Call it the Ozempic bear thesis. On recent CPG earnings calls, analysts have been asking about the diabetes medication’s impact with management teams. Some dismiss the risk while others, like PepsiCo, are redesigning products with healthier ingredients and/or smaller pack sizes (although management also called the risk “negligible.”) In a Bloomberg interview, Walmart’s CEO provided more substantial insights. According to the largest retailer, users of the class of drugs — which some physicians also prescribe for weight loss — are eating 20%-30% fewer calories and putting fewer items in their carts.

Morgan Stanley analysts did work on the topic to estimate its impact and found that consumers are most significantly reducing their intake of foods high in sugar and fat. With adverse changes in lean body mass a common side effect, it follows that consumers will opt for healthier choices, such as those high in protein. Morgan Stanley also estimates that 1.7% of the American population is currently prescribed, which could rise to 7% by 2035, leading to an estimated 3% decline in snack consumption. That doesn’t sound too bad for CPG companies but with something so difficult to predict, those estimates could, and likely will, be either wildly too high or too low.

Growing wariness toward ultraprocessed foods also a risk for CPGs

The logic appears sound: The more that a food item is processed, the more beneficial nutrients are removed and the more harmful industrial ingredients are added. As highlighted in a recent Just Food article, some studies have backed this up, suggesting that people given an ultraprocessed diet eat an extra, and unneeded, 500 calories a day, which can contribute to numerous physical and mental health issues aside from just weight gain. Pushback from the food industry suggests that there is no clear definition of what constitutes an ultraprocessed food, and the industry also suggests that placing blame on all ultraprocessed foods is an argument that lacks important nuance.

Spot and contract rate spread remains unnaturally high heading into bid season

Average dry van contract rates and dry van spot rates excluding fuel costs above $1.20 a gallon are shown in white and green, respectively.

I recommend that retailers and CPG companies read this FreightWaves Chart of the Week article. FreightWaves’ Zach Strickland highlights the wide and persistent spread between contract rates and spot rates and asks whether it is primarily a function of seasonality or shippers managing risk. If seasonality, then contract rates are set to fall sharply with bid season upon us, which traditionally peaks in Q4 and Q1. Conversely, if that elevated spread is more related to shippers managing the risk of not getting their loads covered in anticipation of an eventual tightening in the freight market, shippers are not trying to wring every dollar out of their freight costs, and the spread might remain elevated until that happens. Another factor keeping the spread wide could be related to the spot market being more skewed toward backhaul freight and/or brokered loads than ever before.

Averitt Express sees ‘mini-peak season’ on the ocean

(Photo: FWTV)

On Monday’s The Stockout show, Grace Sharkey and I interviewed Ed Smith, vice president of distribution at Averitt Express. Originally a regional less-than-truckload carrier in the Southeast, Averitt has expanded both geographically and in scope to include truckload, port distribution, warehousing, e-commerce and final mile — the idea is to give customers end-to-end solutions.

According to Smith, most ocean shippers engaged in a “mini-peak season” this year, ramping up some seasonally, but still with some caution given the uncertainty in the consumer economy. Inventories from his perspective are mixed with smaller, consumable items moving much faster than big-ticket, discretionary items. Other major trends that Averitt sees are reshoring toward more manufacturing in both Mexico and Brazil and capturing more data at all points in the supply chain to gain an improved grasp on where cost savings opportunities lie.
See the full interview here.