Consumer staple stocks experienced another setback on Friday, further extending their losses following Walmart’s warning regarding a decline in food purchases from customers taking weight-loss drugs.

According to John Furner, CEO of Walmart’s U.S. operations, there is evidence of reduced unit purchases and a slight decrease in caloric intake among shoppers who are also filling prescriptions for GLP-1 weight-loss drugs at their pharmacy. This news has caused unease among investors, resulting in a 2% slump in the Consumer Staples Select Sector SPDR exchange-traded fund (XLP) the following day. Over the course of the week, the fund has seen a decline of 3.4%.

Additionally, the damage to the sector persisted on Friday, with Walmart’s stock (WMT) experiencing a nearly 4% drop to $152.91. This marks the biggest single-day percentage decrease since July 2022. At the time of writing, Walmart has yet to respond to a request for comment.

Furthermore, snack and beverage companies also felt the impact as their stocks declined on Friday. Mondelez International (MDLZ), the maker of popular brands such as Oreos, Wheat Thins, and Chips Ahoy!, saw its shares slide by 4% to $62.47 in recent trading. Likewise, J.M. Smucker’s (SJM) stock, known for its jelly products, decreased by 2.5% to $113.55. Both Mondelez and Smucker’s have not provided a comment in response to requests.

The overall consumer staples ETF experienced a nearly 1% decline on Friday, while the S&P 500 saw an increase of 1.2%. For the year, the broader market index has gained 12%, whereas the staples ETF has suffered an 11% loss

Weight-Loss Drugs Boost Market Gains

Weight-loss drugs have been a significant catalyst for market gains this year, driving the soaring stock prices of drugmakers Eli Lilly and Novo Nordisk. As of now, Eli Lilly’s tirzepatide is awaiting approval from the Food and Drug Administration, while Novo’s obesity treatment, Wegovy, received government approval in 2021. Wall Street has high hopes for these drugs, with J.P. Morgan estimating that Lilly’s weight-loss drugs could generate annual sales of $50 billion by 2030.

Potential Impact on Food and Beverage Industry

The positive outlook for weight-loss drugs has raised concerns among some investors regarding the potential impact on sales for the restaurant, snack, and soda industries. However, analysts believe that these fears may be overblown.

In August, Morgan Stanley analysts led by Pam Kaufman recognized the incremental challenges that obesity drugs may pose to food, beverage, and grocery companies. Nevertheless, they believe that any changes in demand can be managed effectively.

According to the analysts, the user pool for obesity medications could reach nearly 7% of the U.S. population by mid-2033, resulting in a low-single-digit reduction in calorie intake. However, Morgan Stanley believes that this is a manageable situation for most industries as companies can adapt through innovation and portfolio reshaping.

TD Cowen expects that only about 1% of the U.S. adult population will be on weight-loss drugs by 2030, highlighting a more modest impact than some may anticipate.

Insights from Retailers’ Earnings Reports

To gain further insights into the effects of these treatments, investors will be closely watching the upcoming earnings reports from retailers like Walmart in November.

In conclusion, weight-loss drugs have been driving market gains for drugmakers and have sparked some concerns about their impact on the food and beverage industry. However, analysts suggest that these concerns may be manageable, with companies able to adapt and innovate to meet changing demands.

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