McDonald's stock downgraded as appetite-suppressing drugs reshape dining habits

In the United States, fast-food chains are facing significant challenges as appetite-suppressing medications gain popularity among consumers. According to Redburn Atlantic's recent report, these medications are expected to drastically change dining habits and could result in a marked decline in restaurant attendance. The report highlights that McDonald's, one of the largest fast-food chains, is particularly at risk of losing around 28 million annual visits, translating to an estimated revenue loss of $481.5 million. This loss represents a 0.9% decline in systemwide sales, which analysts warn may exacerbate over time. The report's analyst, Chris Luyckx, indicates that the changes brought about by GLP-1 drugs—such as Novo Nordisk A/S's Wegovy and Eli Lilly and Co.'s Zepbound—are more profound than previously understood. He also notes that the potential demand shock could impact restaurants that rely heavily on group dining and habitual eating patterns. Current findings suggest that lower-income consumers are especially affected, with their fast-food spending decreasing by 14%, while higher-income consumers display lesser declines. Brands like Domino's Pizza and KFC face the highest risks due to their reliance on lower-income demographics. Redburn estimates that Domino's may lose approximately $129.8 million in annual revenue—or about 1.4% of its total sales—while KFC could see a similar impact. Amidst these shifts, Taco Bell and Chipotle Mexican Grill are better positioned, with Taco Bell benefiting from late-night traffic where the effects of the medications are less pronounced, and Chipotle's more health-conscious customer base providing a buffer against significant losses. These changes arrive at a time when the portion of calories consumed from restaurants in America has been increasing, giving rise to concerns of a potential reversal of this trend. Redburn forecasts that the penetration of these appetite suppressants among non-type 2 diabetic obese adults could reach 12% by 2030, marking a challenging future for fast-food chains that have enjoyed years of growth.