McDonald’s shares dropped 1.7% on Tuesday after a downgrade by equity analysis firm Redburn Atlantic, citing the growing popularity of weight-loss drugs that regulate blood sugar and appetite. The class of drugs known as GLP-1s is expected to transform Americans’ food consumption habits, posing a threat to fast-food chains catering to lower-income consumers.
According to Redburn Atlantic analysts, McDonald’s could lose up to 28 million customer visits annually, resulting in a revenue loss of $482 million per year. This would be about 0.9% of the company’s sales. The appetite-suppressing drugs are expected to lead to “material implications” for chains with broad mass-market exposure.
Higher-income users of GLP-1s decrease their spending before reverting to old patterns, while lower-income users show no significant decline in spending on food away from home. Redburn analysts note that the effects of these changes could compound over time, particularly for brands targeting lower-income consumers or group occasions.
Inflationary pressures and pricing fatigue also compound problems for McDonald’s. Consumers are showing signs of exhaustion with aggressive menu inflation, and the gap between eating out and at home remains historically wide.
While adoption of GLP-1 drugs is not yet widespread, wider adoption could lead to a broad-based reduction in Americans’ caloric intake at restaurants, reversing decades-long trend of increased restaurant calorie consumption. McDonald’s is more exposed to this impact than other fast-food brands due to its target market.
However, BTIG global financial services analyst Peter Saleh says he doesn’t expect GLP-1s to meaningfully affect McDonald’s earnings in the near-term, as the company’s core customer base consists of low- and middle-income consumers who are unlikely to afford these drugs.
Source: https://www.cbsnews.com/news/mcdonalds-downgrade-weight-loss-drugs