Tag: Wegovy

Technological Change Smacks Snacks

Photo from cnbc.com

What causes consumer demand for a product to decline?  Why does demand for some products suddenly rise?  As we discuss in Chapter 3, changes in the relative price of a substitute or a complement cause the demand for a good to shift. For instance, the following figure shows the recent rapid increase in the price of eggs, due in part from the spread of bird flu. We would expect that the increase in the price of eggs will shift to the right the demand curve for egg substitutes, such as the product shown below the figure.

Sometimes a shift in the demand for a product represents a change in consumer tastes. For instance, as we discuss in an Apply the Concept in Chapter 3, for decades most people wore a hat while outdoors. The first photo below shows people walking down a street in New York City in the 1920s. Beginning in the 1960s, hats started to fall out of fashion. As the second photo shows, today few people wear hats—unless they’re walking outside during the winter in the Northeast or the Midwest!

Photo from the New York Daily News

Photo from the New York Times

Technological change can also affect the demand for goods. For example, the development of network television, beginning in the late 1940s, reduced the demand for tickets to movie theaters. Similarly, the development of the internet reduced the demand for physical newspapers.

A recent example of technological change having a substantial effect on a number of consumer goods is the introduction of GLP–1 drugs, beginning in 2005. These drugs, such as Ozempic and Mounjaro, were first developed to treat type 2 diabetes. The drugs were found to significantly reduce appetite in most users, leading to users losing weight. Accordingly, doctors began to prescribe the drugs to treat obesity. By 2025, about half of the users of GLP–1 drugs were doing so to lose weight. A recent article in the Washington Post quoted Jan Hatzius, chief economist at Goldman Sachs, as predicting that by 2028, 60 million people in the United States will be taking a GLP–1 drug.

Many consumers who use these drugs decide to change the mix of foods they eat. Typically, users demand fewer ultra-processed foods, such as chips, cookies, and soft drinks. The percentage of people in the United States who are considered obese—having a body mass index (BMI) of 30 or greater—had been increasing for decades before declining slightly in 2023, the most recent year with available data. It seems likely that the increasing use of GLP–1 drugs helps to explain the decline in obesity.

People taking these drugs have also typically increased the share of foods they eat with higher levels of protein and fiber. These changes in diet are likely to lead to improved health, reducing the demand for some medical services. The number of people experiencing significant weight loss has already begun to reduce demand for extra-large clothing sizes and increase the demand for medium clothing sizes.

How much has the use of Ozempic and similar drugs reduced the demand for snacks? A recent study by Sylvia Hristakeva and Jura Liaukonyt of Cornell University and Leo Feler of Numerator, a market research firm, presents numerical estimates of changes in demand for different foods by users of GLP–1 drugs. The authors assembled a representative sample of 150,000 U.S. households and the households’ grocery purchases from July 2022 through September 2024. They estimate that the share of the U.S. population using a GLP–1 drug increased from 5.5% in October 2023 to 8.8% in July 2024.

The study finds that households with at least one person using a GLP–1 drug reduced their total grocery shopping by 5.5 percent or $416. The study gathered data on changes in the categories of food that households were buying six months after at least one person in the household began using one of these drugs. The figure below is compiled from data in the study.

As expected, purchases of snacks declined. The category of “chips and other savor snacks” (bottom row in the figure) declined by more than 11 percent. Purchases of sweet bakery products, cheese, cookies, soft drinks, ice cream, and pasta all declined by more than 5 percent. Purchases of yogurt, fresh produce, meat snacks, and nutrition bars, all increased. An article in the Wall Street Journal noted that “food makers are starting to understand better and cater to, in some cases with products specifically designed for” users of this drug. The image below shows some of the new products that Nestle—a major candy producer—has introduced to appeal to users of GLP–1 drugs. Nestle’s Vital Pursuit line of frozen packaged foods contain high levels of protein and fiber.

It’s too early to gauge the full effects of GLP–1 drugs on consumer demand. But it’s already clear that GLP–1 drugs are a striking example of technological change affecting demand in a major industry

The Surprising Effect of Weight-Loss Drugs on Monetary Policy in Denmark

Novo Nordisk production facility in Denmark (Photo from Bloomberg News via the Wall Street Journal.)

Like most other small European countries, imports and exports are more important in the Danish economy than in the U.S. economy.  In 2022, imports were 59 percent of Danish GDP and exports were 70 percent. In contrast, in 2022 imports were only 16 percent of U.S. GDP and exports were only 12 percent.

The Danish company Novo Nordisk makes the weight-loss prescription injections Ozempic and Wegovy. Because these and related pharmaceuticals are the first to result in significant weight loss among patients, demand for them has been very strong. (Note that some researchers believe that is not yet clear whether long-term use of these drugs might have side effects.) Demand has been so strong that Novo Nordisk’s market cap—the total value of its outstanding shares of stock—is now larger than Denmark’s GDP. According to the Wall Street Journal, Novo Nordisk now has the second largest market cap in Europe, behind only luxury good manufacturer LVMH Moët Hennessy Louis Vuitton

Most of Novo Nordisk’s customers are outside of Denmark, so to buy Ozempic or Wegovy, these customers much exchange their domestic currency—for example, euros, U.S. dollars, pounds, or yen—for Danish kroner. This increase in demand, increases the value of kroner relative to dollars, euros, and other currencies. (We discuss the effects of changes in demand and supply of a currency relative other currencies in Macroeconomics, Chapter 18, Section 18.2, Economics, Chapter 28, Section 28.2, and Essentials of Economics, Chapter 19, Section 19.6.)

Denmark has been a member of the European Union (EU), since the EU’s formation in 1991. But it is one of two EU countries (Sweden is the other) that has retained its own currency rather than using the euro. Because most of Denmark’s trade has traditionally been with other countries in the EU, the Danmarks Nationalbank, Denmark’s central bank, has pegged the value of the krone to the euro. Pegging makes it easier for Danish firms to plan because they know the prices their goods and services will sell for in eurozone countries. In addition, Danish firms that borrow in euros know how much in interest they will be paying in kroner. Finally, if the krone rises in value against other currencies, prices of imported goods and services will increase, raising the Danish inflation rate. (We discuss currency pegs in Macroeconomics, Chapter 18, Section 18.3, and Economics, Chapter 28, Section 28.3.) Inflation is a significant concern in Denmark because, as the following figure shows, the inflation rate reached 10.1 percent in October 2022. Although by July 2023, the inflation rate had decline to 3.1 percent, that rate was still above the Nationalbank’s inflation target of 2 percent.

Source: Statistics Denmark, dst.dk.

To keep the the krone pegged against the euro, the Nationalbank has to reduce the demand for the krone. The key tool that a central bank has to reduce demand for its country’s currency is interest rates. If the Nationalbank keeps interest rates in Denmark below interest rates in eurozone countries, investors will demand fewer kroner in exchange for euros. Accordingly, the Nationalbank as kept its key monetary policy rate below the corresponding rate set by the European Central Bank. In August the ECB’s policy rate was 3.75 percent, whereas the Nationalbank’s corresponding policy rate was 3.35 percent.

It’s unusual even for a small country that its central bank has to take steps to respond to a surge in demand for a single product. But that was the situation of the Danish central bank in 2023.

Sources: Joseph Walker, Dominic Chopping, and Sune Engel Rasmussen Wall Street Journal, August 17, 2023; Matthew Fox, “America’s Favorite Weight Loss Drugs Are Impacting Denmark’s Currency and Interest Rates,” finance.yahoo.com, August 18, 2023; Christian Weinberg, “Novo’s Value Surpasses Denmark GDP After Obesity Drug Boost,” bloomberg.com, August 9, 2023; Tom Fairless, “European Central Bank Raises Rates, Says Pausing Is an Option” Wall Street Journal, July 27, 2023; and “Official Interest Rates,” nationalbanken.dk.