NEW YORK — Leaders of top performers in the consumer products (CP) industry are shifting focus this year to innovation investment, portfolio changes, enhancing consumer demand and finding efficiencies. That’s according to Deloitte’s 2025 Consumer Products Outlook published Jan. 9.
The consultancy surveyed 250 global CP executives from food and beverage and other industries. The outlook described all of them as senior decision-makers at companies with more than $500 million in revenue, with most above $5 billion in revenue.
Top performers, or 100 of the top CP companies whose performance metrics Deloitte analyzed, stood out in three priority areas, the outlook said. They are product portfolio and mix, demand generation and transformative efficiency.
“In 2025, companies will likely be addressing product portfolio and mix to entice the consumer, as well as investing in a broader set of demand-generation capabilities,” according to the report. “Businesses are also expected to create transformative efficiency to produce savings that help fund those investments.”
The findings reflect recent developments in the broader economic environment, said Ed Johnson, principal, retail and consumer products, Deloitte Consulting. He told Food Business News as inflation and changing consumer preferences impacted the CP industry, they sparked varying responses, including reduced marketing spend, increased prices and challenges to innovation.
“I think, in the last three years, the emphasis was on catching up with inflation and the need to show other cost improvements to offset the fact that inflation couldn’t be fully passed on,” Johnson said.
The actions led to a decrease in marketing and pressure on price.
“It was in the news every day how high inflation was, so it created a bit of an excuse,” he added.
Johnson called innovation “an age-old problem” for consumer packaged goods (CPG) companies and one made more difficult as consumer preferences increasingly diverge. He said a recent National Retail Federation presentation focused on the rapid rise of billion-dollar brands in the 1980s and 1990s but how lately there’s been no such increase.
“It’s gotten harder and harder to have brands that resonate with the haves and the have-nots,” Johnson said. “Because of prices and socioeconomic, political and religious beliefs, all these things have made the US consumer more diverse, which has made it harder and harder to make a box of cereal grow to be a billion-dollar product.”
When CP companies do innovate in 2025, they plan to focus on truly novel products rather than minor enhancements or changes to existing ones, Deloitte found. Johnson said many of his clients are working from concept to something ready to be discussed with retailers in the next quarter or so.
“A lot of their innovation pipeline is focused on truly new products rather than on the next flavor of soda,” he said.
Artificial intelligence (AI) tools can unlock valuable analytics for CP companies looking to innovate, Johnson said.
“With AI, (companies) can use consumer preference data to test products with digital twins and test the rate of sale, and that’s really powerful,” he said. “The second thing companies can do with AI that was never previously possible was simulate the manufacturing of the product itself.
“So, in the same way the first large language models were looking at chemicals and pharmaceuticals to test how a medicine can be used, CPGs can test for taste and shelf stability and whether a baked good will rise. That’s really new in the last year. It’s not easy and it’s not cheap, but it’s easier and much cheaper than before.”
Deloitte found 62% of surveyed food and beverage executives planned to use precision analytics to identify new brands and growth opportunities this year, and it expects such tools will be used more profitably to derisk innovation investments.
On the M&A front, the report said there could be increasing activity in 2025 after a couple years of decreased levels. Johnson said lowering interest rates and costs of acquisition will be key, although the impetus behind acquiring or divesting companies seems to be shifting away from “bolt-on” acquisitions and those designed to facilitate entry into a high-growth category or market.
Instead, the outlook found companies are looking for strong brands to drive growth and M&A deals to accelerate digital transformation.
“I think (this trend) is more now around creating more focus in their portfolios and eventually filling unmet needs, whether brands or price points or attributes around consumer desires in a category, other than trying to acquire those capabilities,” Johnson said.
When it comes to efficiency and business simplification, 96% of executives surveyed told Deloitte they plan to prioritize improving productivity in 2025, and 82% said their company would be investing more in this area.
Cost-reduction remains on the CP agenda, the report said, with 64% of executives indicating their company will focus more in 2025 on lowering costs than in previous years. However, it pointed out there are risks to this approach.
“In this instance, companies should be careful of short-termism — cutting so much today that they sacrifice future performance,” the outlook said.
Johnson described Deloitte as optimistic about the outlook for the CP industry and particularly the growth companies can achieve if they take advantage of what’s been put in front of them. In his view, the advantages include the explosion in data and the ability to market in a different way to smaller pockets of consumers, and to make better decisions on which market campaigns to run, which products to innovate and how to get the best out of their employees.
“We think this will be a good year for the sector,” he said.