deliveries and said it remains on track to produce 52,000 EVs in 2023.
The company said it delivered 15,564 vehicles during the period, up 23% from the second quarter of 2023 and ahead of Wall Street estimates. Analysts surveyed by FactSet had expected Rivian to deliver about 14,000 vehicles in the quarter, on average.

Shares of the EV maker, however, fell 4% in premarket trading after the report.
Rivian produced 16,304 vehicles during the third quarter, all at its factory in Normal, Illinois.
Rivian also confirmed that it remains on track to build 52,000 vehicles in 2023, in line with its previous guidance to investors. Rivian currently builds a series of delivery vans for Amazon as well as its own R1T pickup and R1S SUV. All are fully electric vehicles.
Rivian took several steps earlier this year to reduce spending and bolster its balance sheet, including a 6% staff reduction in February and a $1.3 billion sale of convertible notes in March. The company also delayed the launch of its upcoming smaller R2 vehicle platform to 2026, from 2025. It had $10.2 billion in cash on hand as of June 30, its most recent update.
Rivian will announce its third-quarter earnings result after the U.S. markets close on Nov. 7. More

Food companies are making big bets on snacking, but the rise of Wegovy, Ozempic and similar drugs could pose a threat to future sales growth.
Morgan Stanley estimates the number of patients taking GLP-1 drugs could reach 24 million, or nearly 7% of the U.S. population, by 2035.
But PepsiCo, Mondelez and other food companies may be able to pivot their portfolios before that happens.

The snack aisle is seen during a tour of a new Amazon Go store in the Capitol Hill neighborhood of Seattle, Washington, U.S., on Monday, Feb. 24, 2020.
Chona Kasinger | Bloomberg | Getty Images

For more than a century, frosted cornflakes have been the backbone of Kellogg’s business. That changes Monday, when the company will spin off its stable cereal business in favor of its faster-growing snack unit and rename itself Kellanova.
The spinoff comes weeks after another wager that consumers will graze between meals, when J.M. Smucker bought Twinkie maker Hostess Brands for $5.6 billion in a bid to expand its snack lineup.

But food companies’ major bets on snacking come as investors fear the looming danger of Big Pharma’s blockbuster obesity and diabetes drugs Wegovy and Ozempic. Many investors have high hopes for the pharmaceuticals’ future, but their success could mean slower sales for the companies that produce Oreos, Doritos and Hershey’s Kisses.
Big Food’s bet on snacking began roughly a decade ago, and it’s only accelerated as the rest of the grocery aisles see sales stagnate, particularly as prices rise. The U.S. market for savory snacks is expected to grow 6% annually from 2022 through 2027, and sweet snacks’ sales are expected to rise 4.6% annually during that time, according to HSBC. Roughly three-quarters of consumers plan to snack every day, according to Accenture data.
Millennials and Generation Z consumers are fueling the trend. Younger generations snack more often than older consumers, said Kelsey Olsen, food and drink analyst for market research firm Mintel. Millennials and Gen-Z consumers tend to eat smaller meals that are closer together, creating more occasions to grab a snack.
At the same time, Novo Nordisk’s Ozempic and Wegovy have taken off, fueled by prescriptions to help patients lose weight. The drugs, known as GLP-1 agonists, suppress appetites by mimicking a gut hormone. Some patients even report developing aversions to foods with higher sugar and fat content — a category that includes many big snack brands.
More than 9 million prescriptions for these kinds of drugs were written in the U.S. in the fourth quarter of 2022, according to a Trilliant Health report.

Morgan Stanley estimates that the number of patients taking GLP-1 drugs could reach 24 million, or nearly 7% of the U.S. population, by 2035.
If so, consumption of baked goods and salty snacks could fall 3% — or even more if the new eating habits of the people using the treatments extend to their broader households and friends, according to Morgan Stanley’s research. That puts companies like Hershey, Mondelez, PepsiCo, General Mills and Kellogg’s successor Kellanova at risk.
But not everyone in the industry agrees with that assessment.

Weight loss drug uptake could be slow

Boxes of Ozempic, a semaglutide injection drug used for treating type 2 diabetes and made by Novo Nordisk, is seen at a Rock Canyon Pharmacy in Provo, Utah, May 29, 2023.
George Frey | Reuters

After buying Hostess Brands, Smucker CEO Mark Smucker defended the future of Twinkies and Ding Dongs against the threat of GLP-1 drugs.
“There are multiple ways that consumers will continue to snack. … And given that consumers are going to continue to seek all different types of snacks, and sweet snacks are going to continue to be on the radar, we view that our projections here are sound,” he told analysts on a conference call.
For one, GLP-1 drugs like Wegovy and Ozempic are expensive, with a list price of roughly $1,000 a month. That high price has led some insurers to decide not to cover the treatments.
While some of the nation’s largest insurers, like CVS’s Aetna, cover prescriptions of these drugs, the federal Medicare program, many state Medicaid programs and some commercial insurers don’t, leaving patients to pick up the bills themselves.
Another factor could work in the favor of snack sales. Many of the consumers who eat the most junk food likely won’t be able to afford Wegovy or Ozempic.
“Consumption of indulgent salty snacks that would be considered ‘junk food’ generally over-indexes toward lower-income individuals, who are unlikely to be these drugs’ primary users, ” RBC analyst Nik Modi said in a research note Tuesday.
Modi wrote that he doesn’t believe the drugs will ultimately be problematic for the manufacturers of salty snacks.
What’s more, patients have to inject themselves once a week, and if they stop taking the treatments, their effects disappear, usually erasing any weight loss that had occurred over time.
“This sort of drug is super interesting in what it can do, but I think until it comes in a radically different formulation, in a pill or something like that, and something that has enduring impact and obviously the much lower price point, I think it’s going to be tricky,” said Oliver Wright, senior managing director of Accenture’s consumer goods and services unit.
Even if the drugs become more affordable and are more widely adopted, the change won’t happen overnight. Food companies will have time to adjust to shifting consumer behavior.
“We acknowledge that the impact in the near term is likely to be limited given drug adoption will grow gradually over time, but we could see a longer-term impact as drug prevalence increases,” Morgan Stanley’s Paula Kaufman wrote in a note to clients. “Moreover, we expect companies to adapt to changes in consumer behavior through innovation and portfolio reshaping efforts.”
That may mean slower sales growth than expected and moves to divest some brands. But Big Food has been making strides toward healthier options anyway. GLP-1 drugs could just put more pressure on companies to update their portfolios.
PepsiCo and Mondelez are among the companies that have snapped up smaller brands that make healthier snacks. Still, growing them into global powerhouses will take time.
Food companies are also looking internally, investing in their research and development teams to create new formulations that mirror the taste of their full-sugar and salt versions.
“My prediction is, before the end of the decade, we will have a healthy Oreo that can be put on a plate with an old one, and consumers won’t be able to tell them apart — and that will be a good thing,” Accenture’s Wright said.
— Annika Kim Constantino contributed reporting for this story. More