Impact of Weight-Loss Drugs on Greggs’ Sales
Shares in Greggs experienced a significant drop of up to 6 per cent following a report highlighting concerns that the popularity of weight-loss drugs could negatively affect sales of its iconic products such as sausage rolls and steak bakes. The bakery chain is now facing challenges due to the rising use of GLP-1 weight-loss drugs like Wegovy, Ozempic, and Mounjaro.
Growing Concerns from Analysts
Jefferies analysts issued a warning about the potential impact of these drugs on Greggs’ business model. They noted that the increased adoption of these medications could lead to a decline in demand among regular customers. This trend has already affected other companies, with veteran fund manager Terry Smith recently selling his stake in Diageo, a major drinks company, citing similar concerns about the impact of weight-loss drugs on alcohol consumption.
Andrew Wade, an analyst at Jefferies, downgraded Greggs shares from ‘buy’ to ‘hold’. He emphasized that the rapid uptake of GLP-1 weight-loss drugs is likely affecting Greggs’ sales. Wade pointed out that the recent slowdown in sales over the past 18 months cannot be solely attributed to weak consumer spending or adverse weather conditions.
Targeting High-Frequency Customers
Wade highlighted that the drugs are particularly effective in reducing the demand for salty and fatty foods. He described this as a ‘material threat’ to Greggs. While the typical demographic of GLP-1 users may not fully overlap with Greggs’ customer base, those affected are likely to be individuals with higher BMI who visit the bakery more frequently—precisely the customers that are most valuable to Greggs.
As a result of these concerns, Wade significantly reduced the target price for Greggs shares by approximately one-third, setting it at 1610p. Despite the drop, Greggs shares closed down 2.4 per cent, or 40p, at 1640p. The stock has lost half its value since reaching its peak in late 2021.
Adapting to Changing Consumer Preferences
Greggs chief executive, Roisin Currie, acknowledged that customers are increasingly seeking smaller portions and are more interested in information about protein and fibre content. She mentioned that the company is working on refining its product offerings to better meet these evolving preferences.
Founded in Newcastle in 1939, Greggs has grown to operate over 2,000 shops across the UK. The company continues to navigate the challenges posed by shifting consumer trends and the influence of weight-loss drugs on traditional food sales.
