GLP-1 Drugs: The Silent Killer of Fast-Food Profits?

The rise of GLP-1 medications like Ozempic and Wegovy has sparked a quiet revolution in consumer eating habits—one that could upend the fast-food industry's financial foundations. For decades, chains like McDonald's and Domino's thrived on selling high-calorie, convenient meals to a population increasingly accustomed to eating out. But as appetite-suppressing drugs reshape dietary preferences, the question is no longer whether fast-food giants face a threat, but how severe—and irreversible—it might be.

The Behavioral Shift: Fewer Calories, Fewer Customers

GLP-1 drugs, initially developed to treat diabetes, have become a blockbuster weight-loss tool. By curbing hunger and reducing cravings for sugary, salty, and processed foods, they've led to measurable declines in calorie consumption. A Cornell study found that users cut daily intake by 720–990 calories, with ultra-processed snack sales dropping 6.7%–11.1% within six months of adoption. For fast-food chains, this translates to fewer visits and smaller orders. McDonald's, for instance, saw U.S. same-store sales fall 3.6% in Q1 2025—the worst performance since the pandemic—as customers spent less per visit.

The trend lines are clear: as GLP-1 adoption grows—from 0.5% of U.S. adults in 2023 to a projected 13%–21% by 2030—fast-food chains face a compounding demand challenge. Analysts at Redburn estimate that even a 1% reduction in restaurant visits could cost McDonald's $428 million annually, with the risk of this drag rising to 10% or more over time.

Redburn's Bearish Case: Why Fast Food's Growth Is Over

Redburn's recent “Sell” ratings on McDonald's and Domino's hinge on three interconnected risks:

1. Structural Demand Declines: GLP-1 users aren't just cutting snacks—they're reducing overall dining-out frequency. Group meals (a staple for Domino's) and casual fast-food runs (McDonald's's core business) are particularly vulnerable. Redburn notes that restaurant traffic has fallen in 40 of the past 43 months, with no rebound in sight.

2. Pricing Fatigue and Margin Pressure: Fast-food chains have raised prices relentlessly to offset inflation, but consumers are pushing back. The cost gap between eating out and cooking at home is now wider than at any point in decades. For McDonald's, which relies on franchised locations (93% of stores), franchisees may struggle to sustain rent and royalty payments if traffic weakens further.

3. Demographic Vulnerabilities: Domino's, which derives 59% of revenue from pizza supply sales to franchisees, faces heightened exposure to lower-income households—precisely the segment most likely to adopt GLP-1 drugs for weight loss. Meanwhile, McDonald's's reliance on high-margin breakfast and lunch traffic (down 4%–6% among users) further amplifies risks.

Competitive Responses: Can Innovation Save the Day?

Neither McDonald's nor Domino's has yet demonstrated a compelling strategy to counter the GLP-1 trend. While McDonald's has experimented with breakfast-focused menus and value bundles, these efforts have not offset declining traffic. Domino's, meanwhile, clings to its delivery dominance, but this advantage is eroding as competitors like Chipotle and even Walmart expand into meal delivery.

Some companies are adapting. Smoothie King has introduced a “GLP-1 Support” menu emphasizing protein-rich options, while Nestlé and Conagra have launched “GLP-1 friendly” snacks. Yet fast-food giants remain stuck between a rock and a hard place: pivoting to healthier, lower-margin offerings risks alienating their core customer base, while clinging to high-calorie menus ignores the shifting landscape.

Regulatory and Macro Risks: The Elephant in the Drive-Thru

While the provided data focuses on consumer behavior, regulatory risks loom large. If GLP-1 drugs gain FDA approval for broader weight-loss uses or secure wider insurance coverage, adoption could accelerate faster than projected. Additionally, the U.S. food industry faces mounting scrutiny over calorie-dense products, with some states proposing “soda taxes” or menu labeling laws.

For McDonald's and Domino's, these trends compound existing macro headwinds. Rising interest rates and a potential recession could further squeeze discretionary spending, leaving fast-food chains competing in a shrinking market.

Is This a Sell or a Value Trap?

Redburn's “Sell” ratings reflect a conviction that the GLP-1 threat is structural—and irreversible. With McDonald's stock downgraded to a $260 price target (a 13% downside from recent levels) and Domino's similarly under fire, the question is whether these stocks have already priced in the worst-case scenario.

The Bear Case:
- GLP-1 adoption accelerates, with 20%+ penetration by 2030.
- Lower-income households, which spend disproportionately on fast food, cut spending further.
- Competitors like Yum! Brands (upgraded to “Buy” by Redburn for its global diversification) steal market share.

The Bull Case:
- The GLP-1 fad proves temporary, with users reverting to old habits.
- McDonald's leverages its global scale and franchise model to innovate (e.g., plant-based menus, data-driven pricing).
- Valuations are already depressed, offering a margin of safety.

Investment Advice: Proceed with Caution

While McDonald's and Domino's are not yet value traps—they still generate solid cash flows—the long-term risks are too significant to ignore. Investors should:

1. Avoid new positions in these stocks unless they can be bought at deep discounts (e.g., McDonald's below $200).
2. Monitor GLP-1 adoption trends: A 2025 FDA decision on expanded indications or Medicare coverage could be a catalyst.
3. Favor companies with healthier menus (e.g., Chipotle) or international exposure (e.g., Yum! Brands).

For now, the golden arches and pizza boxes may shine brighter in hindsight.