Connecting the Dots — at Supermarkets and Beyond

You hear and read about many people who reputedly or reportedly posses the foresight and prescience required to “connect the dots.” Perhaps some of them can connect some of the dots some of the time, but the dots are so numerous and disparate that nobody can connect all of the dots all of the time. You just can’t do it. Nobody can.

If you’re driving in the right direction, and you get close enough that you can perceive patterns with proximate accuracy, congratulations! Your acuity is exceptional. You might not reach a perfect destination, but you’ll get to somewhere nice.

Sometimes we look back and think that the dots that should have been easy to connect were somehow missed, left to float free of their counterparts in blissful isolation. Hindsight, as the saying goes, confers 20/20 vision — or something close to it.

An article in The Times (UK) yesterday prompted me to consider some dots that we, collectively, failed to connect. Let’s see what we can learn from connecting dots retrospectively. We can then look ahead to see whether we can see how the pattern might ramify.

The article explains that glucagon-like peptide 1 (GLP-1) weight-loss drugs (such as Ozempic, Wegovy, and Mounjaro) — and more inevitably to come — are threatening to “shrink the bottom line at British supermarkets.” I think this is where we can use our powers of deduction and reasonably assume that there’s nothing about British supermarkets, apart from their being located in Britain, that makes their diminished commercial fate any different from that of American supermarkets, Canadian supermarkets, or European supermarkets. These drugs are available nearly everywhere now, and pharmaceutical companies are promoting them with maniacal gusto.

The calculus here isn’t unduly difficult to follow: so-called “skinny jabs,” to be followed by “skinny pills,” suppress appetites, and as the use of such drugs grows, an increasing number of appetites will be suppressed. The expanding suppression of appetites is likely to result in reduced food consumption (with some foodstuffs more affected than offers), which in turn results in decreased consumer expenditures at grocery stores. It’s not an existential problem for grocers, but it’s still a problem. Investors in grocery stores will also perceive the trend as problematic and unwelcome.

Putting Supermarkets on a Diet

Reduced sales at supermarkets are minor today, but supermarket owners are concerned that pharmaceutical advances might take a more meaningful bite from their business (sorry, I apologize) in future quarters and years to come.

To the best of my knowledge, nobody connected these particular dots and predicted that weight-loss drugs would reduce the revenues of supermarkets. Now that it seems to be happening, though, the connection seems obvious. You see what I mean about the accuracy of hindsight?

From the article:

Total grocery sales volumes fell in the past four weeks, for the first time this year, which, according to experts at Kantar, could partly be due to changing health priorities from the use of “skinny jabs”.
Fraser McKevitt, head of retail and consumer insight at Kantar, said of the 0.4 per cent year-on-year drop: “Supermarkets and grocery brands are entering new territory as weight loss drugs become more popular, with four in 100 households in Britain now including at least one GLP-1 user.
“That’s almost twice as many as last year so, while it’s still pretty low, it’s definitely a trend that the industry should keep an eye on as these drugs have the potential to steer choices at the till. Four in five of the users we surveyed say they plan to eat fewer chocolates and crisps, and nearly three quarters intend to cut back on biscuits.”

Full disclosure: I don’t take a weight-loss drug, but I have managed to lose 40 pounds (18.14 kg) since retiring from daily employment. As a result of prior business travel, which included spending too much time in airports, I fell into some insidious eating habits. Consequently, I received a medical assessment from my doctor that I had reached personal highs in blood sugar, blood pressure, and weight gain — not exactly the trifecta of robust health. The choice was mine: I could allow the grim reaper to gain ground on me, or I could arrest my bad habits and improve my healthfulness. I chose the latter option, and I managed to do it without recourse to a drug, prescribed or otherwise.

Decline and Fall of Junk Food?

Still, the results, from a supermarket’s perspective, were approximately the same: I no longer consume sugary products, I swapped alcoholic beverages for non-alcoholic options, and — hardest of all — I removed potato chips (crisps in Britain) from my diet. I profoundly miss the potato chips, but one must make sacrifices. I eat a lot more fruit and vegetables, and I drink a lot more water, and I get as much exercise as circumstances and time permit.

My point here is not to boast about my own rehabilitative exploits, but to suggest that the commercial implications of the weigh-loss drugs are reinforced by complementary developments. If a growing emphasis on healthfulness combines with weight-loss drugs to condition salutary dietary changes in growing numbers of people, supermarkets won’t be the only businesses to feel pain at the checkout counter. As the article states, commenting on the recent publication of a research paper:

Academics at Cornell University, New York, in a paper in December examined how consumers are modifying their food demand after adopting the appetite-suppressing jabs. Using survey responses on medication adoption and timing linked to transaction data from a representative US household panel, the researchers found that households with at least one GLP-1 user reduced grocery spending by 5.5 per cent within six months of adoption. Higher-income households cut spending by 8.6 per cent.
The paper, titled The No-Hunger Games: How GLP-1 Medication Adoption is Changing Consumer Food Demand, found the reductions were driven by large decreases in purchases of “calorie-dense, processed items”.
“Our findings highlight the potential for GLP-1 medications to significantly change food demand, a trend with increasingly important implications for the food industry as GLP-1 adoption continues to grow,” the researchers said.
Terry Smith, the veteran investor, previously offloaded his fund’s stake in Diageo, the owner of Guinness and Johnnie Walker whisky, over concerns that the development of anti-obesity drugs could reduce demand for alcohol.
Jamie Ross, a portfolio manager at Henderson EuroTrust, said last year: “Will people taking weight-loss drugs drink less alcohol? Will they avoid frozen food? Will sugar consumption be hit? These are all questions that inform investment decisions today, but the answers will not be visible for several years to come.”

As a modest but keen investor, and as a longtime practitioner of market analysis, I must admit that these insights fascinate me. You can’t possibly predict future outcomes with impeccable fidelity, but, if you’re able to understand the implications of certain developments — such as the proliferation of weight-loss drugs — you might be able to avoid penury, and perhaps even make a little money. Maybe there’s no way to connect all the dots, but connecting the most important ones, and seeing the ensuing pattern, will likely suffice.

Shunning Business Propositions

On an unrelated but mildly diverting note, I am studiously ignoring recurring business propositions from Georges Elhedery, Group Chief Executive at HSBC, who is clearly hoping perseverance and persistence will pay off. He keeps sending me the following message:

Hello There,
I have your email address from LinkedIn; could you please let me know if it's appropriate to send specifics of a proposal to this address?

Full disclosure II: I don’t think my would-be interlocutor is actually HSBC’s Georges Elhedery. The email address was the giveaway: georgeselhedery.hsbcdirector2@gmail.com. I know we live in the age of the rampant egotism and unrestrained narcissism, but come on. Nobody would put “hsbcdirector2” in their personal email address, would they?

Georges, if that is you, and you’re really keen on tendering a business proposition, feel free to meet me at the airport one of these days. For reasons discussed earlier, we can eat somewhere else.