The global food and beverage industry must adapt if it hopes to maintain its well-known allure for cautious investors
"Those who can draw in a new type of customer will be the winners," James Mackreides says.
Defensive investors preferred the global branded food and drink industry for many years. It provided a straightforward and dependable method for generating wealth that depended on well-known brands, steady volume growth, and the ability to set prices higher than inflation. Historically, these companies have been the favorites of renowned investors. Terry Smith has long made a range of food and drink brands a mainstay of his concentrated portfolio, while Warren Buffett has famously owned Coca-Cola for nearly 40 years. Because they are as reliable as bonds, these massive corporations are frequently referred to as bond proxies. Instead of their rapid growth, they are valued for their consistent dividends. However, since the shares have not increased, this conventional safety has felt more like stagnation for the majority of the past ten years.
Three primary challenges currently confront the industry: structural, digital, and biological. The emergence of weight-loss drugs like Ozempic signifies a change in the calorie intake of millions of people. The digital revolution has also made it easier for new brands to enter the market, enabling them to take on established ones at a never-before-seen pace. Climate change and record commodity prices are threatening even the supply chain's fundamental geography.
In order to prosper in a changing environment, the food giants must re-engineer their business models. From Nestl's move toward medicalized nutrition to Coca-Cola's revamp of digital marketing, the industry is shifting its focus from calorie count to nutrient quality. Successful businesses will be able to gain the allegiance of more deliberate, health-conscious, and tech-savvy customers.
Food and beverage companies and the decline of the caloric economy.
A strong moat consisting of shelf space control and advertising power long shielded these giants. However, the fragility of the model has been revealed by ten years of flat share prices. Food majors used price increases to conceal low volumes during market upswings, but this tactic is no longer effective. Food stocks as a bond proxy are coming to an end as the industry's long-standing defenses are being undermined by biological, technological, and environmental forces. The line that separates future winners from laggards is now the transition from mass-market calories to higher-value nutrition. Success is no longer assured by scale alone; agility is more important as customer loyalty erodes and input costs become more unstable.
The first issue facing the industry is a biological one: the growth of the caloric-deficit economy. With the introduction of GLP-1 weight-loss drugs like Ozempic and Wegovy, people's appetites have permanently changed. Most US adults had already started using these treatments by 2025, and by the end of the decade, that number is expected to increase significantly. By slowing down stomach emptying and altering the brain's reward systems, these medications essentially delegate the decision to eat from willpower to a drug.
Reduced food consumption is the outcome. Usually, people who take these drugs cut their caloric intake by 15% to 40%. The high-margin discretionary categories that the branded food giants depend on, like snacks, sweet baked goods, and sugary drinks, are where this decline is most marked. There is preliminary evidence that households using these medications spend a lot less at fast-food restaurants and grocery stores. Billions of calories are taken out of the food system every day, which is problematic for a sector that has already had trouble growing significantly. In response, the industry is producing nutrient-dense food. Food manufacturers must guarantee that each calorie sold has a higher margin if consumers are going to eat less. Nestl has introduced products with high protein content and vital vitamin fortification that are especially made for GLP-1 users.
As the portion size decreases, this is a defensive tactic to preserve the "ticket size" of a purchase. If these companies can stop selling weight and start selling health, the transition will be successful. Success in the food industry is now determined by the accuracy of nutrient delivery rather than the volume of distribution, making the two sectors increasingly similar.
"Scale insurgents" are not sustainable.
Mr. Beast cookies and chocolate bars on a small store shelf.
In a digital world, the traditional branding moat's collapse is the second and possibly most obvious threat. The high cost of entry shielded established brands and products for more than a century. A company needed a multimillion-pound television budget and a vast physical distribution network to establish a global food brand and increase brand awareness. This acted as a strong deterrent, keeping out smaller competitors. That barrier has been destroyed as of right now. Previously unattainable speed is now possible for creator-led brands thanks to digital platforms. Gatorade took almost thirty years to reach a billion dollars in sales, while Prime Hydration, which was supported by influencers, did so in just two years.
This change poses a conundrum for the established beverage and food companies. They have increased their own operating margins, on the one hand, by utilizing digital tools. Companies like Unilever have shifted to programmatic digital buying from strict television contracts. They have been able to precisely target consumers and cut down on the waste that comes with broad-spectrum advertising as a result. Nowadays, social media and influencer partnerships account for half of Unilever's media spending budget. Some businesses have seen operating improvements of several percent to all-time highs as a result of this successfully feeding margin expansion.
That same technology, though, has also attracted a number of "scale insurgents" in addition to these efficiencies. The "variety, volume and virality" model is being abused by these new competitors. For instance, Mr. Beasts Feastables chocolate can draw clients for almost nothing since it makes use of the hundreds of millions of viewers that Mr. Beasts YouTube and other media platforms already have. In a fragmented media landscape where consumers no longer watch the same television ads, legacy firms face a challenge that goes beyond simply having the largest budget: how to stay relevant.
However, as demonstrated by the retail cycles of 2024 and 2025, this is not all the same. The price of loyalty is still high even though the cost of fame has decreased.
Influencer brands often experience a spectacular "hype decay" after their quick ascent to prominence. Recurring sales are a problem for many of these viral products. In 2024, Prime Hydration's sales volumes in the UK dropped by as much as 70% after the initial social media craze subsided. Even though they may purchase a product once out of curiosity, consumers tend to stick with legacy brands because of habit and familiarity. This implies that habit control has replaced media control as the defensiveness. Businesses that use digital tools to gain notoriety during a launch but rely on their superior supply chains and brand trust to win the long-term loyalty of customers will be the winners in this new era.
Supply chains are vulnerable to volatility.
The third challenge pertains to the growing susceptibility of global supply chains. The value chain can be impacted by weather-induced shocks, as demonstrated in recent years. Historic price spikes followed by violent corrections have occurred for cocoa and coffee, the main ingredients for many international food and beverage companies. For instance, the price of cocoa more than quadrupled in a single year due to supply collapses in west Africa caused by a confluence of severe weather and disease.
This volatility episode has revealed the shortcomings of conventional risk management. The majority of food companies only fix their costs a year or so in advance. That provides some short-term shock protection, but it offers no defense against long-term shortages. It was devastating for mass-market producers who had little control over prices. The margins were smashed, sometimes by over ten percentage points.
This brought to light a difference between companies that take ownership of their processing and those that contract it out. Models with vertical integration have proven to be more robust. Businesses that purchase directly from farmers and make long-term investments in agriculture are establishing a "biological hedge." Companies are taking action to ensure that their raw materials have a physical future. Additionally, the phenomenon known as "skimpflation" occurred in 2025, when producers reformulated goods using less expensive alternatives in order to keep prices stable. This is a risky game that could damage the trust that is a brand's last line of defense. In response to media reports that Dairy Milk shouldn't even be referred to as chocolate due to the low amount of cocoa solids in its bars, Cadbury's owner Mondelez International recently released a statement.
The principal actors.
Logos of food and beverage companies, including Nestl, Pepsi, Coca-Cola, Unilever, L'Oral, JBS, AB InBev, Mondel, and Danone.
Businesses going through a transition include Unilever (LSE: ULVR). In order to concentrate on 30 "power brands" that currently account for three-quarters of its total revenue, the company is simplifying bureaucratic processes under its Growth Action Plan 2030. This tactic is meant to counteract the decline of conventional branding. Unilever is wagering that its major brands, like Hellmanns, can better command attention in a fragmented digital world by shifting away from a vast portfolio of smaller labels. It is now investing half of its marketing budget in digital partnerships, increasing its marketing expenditures. It also uses high-end brands like Liquid I to address health issues. V. . which serves customers who require more electrolytes but are eating less. To future-proof its margins, Unilever is presenting itself as a nutrition provider rather than a supplier of household staples.
A unique conglomerate, Associated British Foods (LSE: ABF) combines a diverse global food business with the massive international value retailer Primark. Sugar and supermarket brands like Twinings are included in the food category. It has been forced to update its product line due to new regulations limiting the promotion and advertising of goods that are high in fat, sugar, and salt. To appeal to a population that is health-conscious, it is shifting away from the "discretionary calorie" model and toward a nutrient-dense strategy. It is able to control regional commodity volatility more successfully than its centrally planned competitors thanks to its decentralized leadership model. This helped local managers make real-time adjustments to pricing and sourcing during the recent inflationary periods. The business's ability to generate cash across a variety of sectors is what attracts investors.
With a shift to a digital-first marketing approach, The Coca-Cola Company (NYSE: KO) now has 65 percent of its media mix online. Marketing that leverages AI to create content at a fraction of the price of traditional agencies is at the heart of this change. Coca-Cola is developing a data-driven model that enables pricing and packaging changes in real time. Additionally, compared to many of its snack-heavy peers, it is more resilient to the rise of weight-loss drugs. It has spent decades researching sweeteners, and every serving of almost 70% of its products has fewer than 100 calories. By branching out into functional teas and mini-cans, the company is able to satisfy consumer demand for fewer calories while maintaining high profit margins. Its remarkable transition from a supplier of sugary drinks to a "total beverage" brand attests to the caliber of the enterprise.
PepsiCo (Nasdaq: PEP) strikes a balance between its Frito-Lay snack business and its beverage division. Its sugar-free beverages are doing very well, but its snack business is more vulnerable to the decreased cravings that people taking weight-loss drugs report. The business is reacting by making a big "protein pivot" and introducing multipurpose inventions under names like Muscle Milk. Muscle loss is one of the adverse effects of appetite suppressants that these products address. PepsiCo is trying to get into the "companion nutrition" market by including protein and electrolytes in its products. PepsiCo is reducing expenses through AI-driven automation throughout its global supply chain to safeguard its financial position against commodity volatility. This is meant to cut down on waste. Additionally, the company is reducing the number of calories in its international beverage portfolio. To sustain volume growth in a world where consumers are becoming more picky about what they drink, PepsiCo must make the shift from "empty calories" to functional nutrition.
Given that it owns Cadbury, Mondelez (Nasdaq: MDLZ) is particularly vulnerable to the fall in traditional snacking. Sweet snack consumption is frequently significantly reduced by weight-loss medication users. Mondelez is acquiring health-focused brands in an effort to transform this threat into a value opportunity. It is directing consumers to products that are suitable for a diet low in calories. The ability to reach customers through "digital inspiration" prior to their arrival at the supermarket makes Mondelez's digital moat crucial. The company hopes to counteract the decline in spending seen from health-conscious consumers by highlighting functional benefits through media touch points. Transitioning from high-volume, decadent snacking to higher-margin, functional treats is the aim. Whether Mondelez can keep customers' trust while repurposing products to adhere to more stringent nutritional requirements will determine its level of success.
Monster Beverage (Nasdaq: MNST) is moving toward sugar-free energy drinks while maintaining its remarkable pricing power. The business maintains a huge organic reach without the massive advertising expenditures of its legacy competitors because of the high level of engagement it enjoys with its demographic through gaming and extreme sports. This connection with tech-savvy customers serves as a strong barrier against new competitors.
The most forward-thinking company to switch from selling calories to managing nutrients is Nestl (Zurich: NESN). The first well-known line created especially as a "companion" for people taking weight-loss drugs is its Vital Pursuit portfolio. Whey protein is another ingredient that Nestl uses to make naturally satisfying drinks. Despite the pressure on short-term margins caused by the volatility of cocoa prices, Nestl's direct-sourcing initiatives give its supply chain resilience.
Now leading the industry in volume-led growth, Danone (Paris: BN) has done so by concentrating on gut-health products like Actimel. Danone sees an opportunity in the weight-loss medication revolution as part of its "renew" strategy. It has positioned its plant-based products high in fiber and dairy products high in protein as necessary daily staples for people following restricted diets. By purchasing specialized biotech companies to create goods that lessen drug side effects, Danone is outperforming its competitors in terms of yield per calorie.
Nine out of ten Indian households are served by Hindustan Unilever (Mumbai: HINDUNILVR). Through its Shikhar B2B platform, the company is spearheading a digital transformation that enables it to avoid traditional wholesalers, generating data from customers and capturing higher margins. In order to satisfy the demands of urban Indian consumers, it is also making significant investments in "quick commerce." The company employs sophisticated automation in its factories to safeguard its margins and maintain its leadership in a significant expanding market.
The very best.
Unilever continues to be a strong option for UK investors. The company's refined portfolio of "power brands" and its sophisticated use of digital marketing have helped it regain focus after a period of drift. by shifting to high-end, scientifically driven products like Liquid I. v. is demonstrating that it can maintain its growth and margins in the face of pressure on sales volumes. Due to its increased agility and leanness, the company is better able to contend with the viral challengers that have recently upended the market.
Outside of the home market, Danone and Nestl have taken the lead in the shift to medicalized nutrition, leveraging the popularity of appetite suppressants to spur high-profit innovation. Coca-Cola is a prime example of the lasting strength of a top-tier brand combined with an innovative supply chain. Back by one of the most sophisticated operational infrastructures in the world, Hindustan Unilever offers direct access to India's expanding population of affluent consumers, making it an outstanding gateway to the future for the more daring investor.
Businesses who have successfully re-engineered their models are now selling convenience and health products in addition to food. They are likely to influence the future in a world with more data and fewer calories.
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