Can the Food Industry Save the Consumer’s Wallet?

It’s no secret that many consumers continue to struggle with food price inflation. What remains to be seen is how—with food inflation estimated at some 25% over the past few years—the food industry can course correct and keep prices in reach of the average shopper. The question is which will break first: manufacturers’ margins, pricing, or consumers’ patience and budgets.

Many consumers have done all they can do to cut food costs, from accepting shrinkflation, switching to private label, trading down to lower-tier brands, buying less—even when paying more, aggressively managing food waste, and cutting back on indulgent and impulse purchases.

So, how can the food system pivot, reducing its cost structure and bailing out inflation-weary shoppers? Some traditional levers will continue to be pulled, offering a modicum of pricing relief. These include techniques such as portfolio rationalization; price pack architectures; selling, general, and administrative cost reduction; and trade spend optimization—all keys to effectively managing cost structures. Many companies find themselves between an economic rock and a hard place. They are caught between defaulting to traditional cost reduction levers and satisfying budget-constrained consumers who still seek new products that address an endlessly changing array of needs and preferences. Meanwhile, CPG companies are asked to improve consumer health, advance food safety, address global hunger, and take sustainable steps to save the planet.

All the while, the question hanging over food companies’ collective heads like a commercial sword of Damocles is, “Are the traditional levers enough to keep consumers satisfied, or will inflation become the tipping point for more disruptive actions?” I believe that food companies must follow the latter course. Clearly, it’s time for next-level thinking.

Over the next several years, we anticipate substantial structural and systemic transformation across the food system. The increasing popularity of alternative formats across dairy, protein, sweeteners, and flours highlights a way to address both evolving consumer preferences and current and future market opportunities by rethinking traditional production methods.

Substantive change starts with the consumer and taking some bets on the future of consumer demand. Sorting fads from trends will be key as well as understanding macro forces and impacts from outside the food system. Product-level innovation has been a paradox of hedging bets (e.g., simply modifying core products with different seasoning, flavor combinations, or packaging) versus being “all-in” on categories like plant-based meat alternatives. Going forward, leading companies will balance their approaches using scenario-based, future-back planning that sets a direction and allows for flexibility to operate between the guardrails.

Sorting trends from fads is not unique to the food system and most clearly exemplified by the tech industry. However, with massive portfolios and leading brands, food companies cannot just jump to the next best thing and leave their core portfolios behind. Anticipating long-lasting trends, including food as health, Gen Z/millennial values and preferences, ongoing desire/need for convenient and inexpensive food, and shifts from away-from-home to eat-at-home dining, is paramount to determining portfolio laggards and gaps. The real challenge is having  the courage to eliminate brands that produce earnings on a quarterly basis but do not play in the long term. Will Wall Street have the patience for these portfolio changes?

Other potential scenarios impacting consumer demand could come from outside the food system itself. In a world where consumers move away from group policy health insurance and policies are priced individually based on health and fitness, their incentives to navigate to clean and healthy food could be disruptive. The recent impact of GLP-1 drugs is a great example of a disruption coming from outside of the food system, yet we see many companies are either behind or still assessing the fad-versus-trend question. Food system players need to constantly look inside and outside the food system to anticipate and plan for these disruptions.

Planning for the future is never easy and very few really enjoy disruptive change. To win in the future food system, however, the question remains: Should we disrupt or be disrupted?ft

The opinions expressed in Dialogue are those of the author.