By David Wainer

Something strange is happening in the American diet: People just aren't reaching for cookies and pretzels the way they used to.

Snacking -- not long ago the fastest-growing category in packaged foods -- is losing steam, even as consumers bulk up on protein shakes and bars. If the trend holds, it could signal a fundamental shift in how Americans eat, and a serious challenge for food giants that spent the past decade gorging on decadent snack acquisitions.

It remains too soon to say whether this is just a temporary slowdown or the start of something bigger, perhaps related to the rise of weight-loss drugs and healthier diets. But the cracks are showing. Take PepsiCo's Frito-Lay, the dominant force in U.S. snacking, known for Doritos and Lay's. Last year, for the first time since the financial crisis, the North America snack empire reported an annual sales decline, with revenue slipping to $24.76 billion in 2024 from $24.91 billion. It isn't just Frito-Lay -- the downturn is being felt across the industry. Campbell's cut its annual guidance earlier this month, citing weakness in its snacks business, which includes popular brands like Pepperidge Farm's cookies and Goldfish crackers.

Consumer strain after companies pushed through steep price hikes in the postpandemic years is surely playing a role. But on Wall Street, the slowdown is raising questions about the degree to which larger forces are at work. General Mills, Kraft Heinz, PepsiCo and Campbell's have seen their stocks drop an average of 14% over the past year, even as the S&P 500 has risen 8.5%.

The snacking decline is coming at an awkward time for food companies, many of which have spent billions doubling down on indulgences. Last year, Mars struck a nearly $30 billion deal to acquire Kellanova, the maker of Pringles and Cheez-Its that was separated from Kellogg's cereal business. In 2023, J.M. Smucker paid $4.6 billion for Hostess Brands, betting big on Twinkies and HoHos.

Those deals came at a time when it seemed as though Americans just couldn't stop snacking. The snacking business boomed in the years following the pandemic, when people stuck at home during months of social isolation turned to Cheez-Its and Oreos for comfort. Even after restrictions eased, snack sales remained strong, bolstered by price hikes that consumers -- flush with stimulus cash -- absorbed without much resistance.

Large food makers have blamed the slowdown on economic pressure weighing on American consumers, who are increasingly trading down to private label options and opting for smaller package sizes. Companies like Nestlé and Campbell's have pointed to reduced purchasing power. Asked if weight-loss medications known as GLP-1s could have something to do with falling demand, General Mills Chief Executive Jeffrey Harmening pointed out that even dog treat sales are down. And, he quipped during an earnings call, there are no GLP-1s for dogs.

Yet a look under the hood of the $180 billion snacking industry also reveals a shift toward healthier options. Demand for high-protein snacks -- like Greek yogurt, meat sticks and nutrition shakes -- surged last year, even as sales of sweet and salty snacks declined, notes Max Gumport, packaged food analyst at BNP Paribas Exane. Fresh produce is also outperforming packaged goods, a trend that tends to accelerate when consumers feel the financial pinch. But, as Bernstein analyst Alexia Howard points out, it "could also be driven by underlying health and wellness trends across the broader U.S. population as well as among GLP-1 drug users more specifically."

The decline in snacking coincides with another slight, but meaningful trend reversal in America. In 2023, for the first time in more than a decade, the country's obesity rate declined from 44.1% to 43.96%, according to a study published in the JAMA Health Forum. The shift is small, but it could mark an inflection point. Some 5% to 10% of American adults are already on GLP-1s like Wegovy and Mounjaro, whether for diabetes or obesity, and the trend is expected to accelerate as the drugs become more available. "Snacks are high on the list of things takers don't want to eat," observes Marion Nestle, a professor emerita of food nutrition at New York University.

Ultimately the decline could reflect multiple trends at once. Lower-income consumers could be cutting back primarily for financial reasons, while wealthier households may be gradually shifting their eating habits for health-related reasons.

Another concern for food companies is that the so-called Make America Healthy Again, or MAHA movement, could begin influencing low-income consumers' eating habits as well. While Health Secretary Robert F. Kennedy Jr.'s call for the removal of artificial dyes from the food supply likely won't pose a significant financial challenge -- many companies have already eliminated these additives in their European products and could easily do the same here. The real threat lies in MAHA's potential to reshape Americans' overall perceptions of food.

A February TD Cowen survey revealed that 38% of respondents have grown more concerned about the health impacts of processed foods in recent months. "If the rhetoric continues to gain traction," wrote TD Cowen analyst Robert Moskow, "the value of the brands in the big food companies' portfolios will wither."

As snacking habits evolve, so do food companies. The 1980s brought us Diet Coke; the 1990s saw the rise of fat-free products; the 2000s brought low-carb diets like Atkins; and the 2010s popularized plant-based foods such as Oatly milk. The 2020s appear to be the decade many Americans move to less-processed foods and high-protein snacks, and companies are already moving in that direction too.

Conagra Brands, maker of Slim Jim and other meat stick brands, recently highlighted meat snacks as its fastest-growing category. Earlier this year, PepsiCo completed a $1.2 billion acquisition of Siete Foods, known for its grain-free tortilla chips, and followed that with plans to acquire full ownership of its Sabra and Obela joint ventures, which produce dips and spreads like hummus.

For food companies that are more heavily reliant on snacks packed with carbs and sugar, there are ample potential acquisition targets in the protein sector, notes BNP's Gumport, pointing to companies like Chobani (for yogurt) or Barebells and GoMacro (for protein bars) as examples.

Americans will never stop snacking, but when their snack preferences change, Big Food has to change with them.

Write to David Wainer at david.wainer@wsj.com

(END) Dow Jones Newswires

March 28, 2025 05:30 ET (09:30 GMT)

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