The consumer goods giants that built empires on household staples are struggling to justify their valuations.
At the time of writing, Nestlé has shed nearly a quarter of its market value over the past five years.
PepsiCo is up just 6.9%. Procter & Gamble, 11.2%. Colgate-Palmolive, 4.3%.
Only Coca-Cola, with a near 40% gain, has offered shareholders much to celebrate.
For a sector once celebrated as the definition of safe, steady returns, the scorecard is damning.
A sector under pressure
The underperformance reflects a broader shift in the macroeconomic backdrop.
According to a McKinsey & Company report, total shareholder returns (TSR) for the world’s largest food and beverage consumer-packaged-goods (CPG) companies have declined by roughly 7% since 2023, even as the S&P 500 gained 9%.
The sector’s traditional growth engine—steady volume expansion supported by pricing power—has come under strain.
While companies successfully raised prices during the post-pandemic inflation surge, that strategy is now losing effectiveness as consumers push back against higher costs.
At the same time, volume growth remains constrained. In developed markets, demand is saturated, while higher prices risk further dampening consumption.
Gross margins remain below pre-pandemic levels, and productivity gains have plateaued, leaving companies with fewer levers to sustain profitability.
Consumers shift toward value
A key driver of the slowdown is a change in consumer behaviour.
Rising living costs have made shoppers more price-sensitive, shifting purchasing decisions from preference-driven to constraint-driven.
McKinsey’s survey data shows that 61% of consumers now place greater importance on price than they did two years ago.
Cost and perceived value have become the top reasons for abandoning brands, followed by concerns around quality and limited product innovation.
This shift is particularly evident in the growing popularity of private-label goods.
Once primarily a European phenomenon, private labels are gaining traction globally, often offering comparable quality at prices up to 30% lower than branded products.
Around 28% of consumers say they are buying more private-label products than they did two years ago.
The figure rises to 34% in the United States, noted the McKinsey report.
Retailers are accelerating this trend by investing in their own brands.
Companies such as Walmart and Aldi are building multi-tiered private-label portfolios that span budget to premium offerings, leveraging data and supply chain efficiencies to compete directly with established brands.
Structural challenges cloud outlook
Looking ahead, several structural factors are expected to weigh on the sector.
Climate-related volatility is adding uncertainty to input costs, while efficiency gains from earlier productivity programs have largely plateaued.
At the same time, rising competition and shifting consumer preferences are limiting pricing power.
Broader macroeconomic risks are also emerging.
Analysts point out that layoffs in higher-paying sectors such as technology, combined with uncertainty around artificial intelligence’s impact on jobs and wages, could dampen consumption—particularly in premium categories.
Susannah Streeter, Chief Investment Strategist at Wealth Club, warned of a “K-shaped recovery,” where some consumers remain resilient while others become increasingly price-sensitive, creating a difficult environment for branded goods.
Ross Maxwell, Global Operations Strategy Lead at VT Markets, similarly pointed to downside risks if labour market conditions weaken, noting that cautious spending behaviour could persist.
Layoffs in technology and other high paying industries can have an increased impact on discretionary spending, particularly in urban and higher-income households that drive premium consumption. The increasing adoption of AI provides even more uncertainty, as it may dampen wage growth or reduce job security in certain roles, even if it boosts productivity overall.
Pricing power fades, competition intensifies
As consumers search for value, competition across the consumer sector is intensifying.
Retailers and restaurants alike are ramping up promotions to attract budget-conscious customers.
Target has cut prices on thousands of products, while Campbell Soup Company has signalled increased promotional activity.
Even McDonald’s has introduced discounts and deals to drive traffic.
For CPG companies, this environment is eroding pricing power.
While price increases previously supported revenue growth, repeated hikes are now pushing consumers toward cheaper alternatives, particularly private-label products.
Ross Maxwell told Invezz that repeated price hikes can erode demand and push consumers toward private labels.
“Pricing has been doing the heavy lifting up until now, but that lever is losing power,” said Streeter.
Consumers appear to have reached their limit and are pushing back. Trading down to private-label products has intensified, chipping away at margins and market share, look at the rise of the discounters such as Lidl and Aldi. Premiumisation is still working in pockets, but it’s far from universal.
Streeter noted that strategies such as premiumisation and smaller pack sizes have helped soften the impact of weak volumes but are not long-term solutions.
“While smaller pack sizes have helped maintain affordability, they’re more of a defensive tactic than a growth driver,” she told Invezz.
GLP-1 drugs add a unique challenge
Beyond cyclical pressures, CPG companies are also grappling with other challenges.
Analysts at Deutsche Bank, in a note, pointed to slower population growth as a drag on volume, alongside emerging factors such as the rise of GLP-1 drugs, which may reduce calorie intake and alter consumption patterns.
“The intersection of these headwinds is resulting in an operating reality that is challenging the idea of CPG as a bastion of consistency,” the analysts said, noting that the gap between the strongest and weakest players is widening.
Only the largest and most established companies appear well-positioned to navigate these challenges.
Firms like Coca-Cola, Procter & Gamble, and Colgate-Palmolive benefit from global scale, strong supply chains, and substantial marketing budgets, giving them an edge in maintaining market share and investing in innovation.
Industry adapts to a “new normal”
In response, CPG companies are reshaping their strategies.
Many are streamlining portfolios, focusing on higher-margin categories, and investing in innovation tied to health, wellness, and sustainability.
“The era of predictable, broad-based growth has faded,” Streeter said, adding that companies are becoming “much nimbler” in adapting to shifting demand patterns.
Similarly, Maxwell said firms are becoming more data-driven and targeted in their approach.
“Rather than relying on general demand growth, they are targeting specific income groups and geographies where resilience is strongest,” he said.
Maxwell added that companies are also accelerating digital transformation in e-commerce and supply chains while maintaining strict cost discipline to protect margins.
Many FMCG firms are also slimming themselves down, so they can focus on core brands and strengths. Unilever’s move to spin-off its food operation into a new venture with America’s McCormick is one example of this, and others include the proposed split at Keurig Dr Pepper, Nestle’s plan to reduce its number of operations (and follow Unilever by demerging its ice-cream business) and rumours of a possible demerger of fast fashion chain Primark from Associated British Foods.
He added that such moves can reduce complexity, free up capital for key investments, and generate cash to cut debt, noting that lower debt reduces risk during heightened global uncertainty.
Defensive status under scrutiny
The challenges facing the sector are prompting a reassessment of its traditional role as a defensive investment.
“I think it is being reassessed rather than fully abandoned,” Maxwell said, noting that while FMCG companies still offer relative stability, they are no longer immune to macroeconomic pressures.
Streeter echoed this view, saying the sector’s reputation for predictability “has been dented,” even though strong cash flows and dividends continue to attract investors during periods of volatility.
Russ Mould, AJ Bell Investment Director, also highlighted mounting challenges, including rising input costs, supply chain disruptions, and changing distribution channels.
He warned that a further squeeze on consumer spending—driven by higher energy prices and borrowing costs—could lead shoppers to trade down or reduce consumption volumes.
“FMCG groups will therefore continue to invest in their brands to maintain their attraction and thus potentially pricing power,” Mould said, adding that companies are also exploring cost-cutting measures and portfolio simplification to navigate the challenging environment.
Outlook: slow recovery, uneven growth
Looking ahead, analysts expect volume growth to remain subdued, particularly in developed markets.
While emerging markets may offer some upside, structural challenges and cautious consumer behavior are likely to limit overall growth.
Maxwell expects a gradual recovery over the next two to three years, driven by easing inflation and improved income growth.
However, he cautioned that structural factors such as higher interest rates could constrain demand.
Streeter, meanwhile, emphasised that investors will increasingly focus on the quality of growth rather than headline expansion.
Companies that can adapt quickly to changing consumer preferences and deliver differentiated products are likely to outperform.
For the broader CPG sector, however, the message is clear: the old playbook of steady growth driven by pricing power is no longer sufficient.
As competition intensifies and consumers become more selective, only the most agile and well-resourced players are likely to thrive in an increasingly demanding landscape.
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