Kroger & Walmart expect GLP-1 drugs to grow pharmacy sales but hurt grocery
Retailers like Kroger and Walmart are monitoring both how GLP-1 drugs like Ozempic and Mounjaro could create opportunities to grow their pharmacy businesses as well as reduce sales of snacks and sweets in the grocery aisle. Still, it remains to be seen how much of the market for these medications big-name retailers could penetrate or how existential of a threat they could pose to the food business.
Retailers, then, face a double-edged sword when trying to figure out how GLP-1 drugs could impact their businesses. Albertsons and Walmart have both recently acknowledged that the sale of GLP-1 medications — used both for weight loss and managing chronic conditions including diabetes — have at least slightly helped sales for their pharmacy businesses.
At Albertsons, pharmacy sales have increased in share to 11% of its total annual revenue, CEO Vivek Sankaran said in January, attributing this to growth in prescriptions like GLP-1 medications as well as success in immunization and customer service. Walmart saw percentage sales growth in the mid-teens for its health and wellness category, CFO John David Rainey said in the company’s last earnings call in November, citing branded pharmacy prescriptions including GLP-1 drugs.
But, households with at least one person using GLP-1 medication cut their grocery spending by about 6% within six months of taking the drug, according to a Cornell University and Numerator study published in December. The researchers found significantly larger decreases in purchases of calorie-dense, processed items like chips and increases in nutrient-dense items like yogurt and fresh produce.
Kroger chief accounting officer Todd Foley said in a call with investors in December that he expects more growth in the GLP-1 space at least in the near future. “As we sit here today, I think we continue to expect to see growth in that area as more manufacturers get in the mix and the supply continues to become more available, and more patients continue to utilize that drug.”
About 1 in 8 U.S. adults have used GLP-1 medications, according to survey results reported last May by nonprofit health policy research organization KFF, formerly the Kaiser Family Foundation.
One important thing to note is GLP-1 drug users still don’t represent enough of the population to make a significant impact for CPGs, food manufacturers and retailers, Numerator chief economist Leo Feler, who worked on the joint study with Cornell, told Modern Retail.
“It’s a relatively small impact, multiplied by a relatively small fraction of the population that are on these medications, so it doesn’t lead to a very noticeable difference in aggregate for retailers and for food manufacturers,” Feler said, adding that this could change over the next five or 10 years if GLP-1 use grows. “Planning for it now is what allows companies to make sure that they’re offering the right kind of products for consumers and that they’ve adapted to what consumers want.”
Some food manufacturers have already made attempts to reach customers using GLP-1 drugs. In December, Nestle launched a new pre-meal drink designed to promote the natural production of the GLP-1 hormone. Conagra Brands began marketing some of its high-protein or nutrient-packed items as “GLP-1-friendly.”
But it has been difficult for pharmacies and drug developers to meet the high demand for the medications and keep them stocked. And as the FDA still lists drugs like Ozempic as in shortage, that lifts restrictions to allow pharmacies to make compounded drugs — similar versions of the same medication — available often at cheaper prices through telehealth companies like Hims & Hers.
“Demand and shortages have created this cottage industry market of knockoff weight-loss drugs that are not being sold and dispensed by your typical players, and that’s created a bit of a challenge for your traditional drug makers and traditional retail pharmacies,” Rajiv Leventhal, a health care analyst for eMarketer, said in an interview. He said additionally, because of patent protection, negotiation power is still in the hands of drug makers like Ozempic manufacturer Novo Nordisk, limiting the amount of reimbursement received by pharmacies.
“Retail pharmacies want to get their hands on these drugs to dispense them. They want patients and customers coming into their stores to fill their prescriptions so they can buy some front-of-the-store items on their way out. They aren’t necessarily generating a lot of profit from stocking these drugs, which are expensive to stock, or from getting reimbursed for dispensing these medications,” Leventhal said. “It’s not a cash cow to dispense Ozempic.”