Krispy Kreme becomes latest junk food giant to panic about Ozempic – as investors fear America will fall out of love with doughnuts

Weight-loss drugs like Ozempic and Wegovy are continuing to spook financial advisers when it comes to investing money in junk and fast food companies. 

Some experts predict these companies – already battling a rise in health conscious customers – could face a tobacco-like demise due to the increasingly popular drugs, which reduce cravings and make people feel full longer. 

The doughnut company Krispy Kreme is the latest to feel the effects of the weight-loss movement and saw its share price drop Monday. 

The investment advisement firm Truist Securities downgraded shares of Krispy Kreme from ‘buy’ to ‘hold’ and cut the price target from $20 to $13, citing the uncertain impact drugs like Ozempic and Wegovy could have on packaged food snacks. 

The doughnut company Krispy Kreme is the latest to feel the effects of the weight-loss movement and saw its share price, the value of a company’s stock, drop Monday

Research has found 73 percent of people on weight loss drugs ate less confectionary food, which includes sugary candy, chocolate and some baked goods.

Financial analysts at the firm are no longer recommending investors buy shares in Krispy Kreme.

The downgrade of shares to ‘hold’ means people who have invested money in the company shouldn’t do anything – neither buy nor sell. 

Shares of the doughnut company fell Monday by as much as 3.6 percent, but overall, shares are up 25 percent year-to-date as of market close Monday. 

Bill Chappell, a financial stock analyst with Truist Securities, wrote in a note to investors Monday the firm has a difficult time recommending Krispy Kreme to investors because it has ‘no idea’ what the impact of weight-loss drugs will be or how long it will last, though Chappell speculated it wouldn’t fade for six to 12 months, ‘if not longer.’

The boom of the weight-loss drugs has made financial advisers less certain on many stocks in companies that produce junk or sugary foods and the entire industry is facing a potential crisis.

Earlier this month, Barclays, an investment bank, downgraded its recommendation on the Swiss chocolate maker Barry Callebaut and the German sugar company Suedzucker. 

Its analysts said weight-loss drugs posed the threat of declining share prices. 

Big banks such as Morgan Stanley, have predicted 24 million people, or seven percent of the US population, will be taking weight-loss drugs by 2035. 

An analysis by the bank also predicts patients prescribed the drugs will consume one-quarter of the candy, confectionary and other junk food they did before – slashing billions of dollars from annual revenue.

A survey conducted by Morgan Stanley found 73 percent of people ate less confectionary food, which includes sugary candy, chocolate and some baked goods

Major players in the fast food industry, such as McDonald’s, Burger King and Yum Brands, which owns KFC and Taco Bell, could see falling demand

Morgan Stanley’s food analyst Pamela Kaufman said in a report: ‘The food, beverage and restaurant industries could see softer demand, particularly for unhealthier foods and high-fat, sweet and salty options.’

The new class of medications can lead to a 20 to 30 percent reduction in daily calories, and people tend to eat less high-sugar and high-fat foods, meaning the makers of chips, cookies and baked goods could take a hit, with banks predicting a drop in consumption by as much as three percent through 2035.

Morgan Stanley’s research found 73 percent of people on the weight loss drugs ate less confectionary food, which includes sugary candy, chocolate and some baked goods. 

This drastic reduction could spell trouble for the mega-producers of these types of food, including Krispy Kreme, Oreo producer Mondelez International, Nestle, which makes Hot Pockets and Häagen-Dazs, and Kraft Heinz, which produces products like Jell-O and macaroni and cheese. 

Companies like this dominate the global market for snacks, which is currently valued at half a trillion dollars, and they should brace for falling demand – potentially by billions of dollars. 

While any negative impacts are likely to be gradual, corporations are already spooked and investors and c-suite executives have begun to worry.

A recent analysis found executives at junk food companies are increasingly talking about the medications with investors. 

Reuters’ Breakingviews scoured the transcripts of corporations’ presentations, events and earnings calls – a conference between the management of a company – financial analysts, media and investors.

It found in 2022, there were 18 mentions of Wegovy, Ozempic and Mounjaro. So far in 2023, at least one of these drugs was mentioned in calls at least 71 times.

Despite Chappell’s advice earlier this week, he said he does believe in Krispy Kreme and noted the company will grow in 2023 as it ‘continues to fine tune’ its business model.