Food and drinks giants seek an image makeover

Magazine food and drinks companies concept

(Image credit: Future)

For decades, the global branded food and drinks sector was the favoured choice of the defensive investor. It offered a simple, reliable formula for wealth creation that relied on famous names, predictable volume growth and the pricing power to outpace inflation. These businesses are the historical favourites of legendary investors. Warren Buffett has famously held Coca-Cola for almost 40 years; Terry Smith has long made a variety of food and drink brands a cornerstone of his concentrated portfolio. These giant businesses are often described as bond proxies because they are as dependable as a bond. They are valued for their steady dividends rather than explosive growth. Yet for much of the last ten years, this traditional safety has felt more like stagnation as the shares have gone nowhere.

The industry now faces three core challenges that are biological, digital and structural. The rise of weight-loss medications such as Ozempic represents a shift in how millions of people consume calories. Simultaneously, the digital revolution has lowered the barriers to entry for new brands, allowing new companies to challenge incumbents with unprecedented speed. Even the basic geography of the supply chain is under threat from climate volatility and record commodity costs.

The question is how the food giants will re-engineer their business models to thrive in a changing landscape. From the shift toward medicalised nutrition at Nestlé to the digital marketing overhaul at Coca-Cola, the industry is moving away from the quantity of calories toward the quality of the nutrients. The winners will be those that can win the loyalty of more intentional, health-conscious and digitally adept consumers.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Food and drinks firms and the disappearance of the calorific economy

These giants were long protected by a formidable moat made up of advertising power and control of shelf space. But a decade of flat share prices has exposed the model’s fragility. While markets surged, food majors relied on price rises to mask weak volumes – a strategy that has now run out of road. The era of the food stock as a bond proxy is ending as biological, digital and environmental pressures dismantle the industry’s old defences. The shift from mass-market calories to higher-value nutrition is now the dividing line between future winners and the laggards. Scale alone no longer guarantees success; agility matters more as consumers’ loyalty fragments and input costs grow volatile.

The first challenge is a biological one that threatens the industry: the rise of the caloric-deficit economy. The emergence of GLP-1 weight-loss medications such as Wegovy and Ozempic represents a permanent change in people’s appetites. By 2025, a significant portion of the adult population in the US had already adopted these treatments and that figure is projected to grow substantially by the end of the decade. These drugs work by slowing gastric emptying and modulating the reward systems in the brain, effectively outsourcing the choice to eat from will power to a drug.

The result is lower food consumption. Users of these medications typically consume between 15% and 40% fewer calories. This decline is most concentrated in high-margin discretionary categories that the branded food giants rely on, such as snacks, sweet bakery items and sugary drinks. Early evidence suggests that households on these medications spend significantly less at both grocery stores and fast-food restaurants. For a sector that has already struggled with volume growth, the removal of billions of daily calories from the food system is a problem. The industry is responding with nutrient-dense food. If consumers are going to eat less, food companies must ensure that every calorie sold carries a higher margin. Nestlé has launched brands specifically designed for GLP-1 users, featuring meals high in protein and fortified with essential vitamins.

This is a defensive move to protect the “ticket size” of a purchase even as the portion size shrinks. The success of this transition depends on whether these firms can stop selling weight and start selling health. The food industry is becoming indistinguishable from the biotech industry, with success defined by the precision of nutrient delivery rather than the volume of distribution.

“Scale insurgents” have no staying power

Chocolate bars and cookies by Mr Beast on small store shelf

The second and perhaps most visible threat is the collapse of the traditional branding moat in a digital world. For the better part of a century, the high cost of entry protected incumbent products and brands. To launch a global food brand, a company required a multimillion-pound television budget and a massive physical distribution network to build familiarity with the brand. This served as a formidable barrier that kept smaller rivals at bay. Today, that barrier has been destroyed. Digital platforms allow creator-led brands to achieve great scale with a speed that was once impossible. Gatorade took nearly three decades to reach a billion dollars in revenue; influencer-backed Prime Hydration achieved the same milestone in just two years.

This shift represents a paradox for the legacy food and drink giants. On the one hand, they have used digital tools to expand their own operating margins. Companies such as Unilever have moved away from rigid television contracts toward programmatic digital buying. This has allowed them to target consumers with precision and reduce the waste associated with broad-spectrum advertising. Unilever now allocates half of its media spending budget to social platforms and partnerships with influencers. This has successfully fed into margin expansion, with some firms seeing operating improvements of several percent to all-time highs.

However, the same technology that provides these efficiencies has also invited a wave of “scale insurgents”. These new players exploit the “variety, volume and virality” model. Mr Beast’s Feastables chocolate, for example, can attract customers at near-zero cost because it leverages an existing audience of hundreds of millions for Mr Beast’s YouTube and other media businesses. For legacy firms, the challenge is no longer just about who has the biggest budget, but who can maintain relevance in a fragmented media landscape where consumers no longer watch the same television advertisements.

Yet, as the retail cycles in 2024 and 2025 have shown, there is another side to this. While the cost of fame has dropped, the price of loyalty remains high.

The rapid rise of influencer brands is often followed by a spectacular “hype decay”. Many of these viral products suffer from a lack of repeat purchases. Prime Hydration saw sales volumes in the UK fall by as much as 70% in 2024 as the initial social-media frenzy dissipated. Consumers might buy a product once out of curiosity, but they return to legacy brands for a preference built up by familiarity and habit. This suggests that the defensiveness has shifted from media control to habit control. The winners in this new era will be the firms that use digital tools to rent fame during a launch, but rely on their superior supply chains and trust in their brand to own the long-term loyalty of the consumer.

Volatility exposes fragile supply chains

The third challenge involves the increasing fragility of global supply chains. Recent years have shown how weather-induced shocks can affect the value chain. Cocoa and coffee, the primary ingredients for many global food and drink businesses, have seen historic price surges followed by violent corrections. Cocoa prices, for example, more than quadrupled in a single year because of supply collapses in west Africa, driven by a combination of disease and extreme weather.

This bout of volatility has exposed the limits of traditional risk management. Most food companies lock in costs only a year or so ahead. That cushions short-term shocks, but it does nothing to protect against prolonged shortages. For mass-market producers with little pricing power, the damage was brutal. Margins were crushed; in some cases by more than ten percentage points.

This highlighted a divergence between firms that own their processing and those that outsource it. Vertically integrated models have proved more resilient. Firms that source directly from farmers and invest in agriculture for the long-term are creating a “biological hedge”. Firms are moving to secure the physical future of their raw materials. Furthermore, in 2025 we saw the phenomenon of “skimpflation”, where manufacturers reformulate products with cheaper substitutes to maintain price points. This is a dangerous game that risks eroding the trust that serves as brands’ final line of defence. Recently, Cadbury’s owner Mondelez International has responded to media claims that Dairy Milk shouldn’t even be called chocolate because there is so little cocoa solids in its bars.

The main players

Food and drink company logos &ndash;&nbsp;Nestl&eacute;, Pepsi, Coca-Cola, Unilever, L'Or&eacute;al, JBS, AB InBev, Mondel&#275;z, Danone

Unilever (LSE: ULVR) is an example of a business in the midst of a transition. Under its Growth Action Plan 2030, it’s stripping away bureaucratic complexity to focus on 30 “power brands” that now generate three-quarters of its total turnover. This strategy is a response to the erosion of traditional branding. By moving away from a sprawling portfolio of minor labels, Unilever is betting that its big brands, such as Hellmann’s, can command attention better in a fragmented digital world. It is spending more on marketing, with half of this budget now allocated to digital partnerships. It is also addressing health challenges through premium brands such as Liquid I.V., which caters to consumers who are eating less but need higher levels of electrolytes. By positioning itself as a provider of nutrition rather than just household staples, Unilever is attempting to future-proof its margins.

Associated British Foods (LSE: ABF) is a unique conglomerate that pairs a massive international value retailer, Primark, with a diversified global food business. The food segment spans sugar and grocery brands such as Twinings. New restrictions on the advertising and promotion of products high in fat, sugar and salt have forced it to renovate its product line. It is moving away from the “discretionary calorie” model and toward a nutrient-dense approach to appeal to a health-conscious population. Its devolved leadership model allows it to manage regional commodity volatility more effectively than its centralised rivals. This proved useful during the recent bouts of inflation, as local managers were able to adjust pricing and sourcing in real-time. For investors, the appeal of the business lies in its ability to generate cash across diverse sectors.

The Coca-Cola Company (NYSE: KO) has moved to a digital-first marketing strategy where 65% of its media mix is now online. Central to this shift is marketing that uses AI to produce content at a fraction of the cost of traditional agencies. Coca-Cola is creating a data-driven model that allows for real-time adjustments to pricing and packaging. It is also better insulated against the rise of weight-loss medications than many snack-heavy peers. It has invested in research on sweeteners for decades and nearly 70% of its products contain fewer than 100 calories per serving. Its expansion into mini-cans and functional teas targets the preferences of the modern consumer and allows the company to maintain high margins while meeting the demand for lower calorie intake. Its shift from being a provider of sugary drinks to becoming a “total beverage” brand is impressive and speaks to the quality of the business.

PepsiCo (Nasdaq: PEP) balances between its beverage segment and its Frito-Lay snacks business. Its zero-sugar drinks are thriving, but its snack division is more exposed to the reduced cravings reported by users of weight-loss medications. The company is responding with a significant “protein pivot”, launching multifunctional innovations under brands such as Muscle Milk. These products address the side effects of appetite-suppressing drugs, such as muscle loss. By bundling protein and electrolytes into its offerings, PepsiCo is attempting to capture the “companion nutrition” market. To protect its bottom line from commodity volatility, PepsiCo is cutting costs through AI-driven automation across its global supply chain. This is intended to reduce waste. The company is also reformulating its international beverage portfolio to reduced calories. This transition from “empty calories” to functional nutrition is essential for PepsiCo to maintain volume growth in a world where consumers are increasingly choosy about what they drink.

As the owner of Cadbury, Mondelez (Nasdaq: MDLZ) is highly exposed to the decline in traditional snacking. Users of weight-loss drugs often reduce their sweet-snack consumption by a significant margin. Mondelez is attempting to turn this threat into a value opportunity by acquiring health-focused brands. It is guiding shoppers toward options that fit into a restricted-calorie diet. The digital moat for Mondelez is critical because it allows the company to reach consumers through “digital inspiration” before they enter the supermarket. By using media touch points to highlight functional benefits, the company aims to mitigate the reduction in spending observed from health-conscious consumers. The goal is a transition from high-volume indulgent snacking to higher-margin functional treats. Success will depend on whether Mondelez can maintain consumers’ trust while reformulating products to meet stricter nutritional standards.

Monster Beverage (Nasdaq: MNST) continues to demonstrate exceptional pricing power as it shifts toward zero-sugar energy drinks. The company enjoys a high level of engagement with its demographic through gaming and extreme sports, allowing it to maintain massive organic reach without the enormous advertising spending of legacy rivals. This relationship with digitally adept consumers acts as a powerful defence against new entrants.

Nestlé (Zurich: NESN) is the most advanced firm to transition from selling calories to managing nutrients. Its Vital Pursuit brand is the first mainstream line developed specifically as a “companion” for users of weight-loss medication. Nestlé is also using whey protein to create beverages that naturally satiate. Volatility in cocoa prices has put pressure on short-term margins, but Nestlé’s direct-sourcing programmes provide resilience in its supply chain.

Danone (Paris: BN) is currently the industry leader in volume-led growth, achieved by focusing on gut-health products such as Actimel. Under its “renew” strategy, Danone views the weight-loss drug revolution as an opportunity. It has positioned its protein-rich dairy and fibre-rich plant-based products as essential daily staples for those on restricted diets. By acquiring specialised biotech firms to develop products that mitigate the side effects of medications, Danone is achieving a higher dollar-per-calorie yield than its peers.

Hindustan Unilever (Mumbai: HINDUNILVR) reaches nine out of ten households in India. The company is leading a digital transformation through its Shikhar B2B platform, which allows the firm to bypass traditional wholesalers, capturing higher margins and generating data from customers. It is also investing heavily in “quick commerce” to meet the aspirations of the urban Indian consumer. To protect its margins, the firm uses advanced automation in its factories, ensuring it remains dominant in a major growth market.

The best of the bunch

For the UK investor, Unilever remains a compelling choice. After a period of drift, the company has found its focus through a streamlined portfolio of “power brands” and a sophisticated embrace of digital marketing. By pivoting toward premium, science-led products such as Liquid I.V., it is proving that it can defend its margins and grow even as sales volumes are under pressure. The business is leaner, more agile and better equipped to compete with the viral challengers that have disrupted the industry in recent years.

Beyond the domestic market, Danone and Nestlé have emerged as leaders in the transition toward medicalised nutrition, turning the rise of appetite-suppressing drugs into a catalyst for high-margin innovation. Coca-Cola continues to demonstrate the enduring power of a world-class brand paired with a cutting-edge supply chain. For the more adventurous investor, Hindustan Unilever provides an exceptional gateway to the future, offering direct access to a growing population of increasingly wealthy consumers in India, backed by an operational infrastructure that is among the most advanced in the world.

The businesses that have successfully re-engineered their models are no longer solely selling food, but also health and convenience. In a world of fewer calories and more data, these are the ones likely to shape the future.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Jamie is an analyst and former fund manager. He writes about companies for MoneyWeek and consults on investments to professional investors.