By Will Novosedlik

Once defined by acquisitions and efficiency, CPG leaders now face stalled growth, shifting consumers and the need for reinvention. This article was originally published in the Fall issue of strategy magazine.

In the last few years, the packaged goods industry has seen some major break-ups.

Ten years after getting together, Kraft Heinz recently announced that it’s splitting up. It will hive off its faster-growing “snacking” assets (Heinz Ketchup, Kraft Mac & Cheese, Philadelphia Cream Cheese) from its slower-growing “grocery” products (Oscar Mayer, Kraft Singles, Lunchables) to create two new entities, as yet unnamed at the time of publishing.

Seven years after tying the knot, Keurig Dr Pepper is untying it. It has acquired JDE Peet’s (Jacobs, L’Or, Tassimo and Douwe Egberts) and will combine it with Keurig to build up its coffee business, while its soft drink business will continue with core assets like Dr Pepper, Snapple and 7Up.

Then there’s Kellogg, which in 2023 split into Kellanova (the global snacks, international cereal, plant-based and North American frozen foods business) and WK Kellogg Co (the North American cereal business). Candy king Mars stepped in to grab Kellanova, while Italian confectioner Ferrero is in the final stages of purchasing WK Kellogg Co.

Then consider Reckitt Benckiser (Dettol, Durex, Lysol, Nurofen, Veet), which is breaking up with Essential Home (Air Wick, Resolve, Easy Off) to focus on health and hygiene.

So, what’s going on? Is this just part of the normal industry cycle of expansion and contraction, during which large companies seek growth by joining with other behemoths or by acquiring smaller, nimbler, more innovative players until their portfolios become so complex and unwieldy that they decide to trim the fat?

Reckitt has certainly adhered to the growth-through-acquisition strategy since 1985. The Essential Home brands came to Reckitt through various acquisitions over the years, including Air Wick and Carpet Fresh brands in 1985, the Spanish cleaning products company Camp in 1989, the Boyle-Midway division of American Home Products in 1990 and brands from DowBrands in 1998. Benckiser’s products included Vanish and Cillit Bang before the 1999 merger that created Reckitt Benckiser.

But by 2024, Reckitt’s strategic priorities had shifted toward higher-margin consumer health and hygiene products, making its homecare brands “non-core” to the company’s new direction.

“A lot of what they’re doing is trying to optimize what they’ve got,” says David Kincaid (pictured left), founder of consultancy Level 5. “They realized they may have bought things in which they actually don’t have a core competency. If you think back to the ’80s and ’90s, and ask yourself what kind of brands comprised Reckitt, it was names like Air Wick and Resolve. It was a household cleaning brand portfolio. But now they’ve said they’ve maxed that out and will focus on health and hygiene. Do they have the brands to do it? Do they have the organizational competencies to do it?”

In the case of Kraft Heinz, the original rationale for the marriage was to take advantage of the synergies and cost efficiencies that would come with significantly increased scale. But by 2020, that strategy began to wear thin and net revenue fell for the next five years running.

“I think the core problem that underlies all of these big CPGs is the fact that they have very mature businesses that just aren’t capable of delivering profit growth,” says Tim Calkins, Clinical Professor of Marketing at Northwestern University’s Kellogg School of Management.

Calkins tells the story of when he was a marketer at Kraft Foods in Chicago and senior management asked for an analysis of the barbecue business, which he was running. “They wanted a 20-year profit outlook (a projection that would be laughable in today’s world), so we did the analysis and found that the profit outlook for barbecue sauce over the next 20 years is that it will be flat. And senior management said, ‘well, that’s impossible. You can’t present that. That’s an unacceptable answer.’ And we said, ‘but that is the outlook. The costs aren’t really going to come down. There’s no reason to think we’ll be able to magically increase our prices. So where will the profit come from?’”

And this is what Calkins is seeing today with large CPG companies. “There’s just not fundamental profit growth potential for a lot of them. The easy levers have all been hit, the easy efficiency gains have been taken, and price increases are very risky in an inflationary environment. Companies are still struggling to hold price increases and to hold the line relative to private labels and other brands.

“So, you try to get bigger,” he says. “And the theory is that when you become bigger, you will become more efficient. And so, Kraft Heinz comes together, and now we’ve got a much bigger company. But it doesn’t really create a lot of value. There’s not actually a lot of cost savings just because you’re making both ketchup and aroni and cheese. Those are two separate businesses, different production lines, different packaging systems. Then you run out of things to do. So, do you split your company into smaller pieces and try to sell it? I’m not convinced that in Kraft Heinz’s case the separate parts will be super attractive acquisition targets.”

What if you don’t sell off the farm but put a laser focus on cost-cutting instead? As is well documented, this is exactly what happened at Kraft Heinz. One of the company’s key investors, 3G Capital, imposed a regime of zero-base budgeting, which reduced funding for innovation, marketing, R&D and customer insight, all of which are required to remain relevant. It was so focused on cost-cutting and managing its impacts that it failed to see the shift in consumer preferences for healthier alternatives – a trend that did not go unnoticed by its smaller competitors. As a result, the company suffered significant brand impairment charges in 2018, 2019 and 2025.

Kraft Heinz is not an isolated case. The entire CPG sector has experienced a major shift in economic performance. A recent article by McKinsey points out that from 1980 to 2012, publicly listed CPGs steadily generated average annual growth of 9%, based on a tried-and-true formula of strong brand-building, market and channel expansion, and cost management to generate more funds for brand-building. Investors loved it. Who wouldn’t? But in the 2010s, that all changed. Population growth slowed, grocers consolidated and consumer attention and preferences fragmented. Industry revenue grew just 2% from 2012 to 2019, and CPGs became reliant on cost reduction.

As Peter Rodriguez (pictured right), F500 brand expert and founder of consultancy Brand Igniter, says, you can’t cut your way to growth. “You can deliver one, two, three years of incredible profit, but the inability to create value with innovation or brand-building makes it difficult to find growth. Who would’ve thought that there would be an impairment on a brand like Kraft? If you are not showing consumers day in and day out how your brand makes their lives better, people forget. And before you know it, you’re just a commodity.”

Lack of innovation is a key factor. According to consulting firm Mintel, 2024 saw global CPG innovation reach a new low. Its Global New Product Database (GNPD) revealed that for the first five months of 2024, just 35% of global CPG launches (i.e. across food, drink, household, health, beauty, personal care and pet care) were genuinely new products. This is the lowest proportion Mintel has recorded since it began tracking in 1996. It means that in 2024, 65% of launches were no more than incremental changes: line extensions, reformulations, new packaging or relaunches.

That’s not to say innovation wasn’t happening in the CPG space. It just wasn’t the big guys who were delivering it. The Mintel report goes on to say after the shock of the 2008-9 global financial crisis, a lack of R&D investment from bigger brands created the environment for startups to use digital channels to gain a foothold in their respective categories. McKinsey analysed Nielsen data which shows that between 2016 and 2020, only 25% of CPG growth was driven by leading brands. Small and medium-sized brands captured 45% of growth and private label 30%.

Much blame for the lack of growth in large, publicly listed CPGs has been placed on the changing consumer. From an economic perspective, in the wake of COVID, ballooning consumer debt has forced consumers to spend less. According to TransUnion’s Q4 2024, Credit Industry Insights Report (CIIR), total consumer debt in Canada reached $2.56 trillion by the end of 2024, a 4.6% increase from 2023. In 2013, the average credit card balance for Canadians was $2,000. By the third quarter of 2024, it was $4,562. All this leads to the need for consumers to spend less, which is good news for private label brands but bad news for leading brands – especially if the leaders can’t show a demonstrable difference in quality compared to the private labels, which generally sell for 20% less.

Another major contributing factor has been the growing interest in healthier alternatives. It’s well known that a heavy diet of ultra-processed foods contributes to obesity and chronic illnesses like diabetes. “I think that the CPG space is under tremendous pressure right now,” says Sylvain Charlebois, visiting scholar in food policy and distribution at McGill University. “A lot of people are starting to move away from these products. And there’s this whole campaign around ultra-processed foods that is getting people to think twice about
what they’re eating.”

He points to the rise of GLP-1 medications and the chilling effect they are having on grocery spending. A 2024 study by Dalhousie University’s Agri-Food Analytics Lab (led by Charlebois) found that an estimated 900,000 to 1.4 million Canadians were using GLP-1 drugs, or 3% to 4.6% of the adult population. Overall, 45.5% of Canadian GLP-1 users reported eating less since starting the drug, and 16.4% reported buying fewer groceries, especially sweet bakery goods, cookies, candy, carbonated soft drinks and salty snacks.

One final aspect to consider is the younger consumer’s focus on purpose-led brands. David Kincaid sees this in his students at Queen’s University, where he is an adjunct professor.

“Purpose-led is, for this cohort, much more important than convenience,” says Kincaid. “They are not even going to bother looking online, let alone at the grocery store, for a product that doesn’t align with their values. Look at the snack category. Chips, for instance. That category has exploded by offering more purpose-based propositions like using natural sea salt or organically grown potatoes. Is that an innovation in process? Is that an innovation in product? I’d say it’s both.”

Charlebois agrees. “When people show up at the grocery store, they are looking for something different, something unique, something healthier. I’m hard-pressed to find any good press about CPGs on this issue, to be honest. It’s always bad press, especially when it comes to health. And let’s face it, since COVID, a lot of people are focused on health.”