Data shows that one in eight U.S. adults now use GLP-1 drugs, popular medications like Ozempic and Wegovy, which significantly reduce appetite.

This growing trend poses a risk to food-related businesses whose sales could decline as consumers consume less fast food.

Despite recent promotional success from a Minecraft movie campaign and tariff news lifting McDonald’s (MCD) stock, the company faces serious challenges ahead.

Reduced customer spending per visit, high pricing pressures, and risky expansion plans indicate caution for investors given current valuations, expecting record-high returns.

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A survey found that one in eight U.S. adults (12%) admits to using glucagon-like peptide-1 (GLP-1) drugs.

GLP-1 drugs, which include popular medications like Ozempic and Wegovy, are prescribed to treat diabetes and help with weight loss.

The survey, conducted by the Kaiser Family Foundation (KFF), suggests public awareness and adoption of GLP-1 drugs have notably increased in recent years.

Survey shows that while about 6% of adults have admitted they are currently under GLP-1s, the percentage of those who have ever taken these drugs rises to 43% among adults who have been diagnosed with diabetes.

GLP-1 drugs work by mimicking the effects of a naturally occurring hormone called glucagon-like peptide-1, which is released after eating and signals feelings of fullness.

Specifically, these drugs slow the movement of food from the stomach into the small intestine, making people feel full faster and for longer durations so that they end up eating less.

This appetite-reducing and calorie-cutting effect is revolutionary for human physiology and will likely impact many businesses in the food industry over the long run.

By decreasing overall food consumption, wider adoption of GLP-1 drugs may gradually erode sales at restaurants, packaged food companies, and supermarkets.

One major company that could be significantly affected is McDonald’s (MCD).

McDonald’s stock has seen a 2% lift yesterday, driven mainly by news around tariffs and its successful Minecraft movie campaign.

The promotion, linked to Warner Bros’ latest film, attracted attention by offering themed meals and collectibles.

Customers could order meals with special items like the Nether Flame sauce and unique Minecraft toys, drawing younger fans and families to the stores.

Digital rewards connected to the McDonald’s app added extra appeal, boosting customer visits and app usage.

Franchisees reported improved sales in April, noting stronger customer traffic and a more positive outlook heading into the next quarter.

But despite this boost, McDonald’s faces challenges ahead. A major concern is the growing popularity of GLP-1 medications.

These drugs significantly reduce people’s appetite and, as a result, cut back their fast food intake.

For a company built around quick, high-calorie meals, this trend could become a serious problem.

If GLP-1 medications keep growing at their current pace, McDonald’s may see fewer visits, especially from regular customers who rely heavily on fast food.

Another issue is pricing. The company has raised prices steadily over the past several years, much faster than overall inflation or average wages.

A Big Mac meal now costs close to $10, higher than ever before. These increases have put pressure on lower-income customers, who are increasingly turning to cheaper alternatives or discounts.

In its most recent quarterly results, McDonald’s reported flat overall sales growth and a noticeable drop in U.S. same-store sales, the weakest numbers since 2019.

Traffic in stores stayed steady, but customers spent less per visit, looking mostly for discounts and cheaper items.

What’s more, McDonald’s stock doesn’t appear undervalued; in fact, quite the opposite. At current valuations, investors are expecting higher returns from McDonald’s.

Our EEA model clearly shows this.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market expects the company’s Uniform return on assets ”ROA” to improve to around 24% from 17% last year.

McDonald’s plans aggressive expansion, aiming to grow from 40,000 restaurants today to about 50,000 by 2027.

While adding new stores seems positive, it also brings risk.

The costs involved are high, and if demand weakens due to economic slowdown or changing consumer habits, these new locations may struggle to perform as expected.

Overall, while McDonald’s recent marketing success and defensive nature as a stock during economic uncertainty have provided short-term gains, real challenges remain.

Rising GLP-1 popularity reducing fast-food demand, stretched consumer budgets due to higher prices, and aggressive expansion plans that carry risk all point toward caution.

Investors should be careful investing in a business with strong headwinds ahead.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research