It’s unusual for a business to re-appoint an old chief executive as CEO but this week The Simply Good Foods Company – home to brands including Quest and OWYN – has done exactly that. And the rise of GLP-1 drugs provides some interesting context.
Joe Scalzo, who had been Simply Good Foods’ CEO for six years up to July 2023, is returning to the US company to replace Geoff Tanner, the business behind the Atkins brand said yesterday (20 January), much to Wall Street’s surprise.
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After being succeeded by Tanner, Scalzo had moved to the role of executive vice chairman, a position he held for 13 months up to August 2024 when he left Simply Good Foods to become a partner at US private-equity firm Centerview Partners.
Scalzo’s departure 18 months ago had marked the end of just over a decade at the business. He was president and CEO of Atkins Nutritionals for four-and-half years up to its sale in 2017 to blank-cheque company Conyers Park Acquisition Corp. in the SPAC deal that formed Simply Good Foods. Scalzo was then CEO of the new entity.
Now he is back to, in the words of Tuesday’s (20 January) statement, “oversee a new chapter at Simply Good Foods focused on reigniting growth and improving profitability across the business”. The return of Scalzo could, Wall Street analysts suggest, provide a boost to the Atkins brand.
Sales pressure
The shakes-and-snacks business has seen its top and bottom lines come under pressure in recent quarters amid the ongoing declining sales from Atkins, product issues in the OWYN business and sluggishness at Quest.
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By GlobalDataIn the year to the end of August, Simply Good Foods generated net sales of $1.45bn, up 9% on the previous 12 months. However, the company’s net income stood at $103.6m, down from $139.3m a year earlier, as it booked a $60.9m impairment on the Atkins brand.
Two weeks ago, Simply Good Foods recorded a 0.3% decline in net sales for the first quarter of its new financial year amid lower Atkins sales (which the company described as “expected”; more on that later) and from OWYN, a brand that had been enjoying a run of growth. The company snapped up US protein-products peer Only What You Need (or OWYN for short) in 2024 and the brand continued to enjoy growing sales under its new owners but a “product quality issue” hit inventories at the retail level during the quarter.
The company’s first-quarter net income fell more than a third to $25.3m. Despite those numbers, the reaction from Wall Street was not unduly negative, although there was a cautionary tone from TD Cowen’s Robert Moskow, who, while describing the figures as “better than feared”, highlighted some of the issues that he saw facing the business.
“While we believe that the company has established a realistic base for sales and earnings this year, we expect the stock’s multiple to remain subdued due to structural declines in the Atkins brand and volatility in the acquired OWYN brand,” he said in the wake of the results.
“In our view, the suddenness of OWYN’s issues highlights the risk of the company’s business model, which relies on identifying and acquiring early-stage, high-growth brands, often with less sophisticated internal processes, to offset Atkins’ structurally declining profile.”
Simply Good Foods had labelled the latest tumble in Atkins sales as “planned”. The company has been working with retailers to shift some of the shelf space taken up by Atkins’ “tail” to what it has called “more productive” Quest and OWYN SKUs. It’s also sought to “modernise” what’s left of the Atkins range, bringing in new packaging, changing prices and adding a four-pack to its meal-bar line-up. The company did, however, forecast a 20% fall in “consumption” for Atkins over the 2026 fiscal year as a whole when it posted its first-quarter results a fortnight ago.
Matthew Smith, an equity analyst covering Simply Good Foods for Jefferies, welcomed Scalzo’s return. “Scalzo brings immediate category expertise and he is very familiar with the company and brands,” he said this week. “We view the announcement as a positive, bringing back a seasoned hand to address underperformance before sales growth momentum stales in the Quest and OWYN brands.”
Smith believes the thrust of Scalzo’s attention will be on those two brands. In the first quarter, Simply Good Foods said Quest accounted for 67% of its net sales, with OWYN standing at 9% and Atkins, after multiple quarters of declines, now down at 27% (the company’s international business makes up the remaining 2%).
“We believe Mr. Scalzo’s focus will be on maintaining topline momentum for Quest and OWYN, including improving Quest performance outside of the salty snack/chip category where growth remains robust, continuing the work to right-size the Atkins business (now less than 30% of total sales) and recovering margins towards historical levels,” Smith said.
An opportunity for Atkins
Nevertheless, there is the view that Scalzo’s re-appointment could prove a shot in the arm for Atkins, especially in the context of the rising use of GLP-1 medications.
Simply Good Foods has been conducting a pilot clinical study involving GLP-1 users who consumed Atkins products. One group were on the Atkins diet and the other followed what Tanner told analysts two weeks ago was “a more traditional low-fat diet”.
Alongside the publication of the first-quarter financial results, the company said the research had thrown up “encouraging results” on users’ muscle retention and digestive comfort.
“We just got the results back in last month, so it’s still very early but those results were very encouraging,” Tanner said. “Patients on the Atkins diet who have taken the drug tended to retain more muscle mass, which is a critical issue for people on the drug, tended to experience fewer side effects: fewer headaches, nausea, less gas. And there were some other significant differences on metabolic outcomes, particularly for those with diabetes.”
As Tanner conceded, the research was a pilot and the company has “a lot more to learn”. However, he told analysts Simply Good Foods’ sales team would put the results to its retail customers, which themselves “are also trying to figure out how to meet the needs of GLP-1 patients”.
While the food industry is cautiously watching how GLP-1 drugs affect consumption and therefore sales, some manufacturers and brands are busy working out how they might be able to capitalise on the use of the medication.
Some on Wall Street suggest Atkins could benefit. “Under Tanner’s leadership, the company had taken the view that it could get back to its high-single-digit growth algorithm by giving outsized support to its Quest and OWYN brands, plus future acquisitions, while ceding Atkins’ shelf space,” Moskow explains. “They took this approach with the assumption that the consumer appeal of programmatic diets like Atkins was fading.
“In our view, this made the company more dependent on early-stage growth brands like OWYN, which are less predictable and often have less sophisticated internal controls. Given Scalzo’s background with the Atkins brand, we suspect the company will now explore shifting the company’s strategic direction to give it more support, perhaps capitalising on the needs of GLP-1 users for higher protein diets.”
At Mizuho Securities, John Baumgartner believes there is “healthy growth potential for all three brands” with “opportunities to improve performance” at Quest (he cites “disappointing” recent innovation” and OWYN (pointing to the quality issues) – and he agrees Scalzo’s return could give Atkins a new lease of life, especially due to the promise of the recent pilot.
“We believe it creates a template for renewed appeal of the brand, in a GLP-1 world, similar to how Atkins thrived among ‘non-programmatic dieters’ who embraced the healthy everyday low-sugar lifestyle, aside from simply ‘low-carb’, over a decade ago,” he says. “We also note that under Mr. Scalzo’s leadership, the Atkins brand maintained growth and relevance long after ‘low-carb’ popularity ebbed and was replaced by paleo, keto, etc.”
