This Is How the Food Industry Is Preparing For a Post-Ozempic World

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1:24Hello and welcome to another episode of the Avlots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy, we like to talk about snacks and drinks and stuff on the show. And, you know, it's kind of just something we're interested in. But I actually think that, like, there's like a deeper fundamental reason by why we keep coming around to this topic. Wait, it's not just because we like snacks? I mean, that is the deep, deep, deep reason. But the other reason is I kind of think I've been thinking about this lately, that like the proliferation of different types of snack foods and beverages and energy drinks, which multiply like crazy on store aisles.

2:03It's like the ultimate story of like capitalist success and like the consumer economy that we just keep getting this like endless permutations of like great flavors and different ways to consume these flavors. It's like the pinnacle of the consumption economy. Okay. Well, I would say, I guess capitalism has to have some upsides, and I guess Elode-flavored Cheetos are one of them. That's fair. I do think what's interesting to me about this moment in snacks is there seems to be sort of two things going on, like two mega trends, the very early beginnings of two mega trends. So one is the idea of what's going to happen to snack food in a GLP-1-fueled world.

2:53And we touched on this a little bit last year when we spoke to James Van Geelen, and he was talking about his Ozempic and GLP-1 investment thesis. And I really like speaking to him because it wasn't just like all the companies that are making these drugs are going to see their share prices absolutely surge. It was also there are going to be these second order knock on effects on some consumer companies. And you could see that playing out a little bit last year. You can certainly see it playing out now. I think almost every major, you know, food and beverage company that reported in the most recent quarter had a GLP-1 or Ozempic related question.

3:34And then I guess the other mega trend is just this idea of companies having to become more and more creative to also drive consumption. So you have to have more flavors in order to grow your market share, to keep people engaged and interested, and posting pictures of your food on TikTok or Instagram or whatever. Totally. And you just see this play out. I don't know. This is why I go back. I think about those sort of famous or infamous and maybe apocryphal things where it's like some Soviet leader came to the US and saw a grocery store. It's like, OK, capitalism is the answer. Maybe there was something.

4:11But it really does feel like we're sort of at this moment where these maybe almost two megatrends are in competition with each other, right? Because there is this seemingly race to provide more flavor and more variety and more versions and special versions and stuff like that. And then the sort of looming threat to the sort of traditional way of doing business from the GLP-1s like Ozempic. So there is never too much snack food and there is never too much conversation about snack food. Well, the other thing that I just remembered, I totally agree, you can never have enough snack food. But the other thing was the conversation we had with Ryan Harlan, where he was talking about the technology that's now going into producing these snack foods and also AI nowadays.

4:53So this idea that you can basically model a virtual manufacturing line for a new flavor, you can use AI maybe to come up with new flavors. So it seems like all of snack foods is getting more sophisticated. And some of it is, of course, in response to good old-fashioned consumer demand, give the customer what they want. But part of it also, I have to think, might be in response to competition from GLP-1 and Ozempic and the idea that, well, if we're going to eat less food overall, then maybe the way to keep customers is to make sure that food is really, really interesting and good. I'm glad you brought up the Ryan Harlan episode because, right, that was about the sort of supply side innovations that allow companies like, say, a Frito-Lay to try more limited run lines and move things faster and get a, you know, you have a theoretical test flavor, you can make a chip faster.

5:48Anyway, so that raises the question, where does the flavor come in the first place when there is a new chili lime or a new durian flavored Tostito? Joe, are we going to Flavortown? We're going to Flavortown. I hadn't thought. Who's the chef? We're not talking to that chef. But we do have the perfect guest because it's someone who is in the business of great flavors. We're going to be speaking with Barb Stuckey. She's the chief innovation and marketing officer at Madsen, which is a Silicon Valley-based food and beverage innovation company. She has written a lot about what makes great flavors, and she has studied a lot about this moment in flavor history.

6:28So Barb, thank you so much for coming on OutLots. Well, thank you for having me. What do you do? The Chief Innovation and Marketing Officer at Madsen, what do you do in the flavor world? Oh, what don't we do in the flavor world? So the company's been around for about 47 years. And over the course of those decades, we have worked in pretty much every food and beverage category that exists, with the exception maybe of beer. But we work on everything from baby food to alcoholic beverages to frozen entrees to confections to dietary supplements. And we also do work in the restaurant channel. So we work mainly for national and global restaurant chains, but we help them identify new menu categories and new menu items.

7:22So we are really all over 100 % share of stomach is how we like to say. I like stomach share. I've never heard that. I've never heard that one before, but that makes sense. So one thing I was wondering is the basic premise of this conversation. I mentioned GLP-1 drugs earlier, and this is something that has come up in various forms on the podcast and also on various earnings calls, as I mentioned. Is this something that's on your radar as a chief innovation officer in the food industry? Yes, absolutely. It's very much on our radar. And I'll tell you how this happened. So, you know, we work in food and beverage.

8:03We are not in the pharmaceutical industry. So we started getting some questions from our clients who range from some of the largest global CPG companies to small founder-funded startups. And they were asking questions about these new drugs and what's going to happen and should I be worried about this. And this was about middle of 2023. So in the fourth quarter of 2023, we decided that because of our position in the industry where we do work across companies and we work across categories, that we were going to educate ourselves. And we were going to make ourselves as smart as we can about this topic.

8:47And we were going to then put forth the learnings that we gained and share them with the industry. So we just did that in a webinar format. It worked like this. So we handled it as we would do a client project. So we started reading secondary research that was out there. There was a great report from Morgan Stanley that enabled some of our learnings. And then we have a consumer panel at Mattson. So these are just consumers who have been willing to give us their feedback on new ideas and products. And we surveyed the panel to see if anyone in our panel was on Ozempic or some of the other medicines.

9:31We call them AOMs, anti-obesity medications. And we found out that there was about 125 people who were either on the drugs or had been on the drugs. So all of a sudden now we've got a patient population that we can talk to to understand more. So we started doing that. We put a survey in front of those consumers and got to learn a little bit about what they were experiencing and how things were changing for them. We also talked to medical practitioners. So we talked to doctors. We talked to nurse practitioners. We talked to people who were prescribing the AOMs. And then we did a lot of work with our proprietary AI models to talk to AI personas to see what was resonating with them.

10:23And that was super interesting as well. And then the last thing we did, which I can tell you more about, is we created some new food and beverage concepts, some new ideas. They ranged from beverages to snacks to meals. And we tested those ideas with our patient panel of humans, I should say. We did test them with humans, not our AI, which we can do, but we didn't do. So we have so much data, so much to share. So let's start with some of that. Before we get to the new concepts, what did the hundred or so people in your panel who are on the AOMs tell you about their experience and how it changed their relationship with food and beverages?

11:08Yeah, it's a great question. And just to clarify, our sample size ended up being about 75. So 75 of those patients. So some of them dropped off. But what we heard from patients is that most of them, the vast majority of them were extremely satisfied or positive with their experience on the drugs. And this is interesting because many of them reported having side effects. It just goes to show that it's so hard to lose weight through typical strategies, you know, a combination of diet and exercise. Some of our panelists have even had previous weight loss surgery, for example, but other interventions.

11:52And they were also just really pleased with these drugs as giving them success that they were unable to have or unable to sustain using other methods. So that was really interesting to us. So it does seem that these drugs are working incredibly well for people. Not everyone. A lot of the side effects are continual and a small number of people do have them, but they can be really unpleasant in terms of GI And one of the ways that these drugs work is that it's hormonal, but they also happen to slow your gastric emptying, meaning the food stays in your stomach longer. And so you feel full longer, which also happens when you have weight loss surgery.

12:47Your stomach is actually reduced in size. But with these drugs, it's not reduced in size, but it feels that way because the food stays in there longer. And so people really, really can not overeat. They told us really horrific stories of overeating and getting sick because it was just nauseating. Also, there are problems at the other end of the GI tract too. A lot of people reported constipation or diarrhea, other things like that. So these are not without their challenges and not without their side effects. But for the vast majority of people, they were extremely happy and were losing significant amounts of weight.

13:31The other thing is that we did notice in our survey that a lot of people were having some pretty significant changes in their food and beverage behavior. And that was ultimately our goal for this study. So what did you see in terms of food preference? Because when I go on a diet and I restrict calories, I usually end up, this is terrible. This is not how you should diet, but I usually end up replacing healthy meals with Oreo cookies. And I just eat three Oreo cookies instead of having a larger meal. Does that hold out for Ozempic people as well or people who are on Ozempic and the other AOMs? Do they still eat junk food, just maybe less of it?

14:14Or do we see a change in their food preferences? You know, it definitely depends on the person, but more people than not did say that all of a sudden they were not craving things like sugary sodas or salty snacks or animal proteins. So especially for some reason, beef, people were really turned off by the idea of beef. And so they were instead sort of veering in the direction of fruits and vegetables, things that were lighter in flavor and lighter on the stomach. So they were really trying to satisfy those cravings. We did some one-on-one video interviews. And I remember distinctly this woman talking about how I used to crave chips and now I crave cucumbers and carrots.

15:12And she said, the flavor of a crisp cucumber is just so tantalizing. And I'm thinking to myself, while tantalizing cucumber. I mean, that is a significant change in cravings and the resulting caloric intake. So it does seem to be doing something akin to teaching people how to eat healthy, which is crazy that a drug can do this. But that seems to be the case with a lot of people. That's pretty incredible, but it also has an interesting implication because I think like sort of one cynical expectation is that, okay, people don't want to eat salty chips as much anymore. So then the food industry is going to respond by, oh, well, we're just going to put even more salt in the chips and we'll make it even more tantalizing and it'll make it even harder for people to resist.

16:10But it sounds like from your research that that will just make the end products even more repellent to people. I think you're absolutely right. Yes. We heard people really, really just turning their nose up at certain foods that they used to love. And it's really odd, but I do think that's what would happen. So, you know, a lot of them were, they were cutting from their diet on in the neighborhood of 1000 calories a day. That's crazy. Like for most people, that's half of the calories or a third of the calories that you're consuming. so you know that results in you having to make decisions about what is going to be my calorie consumption based on the fact that it is so much less i'm really going to make those calories count and so you know that just gets at the fact that you know i think you said at the beginning like People want interesting food.

17:15People want delicious food. In the case of the folks that we heard from, just a lot less of it. Well, where does that leave, say, a potato chip maker? Right. Because it seems like if people aren't craving salty food anymore, it seems unlikely that a maker of potato chips is going to suddenly substitute their offerings with something like cucumbers. Absolutely. You're totally right. Right. I cannot imagine that happening. Of course, it takes a different distribution channel and different buyers in the grocery store. And yeah, that's not going to happen. But what, you know, we're in the innovation business.

17:54And so what you could see potentially happening is that these makers of chips, for example, would create portion sizes that are much smaller. Perhaps instead of increasing the sodium, they reduce the sodium. Perhaps they do chips that have some vegetables blended into their tortilla chip dough, something like that, to give it a little bit more fiber, to help with the GI stuff, to give it a little more nutrient density. So, you know, this could be an opportunity for the food and beverage industry to really reset things and reset expectations. You know, if you think back to the size of a snack bag 30 years ago, or the size of a hamburger 30 years ago, or the size of a bagel, you know, they were all so much smaller.

18:47So this is an opportunity for us to go back to those sizes as expectations and really help the entire country eat better. I don't know if that's going to happen. Maybe it's a little pie in the sky, but these are the kinds of things we were trying to educate the industry about because there are some new opportunities.

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20:25for the long haul. Stocks, bonds, options, crypto, it's all there. Plus an industry-leading 3.6 % APY, high-yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market. Paid for by public investing. All investing involves the risk of loss, including loss of principle. Brokered services for U.S.-listed registered securities, options, and bonds in a self-directed account are offered by public investing inc member finra and sipc crypto trading provided by zero hash complete disclosures available at public.com slash disclosures so you mentioned coming up with some new food concepts or flavor concepts and actually serving them to your non-ai panelists what are you cooking up there and what uh what resonated with people?

21:19Okay. Well, I have 22 products that we came up with and tested. Not all of them scored well. For example, the one that we created that was about trying to tame nausea with ginger, that one bombed. It was bombed. Totally. Well, good to bomb early before a nationwide launch, I guess. So yeah. Yes, that is so true. That's why we do these kinds of tests. Yeah. So essentially what we were doing is writing these concepts for the AOM user. So one of the top score, I'll give you two or three of the top scoring ideas. So one of them was a brownie cube. So this idea was a ready to eat brownie. It's about the size of a nickel, but in cube shape, and it's baked with extra protein added.

22:13It's got a little bit of fiber in it from the cocoa. And it's basically kind of a one bite indulgence. And that really resonated, I think, again, because when your gastric emptying is slowing down, you really just don't have room to eat a whole brownie. I suppose a nickel sized or bite sized brownie kind of preserves customer choice in some ways. So if you're on an AOM of some sort and you're not that hungry, you can have one bite of the brownie. But if you are not on AOMs and you are very hungry, you can you can have 10 brownies. You'll probably just eat like a bag full of them. Right. Well, yes.

22:55And you know what? That brings up a really important point, which was that all the things that rose to the top of our test were things that the whole family could enjoy. And that was an important criteria for the, you know, mostly women. It's mostly women on these because they didn't want to buy things and bring them into the household that was just for them, that their kids wouldn't eat, their husband wouldn't eat, their partners wouldn't eat. So we saw other things like these chicken strips that are grilled chicken breast that are cut into strips and then individually wrapped. And so you could imagine, you know, you're trying to get your protein, but you don't want to eat a whole chicken breast because that's just way too much.

23:36So that was our number two scoring concept. And it just makes so much sense because if you can't eat a whole chicken breast, you really probably don't want to cook one and then cut it up yourself. So this was a refrigerated product that you could take it out of the refrigerator and snack on it cold or heat it up and put it in a tortilla. So things like that, you know, those represent some different format options, different packaging options, portion sizes. And then, you know, we have a whole other list of stuff that seem to resonate some more than others. So it sounds like a lot of the innovation that you've worked on or that we could see coming, as you mentioned, sort of has to do with maybe foods that we're familiar with, but that in rethinking the distribution.

24:27And I have to say, I would snack on a grilled chicken strip. I would be down for that and having like a big bag of those in my house. That actually sounds like a, I would snack on that. You mentioned that the ginger infused food sort of bombed. were there any breakthroughs in terms of flavors or somehow recreating the sensation of a cucumber or a carrot where the breakthrough is not in the shape or distribution of an existing thing, but in like some brand new type of flavor that really worked on the Ozempic users, the AOM users? Yeah, you know, we tested a protein beverage. So this was a line of clear beverages.

25:09with protein added. And that's a highly technical, very difficult challenge. That sounds tough. Yeah, that one is a high degree of difficulty. Let's just say that. But we tested this line of three. And I think one of our flavors was cucumber or a cucumber lime. And that actually resonated pretty well. The idea being that if you think about protein drinks on the market, They're usually chocolate, strawberry, really thick. They're very satiating. And the idea of using the clear protein in these lighter cucumber flavors and other light citrus flavors was that you would appeal to the more hydrating, refreshing kind of experience, but still get some protein.

26:02So, yeah, I think that that is actually something that would resonate just because of the flavor, because it's not chocolate or, you know, even though number one scoring product was brownies. So you said something else that made me think that the best scoring products really were very familiar. And I think that that just gets at consumer behavior around food because we like to say consumers want a foot in the familiar. And taking one step out of the familiar to do to buy something really innovative is OK. But to take that second step out of the familiar is really disorienting. And so if you're on a weight loss regimen and your body is doing things differently, it makes sense that the familiar stuff would score really well.

27:01Just building on this point, I'd love to hear from you what the sort of evolution of a new food product or flavor actually is. Like from start to finish, do people come up with ideas for completely brand new foreign things and build them out from there? Or is it more taking something that already exists and trying to improve on it in some way? Could you maybe walk us through that process? this? The answer is yes, all of the above. So we have worked on things as novel as creating a roast and ground coffee without coffee beans. And that product is now in the market. And what's it made out of? I have to ask.

27:53Well, you can you can buy it. And you know, you can look at the ingredient statement. So I guess I can say it here. We actually tested dozens and dozens of upcycled ingredients that were basically products that were either sent to animal feed or were really just waste. So think about things like seeds and pits and husks. Yeah, exactly. Exactly. So where we ended up was date seeds. You know, when you get a date, unless you buy the pitted pine, they have these seeds. And so what we did was we roasted the seeds, we ground them, we brewed them, and then some other secret sauce that we can't talk about.

28:42but turns out that they work incredibly well as a replacement for coffee beans. So, you know, I have to give credit to the company, Atomo. I'm going to give them a shout out. We just did some very early proof of concept and development work for them, but they have turned it into a business and it is incredible. So that's the kind of novel thing that we might get an assignment to do. And then the other things that we're getting a lot of these days is I want to do X, except that I want to make it healthier. I want to have more protein in it. I want to use clean label ingredients. And so we're, I would say, reinventing favorites across a lot of categories.

29:31So, you know, think things like indulgent cookies or crackers or desserts or, you know, even meals where we're replacing a lot of the not so good ingredients with just more kitchen type of familiar ingredients. So we talked about this on a previous episode about snacks and, you know, some snack food trends come and go, but some stick around. And so, for example, you know, when I was a kid, you could get Cool Ranch chips. You can still get Cool Ranch chips. A hot thing these days is chili lime flavors seem to be everywhere. You wrote a book called Taste, Surprising Stories in Science About Why Food Tastes Good.

30:16So when I bring up Cool Ranch or Chili Lime, what is it about some of these flavors? What do they have in common that you can say is like, yes, these flavors stand the test of time and we'll be eating Chili Lime chips in 20 years, setting aside people who are on AOMs, Chili Lime flavors? What do they have in common when you look at the code of a great flavor? Well, I would say two words. One is complexity and the other is layered. So let's just take, we'll take Cool Ranch and pull that apart. Think about it from the basic tastes. Human beings are only capable of experiencing five basic tastes on their tongue.

31:04So there's sweet, sour, bitter, salt, and umami. And then everything else that you get is either a texture or an aroma. So the thing about pool ranch or just ranch in general is that it's incredibly salty and savory. And those two things together, salty and savory, they kind of come together usually in nature. When you combine them with the sourness of the buttermilk and the creaminess of the buttermilk, you now have a whole lot going on. You've got creamy, you've got sour, you've got savory, you've got salt. And that complexity and then the other things that are layered in. So now I'm talking about complexity and layering on top of complexity.