Will consumer relationships with restaurants and fitness centers change as GLP-1s grow in popularity? Sharon Zackfia, group head of consumer research, breaks down the results of two recent proprietary surveys conducted to gain insight into whether reduced caloric consumption among GLP-1 users could lead to a sales slowdown for restaurants and provide a material tailwind for fitness companies.

Chris Thonis (00:24)
Hi Everybody. On today's episode of William Blair Thinking Presents, we welcome back Sharon Zackfia. She is a partner, CFA, and group head of the consumer equity research sector, and was actually our first-ever guest for William Blair Thinking Presents back when we launched the podcast in May. I think that one was around restaurant automation. This one is around two back-to-back proprietary surveys her team just recently conducted with the goal of better understanding the potential long-term impact of GLP-1s on the restaurant and fitness sectors. Sharon, thank you again for joining us. Do you mind just jumping into maybe giving us a little bit of background on what inspired you to conduct these surveys in the first place? And then maybe we just go from there.

Sharon Zackfia (01:06)
Sure. So I think if you took a step back and thought about kind of what's emerging in the consumer landscape that has the potential to be the biggest impact over the next decade, I think GLP-1s would rise to the forefront of that conversation. And I think particularly as it relates to the areas that I follow, which include restaurants and fitness, certainly there could be changes to how consumers both consume food and how they view physical fitness if GLP-1s become more widespread. And as we've seen over the past few years, GLP-1 medication prescriptions have risen rapidly as it's become more of a treatment for obesity as well as its original diagnostic remedy, which was for diabetes. And we've also seen what I'll call off-label weight loss, semaglutides start to proliferate at spas, and so on. So, with this, maybe in the very emergent phase, we thought it was important to try to get some sort of context from current users of GLP-1s and how it's impacted both their food consumption, their restaurant consumption, and the way they approach physical fitness so that we have some idea as to how this could impact these sectors should GLP-1 use become more prevalent over time.

Chris T (02:31)
Okay, got it. So let's touch on the findings from the restaurant survey first. I think between the two, that was probably the meatiest. So right off the bat, you lay out the ways in which respondents' relationship with food have or has changed since they started taking GLP-1s. What was it that really stuck out to you there?

Sharon Z (02:51)
Yeah, I like how you said it was the meatiest because maybe it's the most vegetable-iest.

Chris T (02:55)
Oh yeah, there you go. Little pun.

Sharon Z (02:57)
So first of all, you see a pretty significant decline in consumption, right? So one of the purposes of GLP-1s is to create more of a feeling of fullness and decrease appetite. So, you see that definitely manifest in the amount that consumers are consuming of food after starting to take the drugs. There's a pretty concrete dynamic here around what I'll call the “unhealthy foods.”

Desserts have the greatest preponderance to be cut out of the diet or decline in consumption. Burgers was really high on the list in terms of what is consumed less frequently. Pizza, alcohol, pasta. And what we saw on the other side is an increased consumption of the healthier foods, you know, fruits and vegetables, salads, and bowls. And so it definitely seems as if users of GLP-1s are on the whole seeking out healthier alternatives and have less appetite for kind of fried foods or sugary items.

Chris T (03:59)
Hmm, well that's interesting given the survey around fitness centers, which we'll get to in a sec, but I didn't realize that GLP-1s had that advantage or maybe it's just a mental shift. That's interesting.

So habits have seemed to change as well. I know the survey indicated that those taking GLP-1s are not only eating fewer meals, but when they do, the portion sizes are actually smaller. Do you mind just expanding on that a bit?

Sharon Z (04:22)
Just to again, put some context around this, do note that the vast majority of our respondents have been taking GLP-1s for two years or less. So, there's not a ton of history here on what happens over the longer term and what happens if people go off of GLP-1s over time. But if you ask and talk about what's happening with their meals, the majority are eating fewer meals and smaller portions. And the smaller portions component seems to be a bigger part of the pie, if you will. And I think that's actually very important for restaurants as we think about evolution, right? So the history of restaurants has been one of evolution over decades.

And I think, should we see GLP-1s become more pervasive, I would expect over time to start to see smaller portion sizes at restaurants that are being impacted. Because it did appear as if that is a tactical way for restaurants to navigate, you know, if GLP-1s become more prevalent in terms of usage.

Chris T (05:31)
So then how is this translating into restaurant preferences among these respondents? I remember going back, I would say like 20 years ago, going to these Italian restaurants and eating these massive plates of food. I wonder when we now look at this type of trend, is that going to be gone? Is that something we will no longer experience altogether?

Sharon Z (05:56)
I think first we have to kind of level set the dynamics of how this is likely to evolve. I think there are still a lot of questions, but if you look at usage data, this is typically a drug that's used by people in the 35-plus age cohorts, right? The older you are, the more likely you are to have been prescribed this. I think that makes a lot of sense considering, number one, part of it is for diabetes, mostly type two. And then secondarily, you know, I think there's just generally more trepidation about prescribing things for younger people in general for weight loss. So, you know, if there are restaurants or concepts that cater to a very young consumer and have a lot of success with all-you-can-eat pasta, I think they can still do very well with that. I probably wouldn't open up an all-you-can-eat pasta chain targeting 60-year-olds right now. That may be a, it may be more headwinds. But I think when we talked to the consumers who are using the drugs, they were saying they still enjoy food. They're eating foods that are better for them. more proteins, less carbs. There’s definitely evidence here and they're telling us what they're looking for. And I think ultimately the core tenants of restaurants, which is pretty much convenience and community, right? Those are still very much intact. And we actually saw restaurant spend decline less than food consumption. So you're seeing that restaurant spend is actually holding up better than overall consumption, which is good. But my, guess is based on what we're hearing that customization and variety of menu options will become more important and also portion size. I think you will see concepts that have the ability to navigate around a cuisine or around an area to introduce healthier, more veggie-centric foods.

I think that will become more common. There are concepts right now that you can think of that are publicly traded that predominantly sell, quote-unquote, unhealthy foods, but they also have really good salad businesses. I think over time, you'll see more of those. It used to be historically, salad was just a veto item. You had to have it there so you didn't get vetoed. I think it'll actually be a growth area going forward, which will be an interesting change to the way I think many restaurants have viewed the vegetable part of their business. I think customization again is going to be very important because proteins are essential to maintaining muscle mass, which is a real risk when you're taking these drugs. And so chicken, I think will be lean chicken, not fried chicken will be much more important on menus. You know, there are cuisines that play right into this, like the Mediterranean diet plays right into a lot of what you hear in terms of what consumers who are taking the GLP-1s are desiring to eat.

Chris T (09:09)
So how does this impact the frequency of which GLP-1 users are going to restaurants? We talked about fewer meals, smaller portion sizes, vegetables, but given the fewer meals and the smaller portion sizes, I imagine spend at these restaurants might be down for GLP-1 users. Is that correct?

Sharon Z (09:35)
Yeah, so we saw on average that restaurant frequency falls in half, you know, once they start taking the drugs, but the actual spend, the monthly spend, drops by a little less than 20%. So, you know, it's actually seems to be almost the converse, you know, when they're going out, they are spending more, which could be part of that community aspect, right? Going out to see friends or maybe if you're going out half as much, it's just even that much more of a novelty to go out and they're more dinner skewed as opposed to lunch or breakfast potentially, which then would lend to higher average tickets. But we did see the greatest fall off in what I'll call traditional fast-food restaurants, which I think makes sense given those menus are largely centered around fried food or hamburgers. And then coffee shops were the least impacted, which again, I think makes sense relative to kind of some of the cuisine dynamics that we talked about previously.

Chris T (10:26)
Sure, after all, it's not a drug that limits caffeine intake, so that makes sense.

Sharon Z (10:31)
Yeah, it's also interesting there have been some concepts playing around with adding protein to coffee, which again, never underestimate the ability to adapt and move forward in this space. And I think there's all kinds of ways to have beverages be very protein heavy so that it could actually help in some of these efforts to maintain muscle mass.

Chris T (11:02)
Sounds like a dream come true for the college-age me back when I was drinking protein shakes religiously.

Sharon Z (11:10)
I was trying to stay away from saying protein shakes.

Chris T (11:14)
All right, so that's the restaurant industry. You also did this for the fitness industry. And so I'd love to move on to that. One of the first takeaways as you mentioned in the report is that fitness club membership has increased among users after they start GLP-1s, especially for those under 35. Do you mind expanding on that a bit?

Sharon Z (11:32)
Sure. And I think, you know, when I guess Wall Street started to become more cognizant of GLP-1s, the first concern that I heard was, oh, my goodness, people are just going to be at home taking pills, and nobody is going to need to work out. And that concern was coming from a place of naivete and ignorance on Wall Street's part. And as you dig deeper, you do find out that fitness is an integral part of the prescription plan if you're taking these drugs. And so, as we did our survey, we found that those that are taking GLP-1s actually have a higher likelihood, they actually join fitness clubs more than those that aren't. So about 25% of our survey belonged to a fitness club. I mean, this is in addition to, I'm sure, more that are just working out outside of fitness clubs. Pre-taking the drug, it was 22%. The national average, by the way, hovers around 20%; so a fairly decent uptick, both in the survey group, pre and post, as well as relative to the national average. And we did see the steepest increases for those who were under age 35. They actually increased to about half after starting treatment belonging to fitness clubs. We also saw middle-income consumers actually tick up kind of at an outsized amount after starting to take GLP-1s.

Chris T (13:01)
And that's belonged to fitness clubs, but it also showed an increase in exercise frequency, right?

Sharon Z (13:09)
So not surprisingly, 60% of the GLP-1 users were exercising more often after taking the drug. And I think part of this is because they are supposed to exercise to keep the muscle mass. But then I think we heard in the survey that they are feeling better about working out. So we had some responses like “it has,” it being fitness activity, “has increased significantly and I feel a lot more mobile and healthy.” “It's easier to move with the weight coming off.” “I don't feel as sluggish.”

I think some of the aspects of the weight loss itself then helps facilitate the physical activity.

Chris T (13:50)
Well, Sharon, that's unfortunately the time we've got for today. But before we go, is there anything else we missed that might be worth chatting about?

Sharon Z (13:59)
The only thing I would maybe triangulate is going back to the restaurant space. If you think about some of the projections that are out there. that maybe 10% of the population in the U.S. is using GLP-1s within the next, you know, let's say 10 years and think about that relative to the 19% decrease we saw in restaurant spend, it basically weighs on the industry by a couple of percentage points in terms of growth over that timeframe. So this is what I will call a modest headwind right now. But I think, very encouragingly, we haven't really seen restaurants have any discernible impact yet. And I think should we start to see that, I think there is again, this opportunity to really navigate around this usage to maintain appeal not only to non-GLP1 users, which will still probably be the majority of the country, but also find ways to appeal to those that are taking the drugs.

Chris T (14:58)
Thanks again for joining, Sharon. This has been a pleasure, as always. Let's do it again soon.

Sharon Z (15:02)
Great, thank you.