After years of CPG companies successfully passing on to consumers rising expenses due to stubbornly skyrocketing inflation, many shoppers and retailers are fed up and pushing back against additional price increases and shrinkflation – prompting some consumer products companies to seek new strategies to drive profitable growth in 2025.
Since the pandemic began, food prices have steadily climbed to historic highs – outpacing increases from all major Consumer Price Index categories, except for transportation. The USDA Bureau of Labor Statistics shows the all-food Consumer Price Index rose a staggering 25% between 2019 and 2023, due in large part to supply chain disruptions and shifting consumption patterns early in the pandemic and then the highly pathogenic avian flu outbreak that pushed up eggs and poultry prices.
While food inflation growth slowed in 2024, many consumers still feel pinched to the point that grocery prices became a key factor in the recent presidential election – helping to tip victory in favor of President-elect Donald Trump in hope of change.
High prices have also eroded consumer loyalty to brands and retailers, as many Americans seek lower prices by shopping different stores, buying on promotion or using coupons. Others are simply adding fewer items to their carts.
In this episode of FoodNavigator-USA’s Soup-To-Nuts podcast, Deloitte Principal and Go-to-Market Lead Ed Johnson shares how retailers and brands are pivoting from employing price hikes to drive profitability to embrace other strategies that could help them grow and win-back consumers. Johnson shares insights from Deloitte’s 2025 Consumer Products Industry Outlook, which is based on a global survey of 250 consumer products executives, including from food and beverage companies, and analysis of the largest 100 public consumer products companies by revenue. He explains the research uncovered three major levers for positive change: product portfolio and mix, demand generation and transformative efficiency.
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Catch up on past episodes of Soup-To-Nuts:
2025 trendspotting: Exhausted consumers demand lower prices, healthy food, treats -- Most US consumers are exhausted after a year of uncertainty marked by ongoin g inflation and political turmoil, and industry insiders predict as they enter the new year many will seek relief – physical, emotional and financial – from the foods and beverages they choose.
Persistent inflation will shape where and what groceries consumers buy in 2025 -- Consumer frustration and fear about their finances likely will continue to color their shopping behavior in the new year after the latest Consumer Price Index data released last week revealed prices – including for groceries – picked back up in November and progress towards the US central bank’s 2% inflation target appears to have stalled.
Mandatory front-of-pack nutrition labeling is coming – how should brands prepare? – FDA is under pressur e to require standardized science-based, front-of-pack labeling to help consumers interpret nutrition information on food products – but what will the mandate mean for packaged food brands?
Listen to the most recent episode of Founders' Fundamentals:
What CPG startups must know about debt financing in 2025 – CPG startups searching for funding in 2025 should ste el their nerves in the face of inflation and possible tariff increases.
The long-awaited ‘return to normal’
The past five years have been tumultuous for the food and beverage industry, as stakeholders navigated supply chain challenges, the economy and shifting shopping habits, but Johnson is optimistic that 2025 will bring a return to normal – or at least a bit more predictability.
Although, he is quick to note that with a new administration taking office in the US, there are plenty of unknowns that could rock the boat.
“We have been through a lot as society in the last five years, and if nothing else, I would like to think we are returning to a bit more normality in the macroeconomic environment” as inflation slows and interest rates begin to fall, Johnson said.
He acknowledged there is “definitely some risk on the horizon” given the incoming US administration’s threat to increase tariffs, the ongoing conflict in the Middle East and the upcoming renegotiation of the US-Mexico-Canada trade agreement.
But overall, he stressed, 2025 is at “a good starting point.”
As the social, political and economic landscapes change, Johnson says food and beverage businesses must shift their growth strategies away from their reliance on pricing and instead focus on volume.
Tweaking product portfolio mix could boost volume
The strategy Deloitte found CPG executives will employ in 2025 to boost profits is adjusting the company’s product portfolio mix by investing in innovation, phasing out lower-performing products and potentially acquiring brands that could boost business.
To reshape portfolios, companies will rely on “true” innovation and M&A, according to Johnson.
“Innovation this year is a major focus for CPGs. The number of innovations that are truly novel this year that I am seeing is phenomenal. Ninety-five percent of those executives that we talked to said innovation is a priority and 80% said they are going to increase spending in this area,” Johnson reported.
Many companies are committed to innovating beyond new line and flavor extension and want to roll out all-new concepts, said Johnson. But, he added this is riskier , can be more expensive and their success will be weighed against how financially challenged consumers are.
As for M&A, Johnson said 60% of the executives Deloitte spoke with are looking to make deals. They are looking for new brands, formulations and ways to engage consumers on expand their existing shopper bases.
“The environment for spinoffs is also pretty ripe right now,” as companies consider redundancies in their portfolios and for brands that do not tightly align with their values, Johnson said.
Demand generation will be essential to grow volumes
The second profit-driving lever that Johnson said Deloitte expects companies to pull this year is demand generation, which includes better direct trade, marketing and price-pack architecture with the ultimate goal of being more relevant and targeted.
“What we are really seeing is three focus areas. One around price-pack architecture – so getting the price to volume equation right” and aligning that with the brand’s values, Johnson said.
The second focus area for demand generation that Deloitte found is using precision analytics to optimize marketing spend by targeting certain consumers or audiences with bespoke messaging and not wasting advertising dollars on shoppers who will not be swayed by an advertisement.
The third part of demand generation uncovered by Johnson in the research is focusing on occasion-based selling or orienting sales activity around specific consumer need occasions and demand drivers.
Transformative efficiency pays the way for change
The third way Johnson said consumer products will boost volume in 2025 is through what Deloitte calls transformative efficiency, which includes simplifying organizations and increasing efficiency through digitization and automation to decrease costs. These savings will then partially be redirected to support the first two levers: demand generation and adjusting the product portfolio mix.
“A lot of focus right now is on simplification of the business model for clients. Collapsing multiple divisions into bigger divisions and reducing the administrative burden of having those multiple divisions,” said Johnson.
Other examples include continued focus on digitization and investing in technology to optimize operating costs.
Cautiously optimistic outlook for 2025
With this new toolkit combined with positive changes in the economic climate, Johnson said there is a general sense of optimism for consumer products in 2025. And while there are risks, he said company executives are looking for the silver lining.
For example, Johnson recounted that one executive said if tariffs drive up costs of imports the company will pivot to better highlight its US-made offerings.
If companies can pull these three main levers correctly in this environment, “we do believe that those will be the companies that achieve profitable growth this year,” he added.
