Key takeaways:
The traditional CPG growth model has reached structural limits, with volume gains now below 1% annually and total shareholder returns declining even as broader markets expanded.
Consumer spending is shifting away from incumbent brands in four distinct directions: trading down to private label, trading up for functional benefits, paying for food-away-from-home convenience, and cooking from scratch.
The companies most likely to recover are using AI-driven productivity savings to fund portfolio reshaping and brand reinvestment simultaneously.
For most of the past four decades, food and beverage manufacturers operated with a reliable formula: build strong brands, secure shelf space, manage costs, and grow through acquisition. It worked. For a long time, it worked very well.
It’s not working anymore.
McKinsey’s April 2026 State of Food & Beverage report, based on a global survey of 15,000 consumers spanning ten markets, makes the case that the erosion of the old CPG growth model isn’t a temporary correction. It’s structural.
TSR are down 7%, volume growth is below 1%
While the S&P 500 saw 9% growth since 2023, total shareholder returns (TSR) for major food and beverage CPG entities dropped by approximately 7% in that timeframe. The industry’s annual volume expansion has decelerated to under 1%, representing only a small portion of the growth rates achieved during its most successful decades.
Food prices in the US reached a point through the third quarter of 2025 where they were 31% above 2019 levels, outstripping the 26% increase seen in the general consumer price index during that same timeframe.
When food inflation consistently outpaces general inflation, consumers restructure their spending habits, and some of those new habits stick.
Consumers want affordable and healthy, and legacy brands are struggling to deliver both
McKinsey identified affordability pressure and a growing demand for higher-benefit products as two forces reshaping consumer behavior.
Survey data found that 61% of consumers now prioritize price more than they did two years ago, with cost and perceived value becoming the primary drivers for brand abandonment. Simultaneously, healthiness has seen the most significant surge in importance, with 57% of shoppers ranking it as a top-three purchase factor. This demand for products that bridge the gap between affordability and wellness creates a difficult challenge for legacy brands traditionally focused on taste and convenience.
The result is four distinct spending shifts pulling volume away from scaled CPG manufacturers:
Trading down to private label
Trading up for functionality and health benefits
Spending more on food away from home and delivery
Buying fresh staples to cook at home
The same household might show all four of these patterns in a single week.
Private label and indie brands are winning the shelf
Private label isn’t a discount play anymore. McKinsey’s data shows 28% of consumers globally are buying more private-label products than two years ago, rising to 34% among US consumers. And consumers aren’t just choosing store brands because they’re cheaper. They believe the quality is equal or better.
At the same time, small independent brands (those under $100 million in sales) are disproportionately capturing category growth. In 2021, they represented 13% of the US food and beverage market but delivered 15% of its growth. By 2025, they were generating 35% of category growth. Consumers choose these brands primarily for functionality, with 37% of US and UK consumers citing functional benefits as their main reason for purchasing small brands, compared with 18% who said the same about large brands.
Private label wins on price, disruptors win on function, and many incumbent manufacturers are caught in between with a diminishing edge on either.
You can’t fix performance without fixing the portfolio
At the portfolio level, companies must shift exposure toward high-growth subsegments like health and premiumization, which outperform broader categories by over 200 basis points. Relying on slow-growth segments leads to underperformance despite operational efficiency.
At the performance level, manufacturers must regain product superiority, rebuild consumer relevance, and drive productivity. A critical focus is restoring household penetration, which many brands sacrificed for price-driven revenue growth.
Both agendas are interdependent. Portfolio shifts require performance gains to win investor trust, while performance alone cannot offset a declining portfolio.
Companies are using AI to fuel growth
Rather than viewing AI strictly as a tool for cutting costs, McKinsey frames it as a vital engine for funding growth. By adopting this technology, companies can potentially realize 200 to 300 basis points in savings across various P&L areas, including back-office automation, supply chain, procurement, and marketing. Market leaders reinvest these efficiency gains into expanding and renovating their brands to build a growth flywheel, while others merely use them to stabilize earnings.
Consumer behavior is also shifting. Almost a third of US consumers (31%), particularly younger generations, use generative AI for grocery discovery. This creates a new discovery channel requiring investment in generative engine optimization (GEO) to maintain brand visibility in AI recommendations.
Companies recovering from the reset didn’t wait for clarity
The CPG sector has navigated past structural shifts by moving deliberately. Today’s reset is faster, driven by four-way consumer fragmentation, scaling small brands, premium private labels, and aggressive AI deployment.
McKinsey’s research outlines the key actions (SKU-level assessments, health-focused portfolio reallocation, product superiority, and AI-funded reinvestment) that now distinguish market leaders from those losing household penetration.
