Discount weight-loss (HSY, COST)
Costco is now offering a weight-loss program for $179 for members and $195 for non-members. The three-month subscription with Costco’s partner, Sesame, includes consultation, an individualized treatment program, and access to GLP-1 drugs. Out-of-pocket costs for GLP-1 drugs are roughly $1,000, so the program through Costco offers a significant discount and would significantly widen the population of patients on weight loss drugs. Sesame’s oral weight loss drugs include Qsymia, Xenical, Contrave, and Adipex-P, and injectables include Zepbound, Wegovy, Saxenda, and Imcivree. A significant reduction in the price of weight-loss drugs expands the patient population, while more recent studies have shown that the drugs do not work for a sizable portion of users. A WSJ article this week said only about 14% of Semaglutide patients lost less than 5% of their body weight, while another one-third lost less than 10%. A report published on Epic Research showed that 17.7% of Semaglutide users regained all of their weight, if not more, after stopping the medication. Hershey and other snack food companies saw their stock price come under pressure in 2023 partly due to concern that volumes would decline as people used GLP-1 drugs. Our thoughts were that: 1) the number of people who would receive insurance coverage would determine what the patient population would be, 2) increasing numbers of patients would receive coverage, 3) the number of patients would be so small in the near term that their impact on overall food volumes would be difficult and imprecise to assess 4) the drugs would remain a headwind for multiples because the patients would continue to increase.
Day Zero (BUD)
Mexico City’s water supplies are dwindling and it can become a larger political issue. The water supply for Mexico City is at historic lows and some are warning “day zero,” when freely available water runs out. Roughly 60% of the city’s water comes from an aquifer. Drawing more water from the aquifer than is being replenished is causing the land to sink at a rate of 20 inches per year. Monsoon season begins in May or June.
AB InBev’s Grupo Modelo plant in Miguel Hidalgo has the largest water concession in the area at 8.09 B liters per year, compared to the second largest water permit for Coca-Cola Femsa at 1.3 B liters. The Miguel Hidalgo brewery site was selected in 2017 due to access to water, energy, highways, and railways. Parts of Mexico City only have water for a window of time each day. President Lopez Obrador has recommended (and, in Constellation Brands’ case, forced) companies seeking to open new plants to build in the south where water is more abundant. AB InBev has eight other breweries in the country, and the politics are different from those of Constellation Brands because the latter only exports beer from Mexico.
